G.P. Singh, Actg. C.J.
1. This is a reference under Section 256(1) of the I.T. Act, 1961, referring for our answer the following question of law :
'Whether, on the facts and in the circumstances of the cases, the Tribunal was right in holding that no partnership, that is valid in law, came into existence and registration was rightly refused ?'
2. There was a joint Hindu family consisting of Sardar Ude Singh and his two sons, Sardar Sant Singh and Sardar Manmohan Singh. The family carried on business in the name of Sardar Ude Singh and Sons. A partition took place in the family on 1st July, 1959. In this partition, the business carried on in the name and style of Sardar Ude Singh and Sons at Junnardeo came to the share of Sant Singh. The total assets of the business were determined at Rs. 79,432. After excluding ornaments of Rs. 1,700 and life insurance premium of Rs. 1,336, the balance figure of assets came to Rs. 76,396 out of which a sum of Rs. 76,185 Was introduced as capital in the business. The business name of Sardar Ude Singh and Sons was continued.
3. A partnership deed was executed on 9th July, 1959, to be effective from 5th July, 1959. In this partnership Sant Singh, his son, Santosh Singh, and daughter, Sukhdeo Kaur, were partners. Sant Singles two minor sons, namely, Kuldip Singh and Azad Singh, and another son, namely, Daljit Singh, who was of unsound mind, were introduced to the benefits of the partnership. The share of profits of Sant Singh, jointly with his wife, was 30 per cent. Santosh Singh's share was also 30 per cent. in profits. Sukhdeo Kaur and the three beneficiaries were entitled to 10 per cent. share in the profits. Sant Singh and Santosh Singh each were responsible for the losses to the extent of 40 per cent. Sukhdeo Kaur was responsible for loss to the extent of 20 per cent. The rights and interests of Sukhdeo Kaur were to cease after her marriage. As regards the capital, Clause 6 of the partnership deed provided that 'the capital of the firm will be counted as it stands in the account books without carrying any interest thereon, unless objected by any working partner'. The capital in the books of account stood at Rs. 76,185. This partnership continued up to 31st March, 1962.
4. A fresh partnership deed was executed on 5th November, 1962, to be effective from 1st April, 1962. Sukhdeo Kaur by that time had got married and she withdrew from the partnership. Kuldip Singh also by that time had become major. The new partnership consisted of Sant Singh, Santosh Singh and Kuldip Singh. Daljit Singh and Azad Singh were admitted to the benefits of the partnership. The shares of Sant Singh and Santosh Singh were 30 per cent. each in profits and 40 per cent. each in losses. Kuldip Singh was allotted a share of 15 per cent. in profits and 20 per cent. in losses. Daljit Singh and Azad Singh got 10 per cent. and 15 per cent. share in profits, respectively. The capital of the partnership was to remain the same as standing in the books of account. The amount that stood in the books of account in the capital account was Rs. 76,185, the same figure as appeared in the earlier years. This partnership remained in existence till 31st March, 1965.
5. A third partnership deed was executed on 1st April, 1965. Daljit Singh withdrew from the partnership. Azad Singh by that time had become major. In accordance with this partnership, Sant Singh, Santosh Singh, Kuldip Singh and Azad Singh. became partners sharing profits and losses in the ratio of 25 per cent. each.
6. The assessee-firm applied for registration under Section 26A for the assessment years 1960-61 and 1961-62 and under Section 184 for the assessment years 1962-63 to 1964-65. The I.T. authorities, including the Tribunal, refused registration to the firm on the ground that the capital of Rs. 76,185 was not distributed amongst the coparceners when the partnership business was commenced. The capital was shown as distributed between the partners with effect from 1st April, 1965, and, thereafter, the firm was registered from the assessment year 1966-67. It was observed by the Tribunal that there was no material to hold that there was any partial partition of the capital shown to be invested in the partnership business. In the absence of partial partition amongst the coparceners regarding the capital invested in the partnership business, the Tribunal held that there could be no legal partnership.
7. There is no dispute that there was a partition between Ude Singh and his two sons, Sant Singh and Manmohan Singh. In this partition, the business carried on by the joint Hindu family in the name of Sardar Ude Singh and Sons at Junnardeo was allotted to Sant Singh. However, in the; hands of Sant Singh the business and the capital invested in it did not become Sant Singh's separate property and it became the coparcenary property consisting of Sant Singh and his sons: [See Tolaram Bejoy Kumar v. CIT : [1978]112ITR750(SC) ]. There is no evidence either of partition of the business or of the capital assets invested in it between Sant Singh and his sons till 1st April, 1964. The so-called partnership business which was carried on under the three partnership deeds was the same business which came to Sant Singh in the partition of the HUF property. The sum of Rs. 76,185 which was shown to be invested as capital in the partnership business was the capital value of the business received in partition by Sant Singh and constituted coparcenary property of Sant Singh and his sons. In the absence of any partial partition amongst Sant Singh and his family members with reference to the business or the capital assets, the partnership business in effect was carried on by the family members wholly with the aid of coparcenary assets. In these circumstances, it was not possible to hold that there was in law a partnership. The partnership business was in a true sense the joint family business in spite of the execution of the partnership deeds. As observed by the Supreme Court in Firm Bhagat Ram Mohanlal v. CEPT : [1956]29ITR521(SC) :
'...it would cut at the very root of the notion of a joint undivided family to hold that with reference to coparcenary properties the members can at the same time be both coparceners and partners.'
8. The rulings relied upon by the learned counsel for the assessee are all distinguishable. In Sundar Singh Majithia v. CIT [1942] 10 ITR 457 , it was held that the I.T. Act does not prohibit members of an HUF from entering into a partnership in respect of a portion of the joint property which they have partitioned among themselves. The distinguishing feature of this case is that there was partition of the joint property invested in the partnership. In the case before us there is no such partition. In Lachhman Das v. CIT [1948] 16 ITR 35 , there was a partnership between the karta and one of the members of the joint family who invested his separate property in the partnership. In the case before us, none of the partners invested any separate property. The learned counsel heavily relied upon the case of CIT v. Sri Hukumchand Mannalal & Co. : [1970]78ITR18(SC) . In that case it was held that a partnership is not invalid merely becausetwo or more of its partners are members of an HUF and represent the interest of the family. The case is not an authority for the proposition that members of a joint Hindu family can enter into a partnership consisting of themselves in respect of a joint family asset without partitioning it. Further, it also does not militate against the view taken in Firm Bhagat Ram Mohanlal's case : [1956]29ITR521(SC) that 'it is difficult to visualize the situation of a joint Hindu family entering into a partnership with strangers through its karta and the junior members of the family also at the same time becoming its partners in their personal capacity'. All that is decided in the case of Sri Hukumchand Mannalal & Co. : [1970]78ITR18(SC) is that two or more members of a joint Hindu family representing the family may enter into partnership with strangers. Another case relied upon is Ghewarchand Kewalchand v. CIT : [1978]111ITR391(MP) . In this case, a joint family business was partitioned amongst the members who thereafter entered into a partnership to carry on the same business. This case is similar to the case of Sundar Singh Majithia [1942] 10 ITR 457 and is distinguishable on the point that the joint family business was first partitioned before making it a partnership business. In our case, there is no partition of the joint family business.
9. As seen earlier, in the instant case, the so-called partnership at all stages consisted of Sant Singh and his family members. The capital asset invested in the business was joint family property and was not partitioned. No separate property was brought into the partnership by the members. In the circumstances, the legal position was that the business continued to be a joint family business and did not transform itself into a partnership business. There was no partnership in law. Apart from the Supreme Court case of Firm Bhagat Ram Mohanlal : [1956]29ITR521(SC) , our conclusion is supported by the following cases : CIT v. Ratanchand Darbarilal : [1975]100ITR258(MP) , Shah Prabhudas Gulabchand v. CIT : [1970]77ITR870(Bom) and Manilal Dharamchand v. CIT : [1970]78ITR96(Bom) .
10. The learned counsel for the assessee submitted that there was an implied partition by execution of the partnership deeds. The contention cannot be accepted. It is true that a partition can be effected by any unequivocal act giving out an intention to separate, yet it cannot be accepted that a partition is brought about merely by execution of a partnership deed. If the members of a family intended to separate, the amount of the capital invested in the business would have been divided and the share of each member shown separately in the account books.It was lastly contended that this was a case where the karta, namely, Sant Singh, contributed joint family assets towards the capital of the partnership and the other members contributed their skill and labour and hence in law there came into existence a valid partnership. This contention which involves new questions of fact was never put forward before the I.T. authorities and cannot be raised before us. It is, therefore, not necessary for us to examine the legal position whether a member of a joint Hindu family by contributing his skill or labour or both can, without more, enter into a partnership with the karta of the family.
11. For the reasons given above, our answer to the question referred to us is in the affirmative. There shall be no order as to costs.