Law:

Section:

Section 2(23) of the Income-tax Act, 1961 [Corresponding to section 2(6B) of the Indian Income-tax Act, 1922] - Firm - Definition of - Assessment year 1938-39 - Whether there can be a valid partnership between karta as representing HUF on one hand and a member of that HUF in his individual capacity, on other hand in respect of his separate and individual property - Held, yes FACTS 'T', a Hindu had two sons, 'C' and assessee. 'C' had three sons and assessee had seven sons, two of who were named 'D' and 'K'. Shortly before his death 'T' made a gift of Rs. 30,000 to 'D'. 'D' deposited this sum at interest with the firm of the joint family carried on by 'C' and assessee. The family was governed by the Mistakshara law. In 1938, a partition took place between 'C' and his sons on the one hand and assessee and his sons on the other. Assessee and his sons, however, remained joint. 'D' was repaid his deposit with interest, and this sum he invested in certain mills which were the property of a partnership consisting of the undivided family of the assessee and his sons of the one part and 'D' in his individual capacity of the other part. In the assessment for the year 1938-39, the ITO, held that the mills belonged to the joint family and that the sum should be treated as a loan by 'D' to the family. The assessment was made accordingly. On appeal, the AAC upheld the order of the ITO. The Tribunal allowed the second appeal, holding that the mills belonged to a partnership consisting as stated above. On reference, the High Court held that there could not be a valid partnership between assessee as representing an HUF on the one hand and 'D', a member of that HUF in his individual capacity, on the other. On appeal to the Privy Council : HELD There was no sound reason to distinguish the case of a stranger from that of a coparcener who puts into the partnership what is admittedly his separate property held in his individual capacity and unconnected with the family funds. Whatever the view of a Hindu joint family and its property might have been at the early stages of its development, it was now firmly established that an individual coparcener, while remaining joint, can possess,…

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