# NAGPUR v. SETH GOVINDRAM SUGAR MILLS LTD

- **Citation:** [1965] 3 S.C.R. 488
- **Court:** Supreme Court of India
- **Decided:** 1965-03-26
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/nagpur-v-seth-govindram-sugar-mills-ltd-3510
- **Pages:** 11

## Headnote

COMMISSIONER OF INCOME-TAX, MADHYA PRADESH,
A
NAGPUR
v.
SETH GOVINDRAM SUGAR MILLS LTD.
March 26, 1965
JK. SUBBA RAO, J.C. SHAH ANDS. M. SIKRI, JJ.J
. Partnership Act (9 of 1932), ss. 31 and 42(c)-Sco:oe of-Two joint
Hindu families-Partmership
between-When po.i;sfbie--!nconie-ta:c
Act (11 of 1922), s. 164(1).
·
A joint Hindu family consisting of two branches owned a sugar
mill. After partition, the two kartas entered into a partnership in 1943.
to carry on the business of the sugar mill. The two partners represented the respective joint families, and the partnership deed provided that the death of any of .the parties shall not dissolve the partnership and either the legal heir or the nominee of the deceased partner
,·hould take his place. One of the kartas died in 1945 leaving as memof his branch of the family, three v.1idov,1s and two minor sons.
The other partner continued the business of the sui<ar mill in the firm
name. For the assessment year 1950-51, the assessee (respondent-firm)
applied for registration on the basis of the partnership agreement of
1943. The Income-tax Officer, Appellate Assistant Commissioner And
the Tribunal held that there was no partnership between the members
of the two families after the death of one of the k<iTtas. On a reference
to the High Court, it was held that the partnership business wa•
carried on by the representatives of the two families after the de3th
of one of the kartas.
In the appeal to this Cuurt, on the question as to whether during
the assessment year 1950-51, the assessee, was a flrm within the meaning of s. lR(l) of the Income-tax Act, 1922, or an association of persons,
HELD: The High Court was wrong in its finding. But, as a result
of the concession by the appellant, that there was a partneri:hip from
13th December 1949, when one of the minor_ sons had become a major,
the status of the assessee was that of a firm for the assessment year
rn5o-5L r49BBJ
A joint Hindu family as such cannot be a partner of a firm, but it
may through its karta enter into a partnershlp with the karta of
another family. [4f15H]
,
Kshetra Mohan Saiiuasi Charan Sadhukhan v. Commissioner of
Excess Profits Tax .. (1954] S.C.R. 268. followed.
A wido\v, though a member of a
family, cannot become its
manager. [ 495B]
·
Commissivner of Income-tax. C.P. & Berar v. Seth Lakshmi Narayan Raghunathdas, (19481 16 I.T.R. 313 and Pandurang Dakhe v.
B
c
D
E
F
G
Pand1irang Gorle, l.L.R. (19471 NM. 299. overruled.
H
Therefore, in the instant case, when one of the kartas died, the
partnen;hip had come to an end. There was no scope for applying
s. 42(c) of the Partnership Act. 1932, because, the section is applicable
only to a partnership with more than two partners. In such a case.
if one of them dies, the firm is dissolved, but if there is a contract to
488
c. I. T. v. GOVINDRAM Mll,LS (Subba,Ruo, J.)
489
A the contrary, the surviving partners will continue the firm. On the
'>ther hand, if there are only two partners and one of them dies, the
firm automatically comes to an end and, thereafter, there ls no part.
nership for a third party to be introduced.· Section 31, which deals
with the validity of a contract between the partners to introduce a
third party into the partnership without the consent of all the existing partners, presupposes the subsistence of a partnership and does
B not cpply to a partnership of two partners. which is dissolved by
the death of one of them. [ 492E-H]
Hansraj Manot v. Me'8rs. Gorak NOJth Pandey, (1961) 66 C.W.N
262, disapproved.
Further. there was no evidence that the representatives of the
two famil'es constituted a new partnership and carried on the business of the sugar mill before 13th December 1949, when, it was cone ceded a new partnership had come into existence.
C1v1L APPELLATE JURISDICTION: Civil Appeal Nos. 38 and 39
of 1964.
Appeals from the judgment and order dated April 10, 1961 of
the Madhya Pradesh High Court in Miscellane-ous Civil Case No.
D 63 of 1961.
ll
C. K. Daphtary

## Text

COMMISSIONER OF INCOME-TAX, MADHYA PRADESH,
A
NAGPUR
v.
SETH GOVINDRAM SUGAR MILLS LTD.
March 26, 1965
JK. SUBBA RAO, J.C. SHAH ANDS. M. SIKRI, JJ.J
. Partnership Act (9 of 1932), ss. 31 and 42(c)-Sco:oe of-Two joint
Hindu families-Partmership
between-When po.i;sfbie--!nconie-ta:c
Act (11 of 1922), s. 164(1).
·
A joint Hindu family consisting of two branches owned a sugar
mill. After partition, the two kartas entered into a partnership in 1943.
to carry on the business of the sugar mill. The two partners represented the respective joint families, and the partnership deed provided that the death of any of .the parties shall not dissolve the partnership and either the legal heir or the nominee of the deceased partner
,·hould take his place. One of the kartas died in 1945 leaving as memof his branch of the family, three v.1idov,1s and two minor sons.
The other partner continued the business of the sui<ar mill in the firm
name. For the assessment year 1950-51, the assessee (respondent-firm)
applied for registration on the basis of the partnership agreement of
1943. The Income-tax Officer, Appellate Assistant Commissioner And
the Tribunal held that there was no partnership between the members
of the two families after the death of one of the k<iTtas. On a reference
to the High Court, it was held that the partnership business wa•
carried on by the representatives of the two families after the de3th
of one of the kartas.
In the appeal to this Cuurt, on the question as to whether during
the assessment year 1950-51, the assessee, was a flrm within the meaning of s. lR(l) of the Income-tax Act, 1922, or an association of persons,
HELD: The High Court was wrong in its finding. But, as a result
of the concession by the appellant, that there was a partneri:hip from
13th December 1949, when one of the minor_ sons had become a major,
the status of the assessee was that of a firm for the assessment year
rn5o-5L r49BBJ
A joint Hindu family as such cannot be a partner of a firm, but it
may through its karta enter into a partnershlp with the karta of
another family. [4f15H]
,
Kshetra Mohan Saiiuasi Charan Sadhukhan v. Commissioner of
Excess Profits Tax .. (1954] S.C.R. 268. followed.
A wido\v, though a member of a
family, cannot become its
manager. [ 495B]
·
Commissivner of Income-tax. C.P. & Berar v. Seth Lakshmi Narayan Raghunathdas, (19481 16 I.T.R. 313 and Pandurang Dakhe v.
B
c
D
E
F
G
Pand1irang Gorle, l.L.R. (19471 NM. 299. overruled.
H
Therefore, in the instant case, when one of the kartas died, the
partnen;hip had come to an end. There was no scope for applying
s. 42(c) of the Partnership Act. 1932, because, the section is applicable
only to a partnership with more than two partners. In such a case.
if one of them dies, the firm is dissolved, but if there is a contract to
488
c. I. T. v. GOVINDRAM Mll,LS (Subba,Ruo, J.)
489
A the contrary, the surviving partners will continue the firm. On the
'>ther hand, if there are only two partners and one of them dies, the
firm automatically comes to an end and, thereafter, there ls no part.
nership for a third party to be introduced.· Section 31, which deals
with the validity of a contract between the partners to introduce a
third party into the partnership without the consent of all the existing partners, presupposes the subsistence of a partnership and does
B not cpply to a partnership of two partners. which is dissolved by
the death of one of them. [ 492E-H]
Hansraj Manot v. Me'8rs. Gorak NOJth Pandey, (1961) 66 C.W.N
262, disapproved.
Further. there was no evidence that the representatives of the
two famil'es constituted a new partnership and carried on the business of the sugar mill before 13th December 1949, when, it was cone ceded a new partnership had come into existence.
C1v1L APPELLATE JURISDICTION: Civil Appeal Nos. 38 and 39
of 1964.
Appeals from the judgment and order dated April 10, 1961 of
the Madhya Pradesh High Court in Miscellane-ous Civil Case No.
D 63 of 1961.
ll
C. K. Daphtary, Attorney-General, R. Ganapathy Iyer and
R. N. Sachthey, for the appellant (for both the appeals).
N. D. Karkhanis, Rameshwar Nath, S. N. Andley and P. L.
Vohra, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
.Subba Rao, J. These two appeals by certificate arise out of the
judgment of the High Court of Madhya Pradesh, Jabalpur, in Miscellaneous Case No. 63 of 1961 from a reference under s. 66(2) of
the Indian Income-tax Act, 1922, made by the Income-tax Appellate Tribunal, Bombay.
F
To appreciate the
of the parties the following
•
I[
genealogy will be useful:
I
Govindra.m
(d. in January 1943)
I
i
Ma.danlal (predeceased his
father)
I
Jankibai
I
Radheyahyam (predeceaiied
his father)
I
Shantibai
8hantibai
Vishwa.nath (adopted)
(b. 13-4-19tl'
Kaloora.m Todi
i
Nandlal
(d. 9-12-1945)
I
Banarsibai
I
Venka.Ual
(b. 13-12-1931)
Gangapras&d
(d. in 1933)
I
Bachh•lal
(b. 25-1-JgS5)
100
8UPHEME COURT Hl<:PORTS
[IUG5] 3 s:c.R,
Afler the death of Kdooram Todi, his two sons by name
and Ganguprnsad constituted a joiut Hindu family
which owned extensiye
in Jacra State and a sugar mill
callei "Seth Govindram Sugar Mills" at Mahidpur Road in Holkar
State. In the year 1942 Bachhulal filed a suit for partition against
Govindram and obtained a decree therein. In due course the pro·
perty was divided and a final decree was made. We are concerned
in these appeals only with the Sugar Mills at Mahidpur Road. After
the partition Govindram and Bachhulal jointly \Wrked the Sugar
Mills at Mahidpur Road. After the death of Govindram in 1943,
Nandlal, the son of Govindram, and Bachhulal, as kartas of their
respective joint families, entered into a partnership on September
28, 1943 to carry on the business of the said Sugar Mills. Nandlal
died on December 9, 1945, leaving behind him the members of his
branch of the joint family, namely, the thtee widows and the two
minor sons shown in the genealogy. After the death of Nandlal,
Bachhulal carried on the business of the Sugar Mills in the name of
"Seth Govindram Sugar Mills". For the assessment year 1950-51,
the said firm applied for registration on the basis of the agreement
of partnership dated September 28, 1943. The Income-tax Officer
refused to register the partnership on the ground that after the
death of Nandlal the partnership was dissolved and thereafter
Bachhulal and the minors could be treated only as an association
of persons. On that footing he made another order assessing the
income of the business of the firm as that of an association of
persons. Against the .said orders, two appeals-one being Appeal
No. 21 of 1955-56 against the order refusing regi!ltration and the
other being Appeal No. 24 of 1955-56 against the order of assess-
. ment-were filed to the Appellate Assistant Commissioner. The
Appellate Assistant Commissioner dismissed both the appeals. In
tlae appeal against the order of assessment, the Appellate Assistant
Commissioner exhaustively considered the question whether there
was any partnership between the members of the two families after
the death of Nandlal and came to the conclusion that in fact as well
u in law such partnership did not exist. Two separate appeals,
being Income-tax Appeal No. 8328 of 1957-58 and Income-tax Appeal No. 8329 of 1957-58, preferred to the Income-tax Appellate
Tribunal against the orders of the Appellate Assistant Commissioner were dismissed. The assessee made two applications to the
Tribunal for referring certain questions of law to the High Court.
but .they were dismissed. Thereafter, at the instance of the assessee
the Htgh Court directed the Tribunal to submit the following two
questions for its decision and it accordingly did so:
"(]) Whether on the facts and in the circumstances of the
case, the status of the assessee. "Seth Govindram Sugar
Mills, Mahidpur Road, Proprietor Nandlal Bachhulal,
Jaora", is an Association of Persons or a firm wi!hin the
meaning of Section 16(1)(h) of the Income-tax Act."
A
B
c
D
B
F
Q
B
c. I. T. v. GOVI'WRAM MILLS (Subba
J.)
491
A
"(2) Whether the order of the Appellate Tribunal is illegal
on account of the Tribunal having committed an error of
record and having omitted to consider the relevant material in the case."
The High Court. for reasons given in its judgment, held on the fim
:& question that in the assessment year 1949-50 the status of the
assessee was that of a firm within the meaning of s. 16(l)(b) of the
1 ncome-tax Act and on the second question it held that the Tribunal
misdirected itself in law in reaching the conclusion that the parties
could not be regarded as partners. The present two appeals are preferred against the said order.
c
D
JI
At the outset we must make it clear that the question of regietration could not be agitated in these appeals, as that question was
not referred to the High Court. We shall, therefore, only consider
the points raised by the questions referred to the High Court and
held by the High Court agaiust the appellant. Indeed, the enlf
effective question is whether during the assessment year 1950-51 tilt
aSiiessee was a firm or an association of persons.
The first question raised by the learned Attorney General ii
that on the death of N andlal the firm of Seth Govindram Sugar
Mills was dissolved and thereafter the income of the said businCM
could only be assessed as that of an association of persons.
To appreciate this contention some more necessary facts may
be atated. The deed of partnership dated September 28, 1943, was
executed between Nandlal and Bachhulal. It is not disputed that
each of the said two partners entered into that partnership as repretheir respective joint families. Under cl. (3) of the partnerdiip deed, "The death of any of the parties shall not dissolve the
partnership and either the legal heir or the nominee of the deceasetl
partner shall take his place in the provisions of the partnership."
The question is whether on the death of Nandlal his
the members of his branch of the family, automatically became Ill•
partners of the said firm. The auswer to the question turns upoia
G s. •2 of the Indian Partnership Act, 1932 (Act 9 of 1932), tlte
material part of which reads :
"Subje.ct to contract between the partners a firm is dissolved by the. death of a partner."
While for the appellant the learned Attorney General contendc4
H
that s. 42 applied only to a partnership consisting of more than two
partners, for the respondent Mr. Karkhanis argued that the section
did not impose .any such limitation and that on its terms it equall17
applied to a partnership comprising only two partners. It was
argued that the contract mentioned in the over-riding clause was a
contract between the partners and that, if the parties to the contract
agreed that in the event of death of either of them his successor
would be inducted in his place, the said contract would ube binding
Sl'l'!U<.:ME COUHT gEPOHT:')
I l%Gj 3 S.C.lt.
on the surviving member. On the death of one of the partners. it
·A
was said. his heir would. be automatically inducted into the partnership, though after such entry he might opt to get out of it. This
conclusion the argument proceeded
also supported by s. 3 l of
the Partnership Act. Section 31 of the Partnership Act reads:
"(] i Subject to contract between the partners and to ,the
provisions of section 30, no person shall be introduced as
a partner into a firm without the consent of all the existing partners."
Converting the negative into positive, under s. 31 of the Partnership
Act if there was a contract between the partners, a person other
than lhe partners could be introduced as a partner of the firm without the consent of all the existing partners. A combined reading of
· ss. 42 and 31 of the Partnership
according to the learned
counsel, would lead to the only conclusion that two partners of a
firm could by agreement induct a third person into the partnership
after the death of one of them.
There is a fallacy in this argument. Partnership, under s. 4 of
the Partnership Act, 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 all. Section 5 of the said Act says that the relation
of partnership arises from contract and not from status. The fundamental principle of partnership, therefore, is that the relation of
partnership arises out of contract and not out of status. To accept
the
of the learned counsel is to negative the basic principle of law of pa_rtnership. Section 42 can be interpreted without
doing violence either to the language used or to the said basic
principle. Section 42(c) of the Partnership Act can appropriately be
applied to a partnership where there are more than two partners.
If one of them dies, the firm is dissolved; but if there is a contract
to the contrary, the surviving partners will continue the firm. On the
other hand, if one of the two partners of a firm dies, the firm automatically comes to an end and, thereafter, there is no partnership
for a third party to be introduced therein and. therefore, there is
no scope for applying cl. (c) of s. 42 to such a situation. It may be
that pursuant to the wishes of the directions of the deceased partner
the surviving partner may enter into a new partnership with the
heir of the deceased partner, but that would constitute a new partnership. In this light s. 31 of the Partnership Act falls in line- with
s. 42 thereof. That section only recognizes the validity of a contract
between the partners to introduce a third party without the consent
of all the existing partners: it presupposes the subsistence of a
partnership; it does not apply to a partnership of two partners
which is dissolved ,by the death of one of them, for in that event
there is no partnership at all for any new partner to be inducted
into it without the consent of others.
The.re is a conflict of judicial decisions on this question. The
decision of the Al!ahabad High Court in Lal Ram.Kumar v.
B
c
D
E
F
G
ll
A
B
c
D
E
F
G
B
'" 1. '!'. '" noVINDRAH
{Subba Rao, J.)
/{ uhori Lal(') is not of any practical help to decide the present case.
There, from the conduct of the surviving partner and the heirs of
the deceased partner after the death of the said partner. the contract
between the original partners that the partnership should not be
dissolved en the death ol any of them was inferred. Though the
p3rtnership there was only between two partners, the question of
the inapplicability of s. 42(c) of the Partnership Act to such a part·
nership was neither raised nor decided therein. The same criticism
applies to the decision of the Nagpur High Court in Chainkaran
Sidhakaran Oswal v Radhakisan Vislnvanath Di.lit('). This queslion was directly raised and clearly answered by a Division Bench
0t the Allahabad High Court in Mt. Sughra v. Babu(') against tht
legality of such a term of a contract of partnership consisting of
only two partners. Agarwala, J., neatly stated the principle thus:
"In the case of a partnership consisting of only two
partners, no partnership remains on the death of one of
them and, therefore, it is a contrudiction in terms to say
that there can be a contract betwcc,1 two partners to
the effect that on the death of one of them the partner·
ship will not be dissolved but will continue .............. ..
. . ............ ..... Partnership is not a matter of. status, it is
a matter of contract. N" heir c2n be said to become a
partner with another person without his own consent,
express or implied."
This view accords with that expressed by us earlier. In Narayanan
v. Umaya[('), Ramachandra Iyer J., as he then was, said much to
the same effect when he observed thus:
" ............ if one of the partners died. there will not
be any partnership existing to which the legal representatives of the deceased partner could be taken in. In such a
case the partnership would come to an end by the death
of one of the two partners, and if the legal represen·
tatives of the deceased partner joins in the business later,
it should be referable to a new p3rtnership between
them."
But ChattCi'jee J., in Hansraj Manot v. Messrs. Corak Nath
Pandey(') struck a different note. His reasons for the contrary view
are expressed thus:
"Here the contract that has been referred to ;s the
contract between the two partners Gornk Nath and
Champa!al -. .................... Therefore, it cannot be '"id
that the contract ceased to have effect becaDse a partner
died. The contract was there. There was no new contract
(') A.I.R. 1946 All. 259.
(') A.I.R. rn;,o Xng 46.
(') A.I.R. 1962 All. 508, ,,07.
(') A.I.R. 1959 Mad. 2"?. "&4,
LjP(Xl4SC l-5
.
(') [1961] 68 O.W.!;', 262, 264.
494
SUPREME COURT REPORTS
(1965] 3 S.C.R.
with the heirs and there was no question of .a new contract
with the heirs
of the original contract, and by
virtue of the original contract the heirs become partners as
soon as one of the partners died .. .. . . . .. . .. .. .. . . As soon
as there is the death, the heirs become the partners automatically without any agreement between the original
partners by virtue of the original agreement between, the
partners while they were surviving. There is no
of interregnum. As soon as the death occurs the nght of
somebody else cccurs. The· question of interregnum does
not arise. The heirs become partners not because of a
contract between the heirs on the one hand and the other
partners on the other but because of the contract between
the original partners of the firm.'.'
With great respect to the learned Judge,
find it difficult to appreciate the said reasons. The learned Judge seems to suggest that
by reason of the contract between the
partners,
heirs
of the deceased partner enter the field smmltaneously with the
removal by death of the other partner from the partnership. This
implies that the personality of the deceased partner projects into
that of his heirs, with the result that there is a continuity of the
partnership without any interregnum. There is no support either on
authority or on principle for such a legal position. In law and in
fact there is an interregnum between the death of one and the
to him. We accept the view of the Allahabad and Madras
High Courts and reject the view expressed by Nagpur and Calcutta
High Courts;
The result of the discussion is that the partnership between
Nandlal and Bachhulal came to an end on the death of Nandlal on
December 9, 1945.
The
question is whether after the death of Nandlal a new
partnership ·was entered into between the representatives of the two
branches of the families, i.e .. Nandlal's and Bachhulal's: Before we
consider this question it is as well that we advert to incidental questions of law that were raised. One is whether the widow of Nandlal
could under Hindu law be a karta of the joint Hindu family consisting of three widows- and two minors. There is conflict of view on
this question. The Nagpur l:figh Court held that a widow could be
"' karta: see Commissioner of Income-tax, C. P. & Berar v. Seth
La.uni Narayan
Pandurang Dahke v. Pandurang
Corle('). The Calcutta High Court expressed the view that where
the male members are minors and their naturat guardian is the
mother, the mother can represent the Hindu undivided family for
the purpose of assessment and recovery of taxes under the Incometax Act: see Sushi/a Devi Rampurla v. lncome-tax Officer('); and
(')(1948) 16 I.T.R. 313.
(') I.L.R. M147tNag ..
(') (1959) 38 I.T.R .. 3rn.
A
B
c
D
E
F
G
H
c. I. T. v. GOVINDRAM MILLS (Subba Rao, J.)
495
A
Sm. Champa Kumari Singhi v. Additional Member, Board of Reve•
nue, West Bengal('). The said two decisions did not recogniz<! the
widow as a karta of the family, but treated her as the guardian of
the minors for the purpose of income-tax assessment. The said
decisions, therefore, do not touch the question now raised .. The
Madras and Orissa High Courts held that coparcenership is a necesB
sary qualification for the managership of a joint Hindu family and
as a widow is not admittedly a coparcener, she has no legal qua!ifi-.
cations to become the manager of a joint Hindu family. The decision of the Orissa High Court in Budhi Jena v. Dhobai Naik(')
followed the decision of the Madras High Court in V.M.N. Radha
Ammal v. Commissioner of Income-tax, Madras(') wherein SatyaC narayana Rao J., observed:
"The right to become a manager depends upon the
fundamental fact that the person on whom the right
devolved was a coparcener of the joint family ............ .
Further, the right is confined to the male members of the
family as the female members were not treated as coparceD
ners though they may be members of the joint family."
Viswana tha Sastri J., said :
"The managership of a joint Hindu family is a creature of law and in certain circumstances, could be created
by an agreement among the coparceners of the joint
E
family. Coparcenership is a necessary qualification for
managership of a joint Hindu family."
F
G
H
Thereafter, the learned Judge proceeded to state:
"It will be revolutionary of all accepted principles of
Hindu law to suppose that the seniormost female member
of a joint Hindu family, even though she has adult sons
who are entitled as coparceners to the absolute ownership
ofthe property, could be the manager of the family .......
.. .. . . .. .. . .. .. . .. .. . She would be the guardian of her minor
sons till the eldest of them attains majority but she would
not be the manager of the joint family for she is not a
coparcener."
The view expressed by the Madras High Court is in accordance
with well
o_f Hii:idn law, while that expressed by
the Nagpur High .court 1s m d!fect conflict with them. We are
clearly of the opm10n that the Madras view is correct.
. Anotho:r.
which is also equally well settled may be
A iomt Hmd_u family as such cannot be a partner in a firm,
but 1t may,
Its karta enter into a valid partnership with a
stranger or with the karta of another family. This Court in Kshetrtt
(') (1961) 46 .T.T.R. 81
(') A.I.R.
Ori"• 6
(') (1950) 18 I.T.R. 225, !30, 232, 233.
.
496
SUPREME COURT REPORTS
(1965] 3 s.o.R.
Mohan Sanyasi Charan Sadhukhan v. C.E.P.T.(') pointed out that
A
when two kartas of different families constituted a partnership the
other members of the families did not become partners, though the
karta might be accountable to them.
The question, therefore, is whether after the death of Nandlal
the representatives· of the two families constituted a new partner• B
ship and carried on the business of the Sugar Mills. Admittedly no
fresh partnership deed was executed: between Banarsibai, acting as
the guardian of the minors in Nandlal's branch of the family and
Bachhulal. It is not disputed that partnership between the representatives of two families can be inferred from conduct. Doubtless tho
accounts produced before the income-tax authorities disclosed that c
Bachhulal was carrying on the business of "Seth Govindram Sugar
Mills Ltd." in the same manner as it was conducted before the
death of Nandlal. Therein Kalooram Govindram and Gangaprasad
Bachhulal were shown as partners, Govindram having 10 annas
sh;u:e and Bachhulal having 6 annas share. There were separate
current accounts for the two parties. The Appellate Assistant ComD
mi<>sioner, who examined the accounts with care, gave the followdetails from the accounts as on November l, 1948:
Joint ca.pita.I account of Kaloora.m
Govindram and Gangapra.sad
Ba.chhulaJ in the ratio of 10 : 6
Current Accounts:-
Gangaprasad Bachhulal
Credit balance
Do.
Rs.
. 10,78,660
10,46,797
Kalooram Govindram
Do.
8,30,348
Profit & LoBS Account
Debit balance
14,01,669
E
No profit or loss was adjusted to the current account of the
F
parties. Thereafter the accounts were closed as on
when
the capital account was squared up by transferring that much loss
from the profit and loss account and balance in the profit and loss
account was transferred in the ratio of 10: 6 to the current accounts of the two parties.
Thus the profit and loss account showed:-
G
Net debit balance incJuding current;
year's loss
Loss set off aga.inst capital account
, .
Transferred to partners' a.ccounts:-
Messrs. Kalooram Govindra.m
Messrs. Ganga.pre.sad Bachhulal
Balance
------
(') [1954] S.C.R. 268
Rs.
4,20,829
2,62,497
Rs.
17,61,992
10,78,666
6,73,326
6,73,326
Nil
H
A
B
c
D
E
F
G
.fl
0. I. T. v. GOVINDRAM MILLS (Subba Rao, J.)
497
The accounts only establish that Bachhulal was doing the business
of Govindram Sugar Mills Ltd. But Banarsibai's name was not
found in the accounts. If she was a partner, her name should have
found a place in the accounts. Not a single document has been
produced on behalf of the assessee which supports the assertion that
Banarsibai acted as a partner or was treated by the customers of the
firm as a partner. There is not a little of evidence of conduct of
Bachhulal, Banarsibai or even of third parties who had dealings
with the firm to sustain the plea that Banarsibai was a partner of
the firm. Indeed, the conduct of the parties was inconsistent with
any such partnership between Banarsibai and Bachhulal. After the
death of Nandlal, Banarsibai and Shantibai applied to Jaora District Court for the appointment of guardians to look after the properties and the persons of the two minors; and on January 21, 1946,
four persons other than these two widows were appointed as guardians of the minors. If Banarsibai was acting as a guardian of the
minors representing the family in the business, she would not have
applied for the appointment of others as guardians. On October 4,
1952, a partnership deed was drawn up between Bachhulal on the
one hand and the minors represented by the said four guardians on
the other. If Banarsibai was the representative of the family in the
business, this document would not have come into being Banarsibai
also had no place in another partnership de.ed which was executed
on March 27, 1953, between Venkatlal represented by the aforesaid
guardians and Bachhulal. The evidence, therefore, demonstrates
beyond any reasonable doubt that Banarsibai was nowhere in the
picture and that Bachhulal carried on the business of the Sugar
Milis on behalf d the two families. Nor is there any evidence to
show that from 1943 till the assessment year the guardians of the
minors appointed by the District and Sessions Judge, Jaora, in 1946
the minors entered into a partnership with Bachhula!.
The partnership deeds of 1952 and 1953 were subsequent to the
order of assessment and they contain only self-serving statements
and they cannot, in the absence of any evidence, sustain the plea of
earlier partnership. Indeed, the guardians were only appointed for
the properties situated within the jurisdiction of the District Judge,
J aora, and they could not act as guardians in respect of the properties outside the said jurisdiction. If they were acting as partners with
Bachhulal, their names would have been mentioned either in the
accounts or in the relevant documents pertaining to the business.
The conflicting version given by the assessee in regard to person
or persons who actually ·represented the family in the partnership
in itself indicates the falsity of the present version. It must, therefore, be held that the Court guardians did not enter into a partnership with Bachhulal.
But, Venkatlal became a major on December 13, 1949, i.e.,
during the accounting year 1949-50. On October 17, 1951, an ap·
plication for registration was received by the Income-tax Officer
SUPREME COURT REPORTS
[1965] 3 S.C.R.
signed by Venkatlal and Bachhula1 wno are shown as partners
representing their respective joint families. The return of income
submitted along with the application for registration was signed by
Venkatlal on August 29, 1951. After Venkatlal became a major,
there was no obstae!e in his representing his branch of the family;
in the partnership. Indeed, it w:i.s conceded in the High Court that
there was a partnership from December 13, 1949, when Venkatla1
attained majority. Having regard to the said circumstances and the
concession, we must hold that from December 13, 1949, the business was carried on in partnership between Venkatlal, representing
his branch of the family, and Bachhulal, representing his branch of
the family.
In the result we set aside that part of the finding of the High
Court holding that the partnership business was carried on by the
representatives of the two families after the death of Nandlal, but
confirm the finding to the extent that such a partnership came into
existence only after December 13, 1949. In this view, we answer the
two questions referred to the High Court as under:
(!) For the assessment year 1950-51 the status of the
assessee was that of a firm within the meaning of s. 16
(l)(b) of the Income-tax Act, 1922.
(2) The Tribunal misdirected itself in law in reaching the
conclusion that the parties could not be regarded as
partners.
In the result the appeals are dismissed. But as the respondent failed
in its main contentions, the parties will bear their own costs in this
Court.
·
A ppea/s dismissed.
A
B
c
D
E