TaxTMI 
TaxTMI 
1980 (10) TMI 31
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....ly, Jaikumar, Kailashkumar, Anilkumar and Sunilkumar, carried on business in commission agency and purchase and sale of confectionary at Satna up to and inclusive of the assessment year 1969-70. The income from business was assessed in the status of HUF. For the assessment year 1970-71, it was claimed that a partnership was constituted between Ramchand, acting as karta, and his adult son, Jaikumar, with effect from 1st April, 1969. The partnership is evidenced by a deed of partnership dated 5th September 1969. According to the terms contained in the partnership deed, Ramchand and jaikumar were to share the profits and losses of the business in the ratio of 70 and 30 percent., respectively. It was claimed that the business of the HUF was carried on in the relevant previous year by the partnership. An application for registration of the partnership was filed under s. 185 of the Act. The ITO held that there was no division in the HUF and as all the funds invested in the so-called firm had flowed from the joint family funds, there was no genuine and valid partnership. The application for registration was, therefore, rejected. In appeal, the AAC set aside the order of the ITO and held t....
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.... as a consideration for getting a share in the business. As stated by Lindley, "any contribution in the shape of capital or labour, or any act which may result in liability to third parties, is a sufficient consideration to support a partnership agreement ". (Lindley on Partnership, 14th Edn., p. 119). The legal position that contribution of labour and skill by a partner are sufficient to support an agreement of partnership is fully brought out from the following observations of Vice-Chancellor Wigram in Dale v. Hamilton [1846] 5 Hare 369, 393 : " If one man has skill and wants capital to make that skill available, and another has capital and wants skill, and the two agree that the one shall provide capital and the other skill, it is perfectly clear that there is a good consideration for the agreement on both sides, and it is impossible for the court to measure the quantum of value. The parties must decide that for themselves ". (See Lindley, 14th Edn., p. 119). The definition of partnership as contained in s. 4 of the Indian Partnership Act, 1932, does not make it obligatory that the partners must combine their property for sharing profits by constituting a partnership. The ....
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.... his share and interest in the property of the family, while he simultaneously enjoys the benefit of his separate property and the fruits of its investment. To be able to do this, it is not necessary for him to separate himself from his family. " A reading of the passage quoted above goes to show that a coparcener has freedom of contract like a stranger in respect of his individual property not acquired with the aid of or by any detriment to the joint family property and, therefore, like a stranger, he can enter into a partnership with the karta by contributing his separate property. Now, just as a coparcener is free to use his individual property, he is free to use his skill and labour. He can enter into a contract in respect of his skill and labour with a third person. He may even enter into a partnership with a third person by only contributing his skill and labour. In our opinion, therefore, it would be logical to hold that in the same manner a coparcener can enter into a partnership with the karta of his family by contributing his skill and labour instead of his separate property. Such a conclusion is a necessary corollary of the principle enunciated by the Privy Council in....
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....40 is that the family was joint and that Mohanlal was its karta and that he entered into the partnership as karta on behalf of the joint family. It is difficult to reconcile this position with that of Chhote an Bansilal being also partners in the firm in their individual capacity, which can only be in respect of their separate or divided property. If members of a coparcenary are to be regarded as having become partners in a firm with strangers, they would also become under the partnership law partners inter se, and 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." It will be clear from the facts of the case of Firm Bhagat Ram Mohanlal [1956] 29 ITR 521 (SC) that the question whether a coparcener can enter into a valid partnership with the karta of his family by contributing merely skill and labour did not arise for decision. The only question in the case was whether the individual members of a HUF can, without contributing anything, become members of a partnership constituted between the karta and strangers. This question had necessarily....
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....the same way, it can be said that in the latter case the coparcener retains his share and interest in the property of the family while simultaneously enjoying the benefits of his skill and labour which he contributes as consideration for formation of the partnership and for sharing profits. Learned standing counsel for the department further submitted that as the profits earned by a partnership in which the contribution of capital is only of joint family funds from the side of the karta would enure to the benefit of the entire joint family being earned with the help of the joint family funds, a coparcener who only contributes his skill and labour for becoming a partner cannot claim any share in the profits as his separate property and, therefore, there cannot be any valid partnership. Learned counsel in this connection relied upon the case of V. D. Dhanwatey v. CIT [1968] 68 ITR 365 (SC). Dhanwatey's case has to be read along with the case of CIT v. D. C. Shah [1969] 73 ITR 692 (SC). In Dhanwatey's case [1968] 68 ITR 365 (SC) a karta of a HUF who entered into a partnership was paid a salary from the partnership and it was held that the salary income was the income of the HUF. Th....