TaxTMI 
TaxTMI 
1997 (12) TMI 2
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....ns including Rashiklal. The assets of Rashiklal continued to be invested in the partnership firm. Rashiklal was the karta of a smaller Hindu undivided family. On October 17, 1978, there was an agreement between Rashiklal and the firm, Rashiklal and Company, that Rashiklal will receive 37 paise per tonne of mineral sold by the firm. In the assessment year 1980-81, Rashiklal received a sum of Rs. 28,579 as commission. The firm claimed deduction of this amount from its income. The claim was negatived by the Income-tax Officer. The Appellate Assistant Commissioner allowed the appeal holding that the commission was paid to Rashiklal in his individual capacity and not as karta of the smaller Hindu undivided family, which is the partner of the firm. Since the payment was not made to the partner, section 40(b) of the Income-tax Act was not attracted. The amount of commission paid to Rashiklal could not be included in the income of the firm. On further appeal by the Revenue, the Tribunal held that section 40(b) of the Income-tax Act clearly applied in this case. Payment to Rashiklal will be payment to a partner. The partnership firm could not claim any deduction for this payment from its in....
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....29 ITR 535, it was held by a Bench of three judges of this court that a firm is not a " person " and as such was not entitled to enter into a partnership with another firm or a Hindu undivided family or an individual. In that case, an individual, a joint family and three firms purported to enter into a partnership. The agreement of partnership was signed by the individual partner, the karta of the joint family and one partner each of the three firms. The firm applied for registration under section 26A of the Indian Income-tax Act. The application was signed by the aforesaid five individuals. This court held that there could be no question of granting registration to a partnership purporting to be one between three firms, a Hindu undivided family and an individual. In coming to this conclusion, this court relied on the provisions of the Indian Partnership Act wherein, " partnership ", " partner ", " firm " and " firm name " were defined in the following manner : " 4. Definition of ' partnership ', ' partner ', firm ' and ' firm name '--- ' Partnership ' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for a....
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....view of this court was that when section 4 of the Partnership Act spoke of " persons " who had entered into partnership with one another it could only be individuals and not a body of persons. A body of persons like a firm could not enter into partnership with other individuals. A Hindu undivided family cannot be in a better position than a firm in the scheme of the Partnership Act. The reasons that led this court to hold that a firm cannot join a partnership with another " individual " will apply with equal force to a Hindu undivided family. In law, a Hindu undivided family can never be a partner of a partnership firm. Even if a person nominated by the Hindu undivided family joins a partnership, the partnership will be between the nominated person and the other partners of the firm. Having regard to the definition of " partnership " and " partners " and in view of the principle laid down in Dulichand's case [1956] 29 ITR 535 (SC), it is not possible to hold that a Hindu undivided family being a fluctuating body of individuals, can enter into a partnership with other individual partners. It cannot do indirectly what it cannot do directly. If the karta or any other member of a Hind....
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....tners. The partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render true accounts and true information of all things affecting the firm to any partner or his legal representative. Every partner has a right to take part in the conduct of the business. Every partner is bound to attend diligently to his duties in the conduct of the business. Any differences arising as to ordinary matters connected with the business may be decided by a majority of the partners and every partner shall have the right to express his opinion before the matter is decided. No change can be made in the nature of the business without the consent of all the partners. Every partner has a right to have access to and to inspect and copy any of the books of the firm. All these provisions will apply to a partner who represents another body. The Hindu undivided family who has a nominee partner in a firm, has neither any right nor any obligation under the provisions of the Partnership Act. Section 13 provides that a partner is not entitled to receive remuneration for taking part in the conduct of the business. The partners are entitle....
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....commission paid to the Hindu undivided family. The partner may be accountable to the family for the monies received by him from the partnership. But in the assessment of the firm, the partner cannot be heard to say that he has not received the commission as a partner of the firm but in a different capacity. We were referred to two decisions of this court on this point, Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825 and Suwalal Anandilal Jain v. CIT [1997] 224 ITR 753. Both the cases dealt with payment of interest to a partner who had joined the firm in a representative capacity. Section 40(b) prohibits deduction on account of payment of interest, salary, bonus or remuneration by a firm to any partner of the firm. Explanation 2 was added to section 40(b) specifically providing that where an individual was a partner in a firm in a representative capacity for and on behalf of any other person, the interest paid by the firm to such individual shall not be taken into account for the purpose of clause (b) of section 40. This court held that in view of this Explanation when the karta of a Hindu undivided family had joined a firm representing his Hindu undivided family and had made....
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....e Partnership Act. But the expression " partner " has been extended to include any person who, being a minor, has been admitted to the benefits of a partnership. Therefore, there is no scope for any argument, that even though under the Indian Partnership Act, a Hindu undivided family not being a " person " cannot be a partner, the payment of commission to the nominee partner will be tantamount to payment to the Hindu undivided family and, therefore, such payment will not come within the mischief of section 13 of the Partnership Act or section 40(b) of the Income-tax Act. To repeat what has been stated in Mulla's Hindu Law, only the members who have entered into partnership are to be regarded as partners. The position of the other members is no higher than sub-partnership. The application for registration of a firm has to be made under section 184 of the Income-tax Act. It is specifically provided that : (1) the partnership must be evidenced by an instrument in writing ; (2) the individual shares of partners must be specified in that instrument ; (3) the application for registration shall be signed by all the partners. The very facts that individual shares of the partners have ....