Law:

Section:

Section 184 of the Income-tax Act, 1961 - Firm - Registration - Entitlement to - Assessment year 1961-62 - Whether there can be a contract inter se between undivided members of family - 'Held, yes - Whether it can be said that when a coparcener enters into a partnership with the karta of a HUF and contributes only his skill and labour, no contribution of any separate asset belonging to such partner is made to meet the requirement of a valid partnership - Held, no - Whether partnership between karta of HUF and a member of family is valid - Held, yes FACTS One C was the karta of a HUF and the family was carrying on business of cloth. N, one of the sons of C, had joined the business on a monthly salary of Rs. 100. However, with effect from 1-11-1959 the business was converted into a partnership between C as karta of HUF and N. The deed of partnership indicated that N had been admitted as a working partner with effect from 1-11-1959 having 35 per cent share in the profits and losses of the firm and the remaining 65 per cent share was held by C as the karta of the HUF. An application was made for registration of the firm which was dismissed by the ITO on the ground that there was no valid partnership. The AAC as well as the Tribunal upheld the order of the ITO. On reference, the High Court also upheld the order of the ITO. On appeal by the assessee to the Supreme Court, the revenue contended that the Hindu law does not recognise any contract among the coparceners inter se except in two cases, namely; where there was a partial partition and where a coparcener had separate property and brought in such separate property as capital towards consideration for becoming a partner, and that, though an undivided member could, by contributing separate capital, enter into a partnership with the karta qua the family business, he could not do so by offering as his contribution to the firm not material capital but only his labour and skill. HELD There was no merit in the contention of the revenue that, under the Hindu law, there can be no contract inter se between the undivided members of the family as the Supreme Court in various decisions has recognised the validity of such…

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