Law: Income Tax Act, 1961

Section: 256

Section 256 of the Income-tax Act, 1961 - Reference - Question of law - One B, karta of his HUF, entered into a sub-partnership with his son, who was a coparcener in said HUF, to share profits of a firm, income from which was formerly being assessed in B's hands as karta of HUF - Whether any question of law arose from Tribunal's order granting registration to said sub-partnership - Held on facts, yes Facts One B, as karta of his HUF, was a partner in a number of firms. On 1-11-1963 he entered into an agreement of sub-partnership with his son, a coparcener in the said HUF, to share profits derived from a firm. Prior thereto the income from the said firm was being assessed in the hands of B as income of the HUF. The benefit of registration was granted to the said sub-partnership for the assessment year 1964-65 and registration was allowed to continue for the assessment year under consideration namely, 1965-66. Later on, while dealing with the partial partition plea during the assessment case of the HUF relating to the year 1971-72, the ITO being of the view that no partial partition had ever taken place, cancelled the continuance of registration of the said sub-partnership for the assessment year 1965-66. On appeal, the Tribunal, however, restored the registration of the said sub-partnership. The Tribunal also rejected the revenue's application for reference under section 256(1). On application under section 256(2) : Held In the case of Bhagat Ram Mohan Lal v. CEPT [1956] 29 ITR 521, the Supreme Court held that a coparcener cannot be a partner with the karta of an HUF with the aid of assets of the family which obviously means that he can enter into a partnership if he has individual assets apart from his share in the HUF's assets. Therefore, two questions of law, namely, whether a genuine partnership did exist between B as representing his HUF and his son and whether there was no legal bar on the karta of an HUF entering into a partnership with a coparcener of the HUF did arise from the Tribunal's order, in the instant case. Accordingly, the Tribunal was directed to refer the case to the Court. Cases referred to CIT v. Sir Hukumchand Mannalal & Co. [1970] 78…

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