COMMISSIONER OF INCOME-TAX, MADHYA PRADESH vs. SIR HUKUMCHAND MANNALAL & CO.

CIVIL APPEAL No. 1774/1969Supreme Court[1971] 1 S.C.R. 64620 July 1970Bench: 2 JudgesAuthor: J.C. SHAH, K.S. HEGDE4 pages
AI SummaryDismissed

What were the facts?

The assessee, Sir Hukmchand Mannalal & Co., was a firm formed on July 16, 1948. Sir Hukmchand and his son, Rajkumar Singh, were two of the five partners, representing the interest of their Hindu Undivided Family (HUF). For assessment years 1950-51 to 1953-54, the Income-tax Officer granted registration under Section 26A of the Indian Income-tax Act, 1922. However, for assessment year 1954-55, registration was declined. The Appellate Assistant Commissioner upheld this decision, reasoning that two coparceners could not represent the HUF's interest in a partnership. The Income Tax Tribunal reversed this order, and the High Court, on reference, affirmed the Tribunal's decision. The Commissioner of Income-tax appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal, holding that a partnership firm in which two members of a coparcenary represent the same beneficial interest of an HUF can be validly registered under Section 26A of the Income-tax Act, 1922. The Court reasoned that the Indian Contract Act imposes no disability upon members of a Hindu Undivided Family in the matter of entering into a contract, either inter se or with a stranger. A member of an HUF has the same liberty of contract as any other individual, restricted only as provided by the Indian Contract Act. Partnership is defined as a relation between persons who have agreed to share profits, and this relation is not invalidated merely because two or more persons agreeing to it are members of an HUF. Furthermore, it is settled law that for registration purposes under Section 26A, the Income-tax Officer is not concerned with determining in whom the beneficial interest in the partnership share vests. The High Court was therefore correct in answering the reference in the affirmative.

What were the issues?

1. Whether a partnership firm in which two coparceners of a Hindu Undivided Family (HUF) represent the same beneficial interest of the HUF can be validly registered under Section 26A of the Indian Income-tax Act, 1922, despite the contention that they might be incompetent to enter into a contract inter se. Assessee's contentions (as inferred from the Tribunal and High Court's decisions): The Tribunal and High Court held that there was nothing in law preventing two or more coparceners representing an HUF from entering into a partnership with strangers. The Indian Contract Act imposes no disability on HUF members entering into contracts. The Income-tax Officer is not concerned with the beneficial interest in the partnership share. Revenue's contentions: The revenue contended that since two members of a coparcenary represented the same beneficial interest of an HUF, and they were allegedly incompetent to enter into a contract inter se, the partnership agreement could not be registered.

Which sections of the Income-tax Act were involved?

Section 26A

AI-generated summary — verify with the full judgment below

646 · COMMISSIONER OF INCOME-TAX, MADHYA PRADESH v. SIR HUKUMCHAND MANNALAL & CO.

July 20, 1970 . (J.C. SHAH AND K. S. HEGDE, JJ.) . Income-tax Act, 1922, S. 26-A-Partnership including two partners rcprescnting interest of same H.U.F.-If can be registered-Whether memhers of H.U.F. suffer from any disability from entering into contract inter-s..:. H and his son R were two out of the five partners of the respondent firm and represented the interest of a Hindu undivided family. The Income-tax Officer granted registration of the firm under s. 26A of the Incomo·tax Act, 1922. Jn 1954-55, he declined to grant such registration.

The Appellate Assistant Commissioner confirmed his order on the ground that two coparceners could not represent the interest of the H.U.F. in a partnership. The Tribunal reversed this order and the High Court. upon a reference o~ the question whether the respondent firm could be granted registration, answered it in the .affirmative.

On appeal to this Court, HELD : Dismissing the appeal~ fhat a partnership in which two members of a coparcenary represent same beneficial intere't of an H.U.F., may be validly registered under the Income Ta

The order continues below.

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