Counting adult members of Hindu undivided families may breach the partnership limit where kartas contract on their behalf.

Where a partnership is formed through kartas representing Hindu undivided families, section 4(3) of the Indian Companies Act, 1913 requires the adult members of those joint families to be counted to determine whether the arrangement exceeds the statutory limit of twenty persons. The analysis distinguishes the karta's representative capacity from the underlying family composition, treating the partnership as one that may breach the statutory threshold even though the deed names fewer individual signatories. On the majority view, that counting method brings the partnership within section 4(2) and prevents registration under section 26A of the Income-tax Act, 1922. A dissenting view would count only the contracting kartas and not the adult family members.

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Issues: Whether registration of the firm was rightly refused on the ground that the partnership violated section 4 of the Indian Companies Act, 1913, and whether, for that purpose, the adult members of the Hindu undivided families represented by the kartas had to be counted as partners.

Analysis: The partnership deed showed 18 named partners, but the record and appellate finding established that most of them were kartas representing their respective Hindu undivided families. The majority held that section 4(3) of the Indian Companies Act, 1913 was intended to cover cases where two or more joint families, in effect, formed a partnership through their kartas, and that the provision required the adult members of those joint families to be reckoned for the purpose of deciding whether the total strength exceeded twenty persons. It was emphasised that partnership remains a contractual relation between the actual contracting partners, while the karta may occupy a representative capacity vis-a -vis the family. On that approach, the apparent partnership was treated as one in which the number of persons exceeded the statutory limit, attracting section 4(2) and defeating registration under section 26A of the Income-tax Act, 1922.

Conclusion: The refusal of registration was upheld; the question was answered in the affirmative and against the assessee, in favour of the department.

Dissenting Opinion: Beg, J. held that the partnership, in law, was only between the contracting kartas as individuals, that the joint families themselves were not partners, and that section 4(3) did not justify counting all adult members of the families. On that view, the question should have been answered in the negative in favour of the assessee.

Ratio Decidendi: Where a partnership is constituted through kartas representing Hindu undivided families, section 4(3) of the Indian Companies Act, 1913 requires the adult members of those joint families to be counted for determining whether the partnership exceeds the statutory limit of twenty persons.

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