A partnership between a Karta of a Hindu Undivided Family and a coparcener in his individual capacity is valid, even if the coparcener contributes only skill and labor, and the admission of minors to the benefits of the partnership does not affect the validity of the partnership.

JUDGMENT - Mrs. SUJATA MANOHAR, J.:---The Assessee is a partnership firm. The Assessee firm originally consisted of two partners (1) Mahendrakumar J. Gandhi and (2) Harshadkumar J. Gandhi. A minor brother Nikhilkumar J. Gandhi was admitted to the benefit of the partnership. This was under the partnership deed of 1-5-1959. Thereafter a fresh partnership deed was executed on 5-11-1964. Under this partnership deed Mahendrakumar J. Gandhi became a partner as the Karta of his H.U.F. comprising of himself, his wife and his two minor sons and one minor daughter. The other partners of the firm were Harshadkumar Jayantilal Gandhi and Nikhilkumar Jayantilal Gandhi, who had by then attained majority. Under the partnership deed the three minor children of Mahendrakumar were admitted to the benefit of partnership. The respective share of the partners were --

Mahendrakumar Jayantilal Gandhi (HUF) -- 30%

Harshadkumar Jayantilal Gandhi -- 20%

Nikhilkumar Jayantilal Gandhi -- 20%

and each of the three minor children of Mahendrakumar were admitted to the benefit of partnership to the extent of 10%. The Assessee firm, as constituted under the partnership deed of 5-11-1964, applied for registration of the assessment year 1966-67 and for continuation of registration for the subsequent assessment years. The Income-tax Officer refused registration holding that the minors had not brought in any capital in the partnership firm. Their father, who was the Karta of the H.U.F., was the partner and hence the firm was not a valid partnership firm. The Appellate Assistant Commissioner as well as the Tribunal had dismissed the appeals filed before them by the Assessee. From the order and the judgment of the Tribunal the following question is referred to us under section 256(1) of the Income-tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Income-tax Officer was right in refusing to register the firm for 1966-67 to 1970-71 assessment years and assessing the said firm in the status of an Association of Persons ?"

2. In the case of (Ratanchand Darbarilal v. Commissioner of Income-tax)1, reported in 1985(155) I.T.R. 720, the Supreme Court said that it was a well settled proposition applicable to Hindu law that members of the joint family and even coparceners could, without disturbing the status of the joint family of the coparcenary, acquire separate property or run independent business for themselves. It is, therefore, possible for a coparcener to become a partner in a firm in which the H.U.F. is also a partner. The coparcener can invest his independent property in such a partnership firm. The Supreme Court further said that if such a firm is genuine, it is entitled to registration. It observed that the partnership must be genuine and must actually have existed in conformity with the terms and conditions of the instrument of partnership in the accounting year. Once such conditions are satisfied, it is the obligation of the I.T.O. under the Act to extend the benefit of registration and allow the firm to enjoy the benefits provided by the Act.

3. In the case of (Chandrakant Manilal Shah v. Commissioner of Income-tax)2, reported in 193 I.T.R. p. 1 the Supreme Court considered the case where the Karta of a Hindu Undivided Family constituted a partnership along with one of the coparceners who had joined the partnership as a working partner. The coparcener did not contribute any cash asset towards the capital of the firm and was contributing only his skill and labour. The Supreme Court said that the mere fact that the coparcener had neither separated from the family nor brought in any cash asset as his capital contribution to the partnership but was contributing only his skill and labour, could not in law detract from a valid partnership being created. The partnership between the Karta and the coparcener who was his son was valid and the firm was entitled to registration. The Court said that skill and labour are assets of an individual a

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