GULRAJ POONAMCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the I.T. Act, 1961, (hereinafter referred to as "the Act"), whereby the following questions of law have been referred by the Income-tax Appellate Tribunal, Jaipur, for the opinion of this court:

(2.) IN fact, there should have been two separate references for two different assessment years 1966-67 and 1967-68 ; but since common questions arose in two different assessment years in respect of two reference applications, the INcome-tax Appellate Tribunal sent only one statement of case and, therefore, it was registered as only one reference.

(3.) THE learned counsel for the assessee has submitted that by now the law is well settled that gift even by book entry is permissible and, in this connection, has " relied on a decision of the Delhi High Court in Indian Glass Agency v. CIT [1982] 137 ITR 245, wherein, after considering a number of authorities, the High Court has come to the conclusion that it is possible to effectuate a gift by instructing the firm, family or company to give effect to the gift by debiting his account and crediting an account in the name of the donee, and has, therefore, submitted that the gift of Rs. 11,001 in favour of Paras Mal on December 8, 1964, should beheld to be valid and, as such, Paras Mal was in a position to enter into a contract of partnership with Poonam Chand and, therefore, the partnership should not be held to be ineffective. THE ingredients of a partnership are sharing of profit, or even an agreement to share the profit, as will be obvious from a reference to Sections 184 and 185 of the I.T. Act and, since in the partnership deed dated December 9, 1964, there was an agreement to share the profit, the ITO should not have refused registration to the firm. He also referred to Section 4 of the Partnership Act, according to which, to constitute a partnership in law there must be an agreement to share the profit or loss of the business and, secondly, the business must be carried on by all the partners, or any of them acting for all. Control of business of a firm can be left by agreement between the parties on one partner to be exercised on behalf of other partners and, therefore, he has argued that even Clause 7 of the partnership deed dated December 9, 1964, will not entitle refusal of registration and, in this connection, placed reliance on K. D. Kamath and Co. v. CIT [1971] 82 ITR 680 (SC). He further submitted that a karta of a HUF can enter into a partnership with another member of a HUF and a coparcener has freedom of contract like a stranger in respect of his individual property and can enter into a partnership with the karta by contributing his separate property. He can enter into a contract in respect of skill and labour as well and since in the partnership deed it has been mentioned that Poonam Chand cannot continue to control and manage the business due to age with due promptness and efficiency it was necessary to induct Paras Mal as a partner into the business. THE partnership is perfectly valid and is entitled to registration and, in this connection, he has placed reliance on a decision of the M.P. High Court in Ramchand Nawalrai v. CIT [1981] 130 ITR 826, which has followed the decision of the Mysore High Court in J. P. Munavalli v. CIT [1969] 74 ITR 529 and has distinguished the case of Shah Prabhudas Gulabchand v. CIT [1970] 77 ITR 870 (Bom). He has also placed reliance on CIT v. Gaekwade Vasappa and Sons [1983] 143 ITR 1, a decision of the Andhra Pradesh High Court. Munavalli's case [1969] 74 ITR 529 (Mys), was also applied in Ramchand Nawalrai v. CIT [1981] 130 ITR 826 (MP) and CIT v. Gupta Brothers [1981] 131 ITR 492 (All), and they also distinguished Pitamberdas Bhikhabhai & Co. v. CIT [1964] 53 ITR 341 (Guj) and Shah Prabhudas Gulabchand v. CIT [1970] 77 ITR 870 (Bom).