Case: Commissioner Of Income-Tax, Punjab Vs. M/S. Chander Bhan Harbhajan Lal

1817, Subba Rao, J. observed:"A partner of a firm can certainly secure his capital from any source or surrender his profits to his sub-partner or any other person. Those facts cannot conceivably convert a valid partnership into a bogus one."8. The statements of Harbhajan Lal and other partners of the assessee firm do not carry the matter any further. In the statement dated January 30, 1954, Harbhajan Lal clearly stated that the assessee firm consisted of 14 partners as mentioned in the deed of partnership, dated December 5, 1952. It is true that he stated also that Gosain Chander Bhan was a partner not in his individual capacity but on behalf of the Ferozepore firm, but this statement must be read in the background of the clause in the partnership deed constituting the Ferozepore firm, under which the partners of the Ferozepore firm were entitled to the profits and liable for the losses in the share of Gosain Chander Bhan in the assessee firm. The statement fairly read shows that only the 14 persons mentioned in the deed, dated December 5, 1952, were the partners in the assessee firm. If the 8 partners of the Ferozepore firm were partners in the assessee firm, Harbhajan Lal could not have stated that the number of the partners of the assessee firm was 14 only.9. Counsel for the appellant pointed out that the High Court erroneously assumed that the partnership deed constituting the Ferozepore firm was, dated June 14, 1954, whereas, in fact, this partnership was, dated June 14, 1952. Counsel for the appellant rightly pointed out that on the erroneous assumption that the partnership deed constituting the Ferozepore firm was executed after December 5, 1952, when the assessee firm was constituted, the High Court held that there was a sub-partnership between Goasin Chander Bhan and the other partners in the Ferozepore firm in respect of the share of Gosain Chander bhan in the assessee firm. Counsel then contended that, in law a sub-partnership can be entered only after the partnership is constituted, and, therefore, there, was no sub-partnership between the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan in the assessee firm. In support of this contention, counsel relied on the following passage in Lindley on Partnership, 12th Edn., pp. 99-100:"A sub-partnership is, as it were, a partnership within a partnership; it presupposes the existence of a partnership to which it is itself subordinate."We need not enquire into the correctness of counsels assumption that this passage is an authority for the proposition that there cannot be an agreement of sub-partnership in anticipation of the head partnership coming into existence. But the question whether the relevant clause in the deed, dated June 14, 1952, created a sub-partnership in respect of the share of Chander Bhan in the assessee firm having regard to the fact that this deed was executed before the assessee firm came to be constituted is not material for the purpose of the case, and need not be decided. The clause regulated the relationship of the partners of the Ferozepore firm inter se, and created a partnership between them in respect of the share of Gosain Chander Bhan in the assessee firm. Assuming, without deciding, that this partnership was not, strictly speaking, a sub-partnership, it does not follow that the partners of the Ferozepre firm became partners in the assessee firm. By reason of this clause vis-a-vis the partners of the Ferozepore firm, Gosain Chander Bhan could be regarded as their representative in the assessee firm; nevertheless, they were strangers to the contract of partnership constituting the assessee firm, and did not become partners therein. In Commissioner of Income-tax v. Bagyalakshmi and Co., 1965-55 ITR 660 at p. 664: (AIR 1965 SC 1708 at p. 1710), Subha Rao J. observed:"A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the karta of a joint Hindu family; he may be a trustee; he may enter into a sub-partnership with others; he may, under an agreement, express or implied, be the representative of a group of persons, he may be a benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity, qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with the terms of the agreement, as the case may be."10. Quite plainly, the relevant clause in the deed, dated June 14, 1952 was not part of the agreement of partnership, dated December 5, 1952, constituting the assessee firm, and did not affect the right of the partners of the assessee firm, to claim registration of the assessee firm under S. 26-A. It is not possible to say that there are no materials on the record to support the finding that Gosain Chander Bhan was a partner of the assessee firm in his individual capacity and not as representing the Ferozepore firm. The question whether there was a sub-partnership between the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan is not material because assuming that there was no sub-partnership, the members of the Ferozepore firm did not become partners in the assessee firm by virtue of the relevant clause in the deed, dated June 14, 1952 or otherwise. We are, therefore, satisfied that no substantial question of law arises out of the order of the Appellate Tribunal.11. Counsel for the appellant submitted that as a question of law arose out of the order of the Tribunal, the High court was bound to call for a statement of case.

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

Explanation:
1[ds]The deed, dated December5, 1952 clearly stated that Gosain Chander Bhan and 18 other parties to the deed were the partners of the assessee firm. On the face of the deed, it does not appear that Gosain Chander Bhan was a partner in a representative capacity on behalf of the Ferozepore firm, or that the Ferozepore firm was the partner in the assessee firm. On the material on the record, the Appellate Tribunal was entitled to come to the conclusion that Gosain Chander Bhan and not the Ferozepore firm was the partner in the assessee firm.8. The statements of Harbhajan Lal and other partners of the assessee firm do not carry the matter any further. In the statement dated January 30, 1954, Harbhajan Lal clearly stated that the assessee firm consisted of 14 partners as mentioned in the deed of partnership, dated December 5, 1952. It is true that he stated also that Gosain Chander Bhan was a partner not in his individual capacity but on behalf of the Ferozepore firm, but this statement must be read in the background of the clause in the partnership deed constituting the Ferozepore firm, under which the partners of the Ferozepore firm were entitled to the profits and liable for the losses in the share of Gosain Chander Bhan in the assessee firm. The statement fairly read shows that only the 14 persons mentioned in the deed, dated December 5, 1952, were the partners in the assessee firm. If the 8 partners of the Ferozepore firm were partners in the assessee firm, Harbhajan Lal could not have stated that the number of the partners of the assessee firm was 14for the appellant rightly pointed out that on the erroneous assumption that the partnership deed constituting the Ferozepore firm was executed after December 5, 1952, when the assessee firm was constituted, the High Court held that there was a sub-partnership between Goasin Chander Bhan and the other partners in the Ferozepore firm in respect of the share of Gosain Chander bhan in the assessee firm. Counsel then contended that, in law a sub-partnership can be entered only after the partnership is constituted, and, therefore, there, was no sub-partnership between the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan in the assessee firm. In support of this contention, counsel relied on the following passage in Lindley on Partnership, 12thclause regulated the relationship of the partners of the Ferozepore firm inter se, and created a partnership between them in respect of the share of Gosain Chander Bhan in the assessee firm. Assuming, without deciding, that this partnership was not, strictly speaking, a sub-partnership, it does not follow that the partners of the Ferozepre firm became partners in the assessee firm. By reason of this clause vis-a-vis the partners of the Ferozepore firm, Gosain Chander Bhan could be regarded as their representative in the assessee firm; nevertheless, they were strangers to the contract of partnership constituting the assessee firm, and did not become partnerse need not enquire into the correctness of counsels assumption that this passage is an authority for the proposition that there cannot be an agreement ofin anticipation of the head partnership coming into existence. But the question whether the relevant clause in the deed, dated June 14, 1952, created ain respect of the share of Chander Bhan in the assessee firm having regard to the fact that this deed was executed before the assessee firm came to be constituted is not material for the purpose of the case, and need not beQuite plainly, the relevant clause in the deed, dated June 14, 1952 was not part of the agreement of partnership, dated December 5, 1952, constituting the assessee firm, and did not affect the right of the partners of the assessee firm, to claim registration of the assessee firm under S.It is not possible to say that there are no materials on the record to support the finding that Gosain Chander Bhan was a partner of the assessee firm in his individual capacity and not as representing the Ferozepore firm. The question whether there was abetween the members of the Ferozepore firm in respect of the share of Gosain Chander Bhan is not material because assuming that there was nothe members of the Ferozepore firm did not become partners in the assessee firm by virtue of the relevant clause in the deed, dated June 14, 1952 or otherwise. We are, therefore, satisfied that no substantial question of law arises out of the order of the Appellate Tribunal.