Case: Ram Laxman Sugar Mills Vs. Commissioner of Income Tax, U.P., and Another

in the first instance to determine the intention of the parties, and when ambiguous expressions are used the court may normally adopt that interpretation which upholds the deed, if the parties thereto have acted on the assumption of its validity. From the mere fact that the manager of a Hindu undivided family describing himself as representing the family entered into an agreement of partnership with other persons, it cannot be inferred that an agreement of partnership was intended contrary to law between a Hindu undivided family consisting of all adult members, females, minors and even unborn persons and strangers to the family5. A partnership under section 4 of the Indian Partnership Act is " the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all." Under an agreement of partnership there must arise the relation of principal and agent inter se between the members of the partnership for the purpose of carrying on the business. The intention disclosed by the deed was that Lala Suraj Bhan was to be a partner, and he was described as manager and he signed the document in that capacity ; it did not thereby seek to bring into existence a relationship of partners between the Hindu undivided family and the other members described as the second party. Nor can it be said that by this agreement it was intended to make all the adult members of the Hindu undivided family of Dina Nath Nanak Chand partners of the assessee-firm. None of the clauses of the deed of partnership evidences an intention that the members of the partnership were to be agents inter se or agents of the members of the second party for the purpose of carrying on the business of the assessee-firm. In our view, the true interpretation of this clause is that Lala Suraj Bhan was the first party under the deed. He was merely described as the manager of the joint Hindu trading firm known and styled as Messrs. Dina Nath Nanak Chand, but thereby there was no attempt to make the family a partner of the firmReliance was placed upon certain clauses of the deed of partnership which, counsel for the Commissioner says, evidenced an intention that the members of Dina Nath Nanak Chand were to be partners of the assessee-firm, Clause 6 of the deed of partnership stated6. Notwithstanding anything herein contained to the contrary the second party may at their discretion recover their dues from the share of income of the first party on account of the profits of the said Mills.If however the first party meant Lala Suraj Bhan this clause does not indicate that the members of the joint family, of which Lala Suraj Bhan was the manager, become on that account partners. In clause 7 it was stated, inter alia:" It is declared that though the members of the second party have got their shares inter se defined the members of the second party shall be treated as one group and would be jointly entitled to the rights and be responsible for the liabilities as a partner to the first party. Likewise the members of the first party would be jointly entitled to the rights and be responsible for the liabilities as a partner to the second party7. The first part of the clause does not indicate that the members of the joint family, Dina Nath Nanak Chand, were entitled to enforce any claim against the second party. The second part is somewhat obscure. The expression " members of the first party " means, in our judgment, having regard to the other covenants, Lala Suraj Bhan alone : it was not by the use of that expression intended to invest the members of the joint family of Dina Nath Nanak Chand with the rights and liabilities of the partners. Several other clauses of the deed, e.g., clauses 8 and 15 and other clauses seek to emphasize that the members of the joint family of Dina Nath Nanak Chand were not entitled to interfere with the management or to deal with the assets of the partnership. But no implication arises therefrom that but for those covenants the members of the joint family would have the competence or the rights negatived thereby. By clause 17 it is provided that in case of death or inability of either of the managing directors to manage the business, it shall be open to the members of either parties to replace such managing director by another person from the group which was represented by the dead or incapacitated managing director. The clause only provides a scheme for the continuation of the business and does not confer any right of partnership upon the members of the joint family of Dina Nath Nanak Chand. The signature of Lala Suraj Bhan who signed the document " For and on behalf of Dina Nath Nanak Chand manager and karta " only indicates that Suraj Bhan was acting as a manager of the family in entering into the partnership agreement. Thereby he was not seeking to make the members of the joint family, Dina Nath Nanak Chand, partners of the assessee-firmThe deed has not been carefully drawn up, and somewhat inconsistent recitals have been made. But taking an overall view of the diverse covenants, we hold that the partnership agreement was between Lala Suraj Bhan on the one hand, and the named persons on the other, and the fact that Lala Suraj Bhan was originally the karta of the joint family, Dina Nath Nanak Chand, and that joint family had later ceased to exist by reason of partition will not affect the validity of the partnership or its continuance. Lala Suraj Bhan being the contracting party, the application for registration could not be rejected because the other members of the joint family, Dina Nath Nanak Chand, did not sign the application for renewal of registration of the firm for the year 1950-51

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In ascertaining the legal effect of a transaction the court seeks in the first instance to determine the intention of the parties, and when ambiguous expressions are used the court may normally adopt that interpretation which upholds the deed, if the parties thereto have acted on the assumption of its validity. From the mere fact that the manager of a Hindu undivided family describing himself as representing the family entered into an agreement of partnership with other persons, it cannot be inferred that an agreement of partnership was intended contrary to law between a Hindu undivided family consisting of all adult members, females, minors and even unborn persons and strangers to theour view, the true interpretation of this clause is that Lala Suraj Bhan was the first party under the deed. He was merely described as the manager of the joint Hindu trading firm known and styled as Messrs.The first part of the clause does not indicate that the members of the joint family, Dina Nath Nanak Chand, were entitled to enforce any claim against the second party. The second part is somewhat obscure. The expression " members of the first party " means, in our judgment, having regard to the other covenants, Lala Suraj Bhan alone : it was not by the use of that expression intended to invest the members of the joint family of Dina Nath Nanak Chand with the rights and liabilities of the partners. Several other clauses of the deed, e.g., clauses 8 and 15 and other clauses seek to emphasize that the members of the joint family of Dina Nath Nanak Chand were not entitled to interfere with the management or to deal with the assets of the partnership. But no implication arises therefrom that but for those covenants the members of the joint family would have the competence or the rights negatived thereby. By clause 17 it is provided that in case of death or inability of either of the managing directors to manage the business, it shall be open to the members of either parties to replace such managing director by another person from the group which was represented by the dead or incapacitated managing director. The clause only provides a scheme for the continuation of the business and does not confer any right of partnership upon the members of the joint family of Dina Nath Nanak Chand. The signature of Lala Suraj Bhan who signed the document " For and on behalf of Dina Nath Nanak Chand manager and karta " only indicates that Suraj Bhan was acting as a manager of the family in entering into the partnership agreement. Thereby he was not seeking to make the members of the joint family, Dina Nath Nanak Chand, partners of thedeed has not been carefully drawn up, and somewhat inconsistent recitals have been made. But taking an overall view of the diverse covenants, we hold that the partnership agreement was between Lala Suraj Bhan on the one hand, and the named persons on the other, and the fact that Lala Suraj Bhan was originally the karta of the joint family, Dina Nath Nanak Chand, and that joint family had later ceased to exist by reason of partition will not affect the validity of the partnership or its continuance. Lala Suraj Bhan being the contracting party, the application for registration could not be rejected because the other members of the joint family, Dina Nath Nanak Chand, did not sign the application for renewal of registration of the firmfor the year