TaxTMI 
TaxTMI 
2006 (7) TMI 131
X X X X Extracts X X X X
X X X X Extracts X X X X
...., with various objects like entering into business of money-lending, trading etc. The partnership deed provided that each one of the said persons was a representative of a trust which was created by a trust deed duly made in accordance with law. The assessee firm applied for registration for the assessment year 1975-76, the application was granted for the said year but while considering the application for renewal of registration for the assessment year 1976-77, the Income-tax Officer held that there was no legal and valid partnership subsisting between the partners since the trust deed did not authorise the concerned trustees to join as partners or to join in any business. He observed that there was a clear violation of section 47 of the Trusts Act, accordingly he refused registration for the assessment year 1976-77 and cancelled the registration earlier granted for the assessment year 1975-76. The Commissioner of Income-tax (Appeals), for the reasons stated in his order, set aside the order of the Income-tax Officer and held that the asses-see was entitled to registration. The matter came up before the Tribunal. The Accountant Member held that the assessee was entitled to regi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....artnership has come into existence, he can always refuse registration. He has referred to the provisions of section 47 of the Trusts Act, clause 3(iv) of the trust deed, section 11 of the Indian Contract Act, and section 4 of the Indian Partnership Act. He submits that if a partnership is created then one must see that a trustee, who joins as a partner, has an authority under the Trusts Act, under any other allied law or under the document created by the said trust and if such authority is not available to such a trustee then inclusion of trustee as a partner and creation of the partnership would be bad. Section 47 of the Indian Trusts Act, 1882, observes that a trustee cannot delegate his office or authority. It reads as under: "47. Trustee cannot delegate.- A trustee cannot delegate his office or any of his duties either to a co-trustee or to a stranger, unless (a) the instrument of trust so provides, or (b) the delegation is in the regular course of business, or (c) the delegation is necessary, or (d) the beneficiary, being competent to contract, consents to the delegation." According to section 47, a trustee cannot delegate his office or any of his duties either to a c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be void. Once the provisions of the Contract Act are applicable, then the capacity, ability and capability to contract of each person proposing to join the partnership would become material for section 4 of the Partnership Act. The submission of Shri Naik is that if the trust deed does not authorize a trustee to delegate his authority in favour of anybody to handle or invest the property, then no authority can be conferred by a trustee in favour of any other person/partner of a firm in relation to the trust property. His submission is that if the law prevents a trustee from doing such an act then he would not be entitled to enter into a contract of partnership and his act would become illegal for purposes of section 11 of the Indian Contract Act. Section 47 of the Trusts Act clearly puts an embargo on the authority of the trustee when it says that a trustee cannot delegate his office or any of his duties either to a co-trustee or to a co-stranger, unless; (a) the instrument of trust so provides, or (b) the delegation is in the regular course of business, or (c) the delegation is necessary, or (d) the beneficiary, being competent to contract, consents to the dele....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tract, consents to delegation and when none of the conditions enumerated in section 47 of the Indian Trusts Act, 1882 is applicable, then as a sequel to the aforesaid discussion it has to be held that section 47 puts a bar against the trustee to delegate his office or any of his duties in favour of a co-trustee or to a stranger. This also will have to be appreciated that a partner who is not a trustee, qua the trust, would be a stranger and if the trustee of a particular trust enters into an agreement of partnership with any third party, then he virtually delegates his office or his duties in favour of a stranger. This also will have to be noted that a trustee is not entitled to go beyond the authority conferred upon him under the Trusts Act and if he does something beyond his authority then, he can always be held answerable in the civil and criminal courts. For the purposes of section 47, delegation of the office or duty must be consented to by the beneficiary who is competent to contract. Section 4 of the Indian Partnership Act, 1932, as we have already observed, defines that "partnership" is the relation between persons who have agreed to share the profits of a business....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion was in the regular course of the business or the delegation became necessary, then, for all practical purposes, he is disqualified under the law to which he is subject. If a person is disqualified from entering into a partnership, no legally constituted partnership would come into existence. Section 11 of the Indian Contract Act would provide foundational capability to enter into an agreement which ultimately would be an enforceable contract. The coming into existence of a legal partnership under section 4 of the Act would be a consequence of a legal agreement which can be entered into by a person entitled to contract under section 11 of the Contract Act. If the person is not authorised to enter into an agreement, then the consequent partnership would be bad and illegal. In the present matter, the Tribunal brushed aside the main question in relation to the authority of the trustee to contract and enter into a partnership simply by saying that, if the trustee himself commits a wrong or misconduct, then the beneficiaries can take an action against him. Unfortunately the Tribunal did not focus its attention to the main question that a trustee is not entitled to enter into a par....