TaxTMI 
TaxTMI 
1964 (1) TMI 62
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.... The partnership was registered under the Partnership Act on or about nth August, 1959. Clauses 8, 9, 12 and 16 of the partnership deed are reproduced below for facility of reference. "8. That the party No. 1, i.e., Shri K.D. Kamath, who is the principal and financing partner and by virtue of his having the long-standing experience in the line of business together with the technical knowledge of engineer, shall have the full right of control and management of the firm's business and in the best interests of the firm, it is thus decided and agreed upon among all partners that all the working partners from Nos. 2 to 6 shall always work according to the instructions and directions given from time to time by Shri K.D. Kamath, in the actual execution of works and in any other matter connecting thereof, pertaining to this partnership business. The decision of the principal partner on the aspect of taking any new business or giving tenders for new works, shall always vest with him whose decision shall be final and binding upon all the working partners. 9. That it is also agreed among the partners that no working partner or partners is/are authorised to raise loan for....
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....s contended on its behalf that the ratio of the decision of the Bombay High Court in Income-tax Reference No. 14 of 1959, dated 1st September, 1961, Balubhai Gulabdas Navlakhi v. Commissioner of Income-tax [1962] 46 ITR 492, clearly applied to the facts of the case and that the detailed control of business by and concentration of power in the hands of Shri K.D. Kamath did not militate against the basic agreement of the persons concerned to share the profits and to accept the principle of mutual agency. The earlier decision of the Bombay High Court in the case of Umarbhai Chandbhai v. Commissioner of Income-tax [1952] 22 ITR 27 was distinguished on the ground that in that case the two alleged partners were not allowed to do the business of the firm at the discretion of the major partner and the important condition of mutual agency was, therefore, not satisfied. On behalf of the department, reliance was placed on the decision of the Supreme Court in the case of M.P. Davis v. Commissioner of Agricultural Income-tax [1959] 35 ITR 803 (SC), and reference was made to clauses 12 and 16 of the partnership deed. The Tribunal for reasons given in detail in paragraph 6 of its order upheld the....
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....for all the working expenses, the remaining net profits or losses, as the case may be, shall be shared by the parties hereto as under: Name of partners Extent of individual share 1. Shri Krishna Rao Dadasaheb Kamath 5 shares 2. ,, Narayan Ganesh Kamath 2 ,, 3. ,, Shripadarao Damodara Kamath 2 ,, 4. ,, Doyanoba Jotiram Mohite 2 ,, 5. ,, Shankar Govind Joshi 2 ,, 6. ,, Yashavant Bhawoo Kate 2 ,, Total: 15 6. That it is agreed among the partners that the party No. 1, i.e., Shri K.D. Kamat, shall be the principal and financing partner and the rest of the partners, i.e., from Nos. 2 to 6, are admitted only as working partners contributing labour. 7. That the goodwill of the firm shall wholly and solely belong to party No. 1, i.e., Shri K.D. Kamath. 8. That the party No. 1, i.e., Shri K.D. Kamath, who is the principal and financing partner and by virtue of his having the long-standing experience in the line of business together with the technical knowledge of engineer, shall have the full rig....
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....ention on the question, whether on the facts of this case, we could come to the conclusion that each of the partners is entitled to act as the agent of all. Clause 8 of the deed stipulates that the first partner, K.D. Kamath, "shall have the full right of control and management of the firm's business and, in the best interests of the firm, it is thus decided and agreed upon among all the partners that all the working partners from Nos. 2 to 6 shall always work according to the instructions and directions given from time to time by Shri K.D. Kamath, in the actual execution of works and in any other matter connecting thereof, pertaining to this partnership business. The decision of the principal partner on the aspect of taking any new business or giving tenders for new works, shall always vest with him, whose decision shall be final and binding upon all the working partners." Clause 9 lays down that "it is also agreed among the partners that no working partner or partners is/are authorised to raise a loan for and on behalf of the firm or pledge the firm's interest directly or indirectly and such an act shall not be binding on the firm, except under the written authority of th....
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....eated by the deed in question. As observed by Beaumont C.J. in Chimanram Motilal v. Jayantilal Chhaganlal AIR 1939 Bom. 410, one essential element of partnership is that there should be an agency; one partner can always bind another partner in any matter which, within the scope of the partnership business, subject to any limitation under section 20 and if the relationship constituted between the parties in respect of a particular matter does not expressly or by necessary implication involve the right of one party to pledge the other as an agent, then there is no partnership. That is exactly the position in the present case. The decision of the Bombay High Court in Umarbhai Chandbhai v. Commissioner of Income-tax [1952] 22 ITR 27 bears on the point under consideration. Therein, under a partnership deed between a father and his two sons, the father had the right to exclude either or both the sons from the management of the firm wholly or in part, or to entrust the management to any other person and to determine what quantum of any profits should be distributed and what should be done with the remaining profits ; the court held that there was no partnership in law and the income-ta....
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....'s case (supra ) referred to earlier. In that case a deed of partnership produced satisfied the two essential conditions laid down in section 4 of the Partnership Act, while it also laid down that the entire goodwill as well as the stock-in-trade, furniture and other assets of the firm were to be in the sole ownership of a particular partner, that he had absolute power to deal with and dispose of them by sale or otherwise, that he was at liberty to admit additional partners on such terms as he thought fit in his absolute discretion, that he may increase or decrease the share of the existing partners, that he may also dissolve the partnership with regard to such of the partners who do not work diligently and that he may dissolve the partnership with regard to any partner by giving him three months' notice. Despite those powers conferred on one of the partners, the court still held that it was a partnership because of the fact that the deed in question satisfied the requirements of section 4 of the Partnership Act. In this connection, the following observations of the court in the course of its judgment Balubhai's case (supra) are apposite: "In our opinion, the f....