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

1. A deed of partnership for carrying on the business of a sugar factory in the name and style of M/s. Ram Laxman Sugar Mills, hereinafter called " the", was executed on August 21, 1939. There were two parties to the deed, the first party being Lala Suraj Bhan of Delhi representing the joint Hindu family of Dina Nath Nanak Chand, and Lala Debi Pershad, Lala Jwala Pershad, Lala Sheo Pershad, Lala Ganpat Pershad Lala Maidhan, Lala Mai Diyal and Lala Matu Ram collectively referred to as the second party. There was a partial partition on August 21, 1947, among the members of Dina Nath Nanak Chand and the joint family status was severed. By deed dated September 8, 1943, the eight annas share which was allotted to Lala Suraj Bhan in thewas divided between the four members of the family : four annas going to Lala Suraj Bhan and the remaining four annas to three other members. By a subsequent deed dated March 18, 1950, this arrangement was confirmed. The application of thefor registration under section 26A of theAct for the assessment yearwas granted by order of theOfficer, and the income of thewas brought to tax as the income of a registered firm. Registration of thefor the yearalso was granted by theOfficer, but the order was cancelled by the Commissioner ofin exercise of the power under section 33B of theAct. The Commissioner was of the view that under the deed of partnership the joint Hindu family of Dina Nath Nanak Chand had become a partner and as soon as the joint family status was severed the partnership deed became inoperative, since the deed " represented a state of affairs which had becomeIn appeal, theAppellate Tribunal confirmed the order, but on different grounds. The Tribunal observed that under the deed of partnership all the members of the joint family of Dina Nath Nanak Chand called the first party and the other partners referred to as the second party had entered into the contract of partnership. Such partnership could in the opinion of the Tribunal be registered only if all the members who were partners signed the instrument of partnership and also the application for renewal of registration, and since all the members of partnership had not signed the application for renewal of registration, registration could not be grantedThe Tribunal referred under section 66(1) of theAct, 1922, the following question to the High Court of Judicature at Allahabad" Whether, on the facts and in the circumstances of the case, the order cancelling renewal of registration was proper and justified ?"2. The High Court answered the question in the affirmative. They observed that after severance of the joint family status among the members of Dina Nath Nanak Chand, the partnership deed dated August 21, 1939, ceased to represent truly the constitution of the firm, and that since all the members of the Hindu undivided family were partners under the instrument of partnership and not merely the karta, the application for renewal not signed by all the members could not be maintained. Against the answer recorded by the High Court in the affirmative, with special leave, thehas appealed to this court.

Court's reasoning:
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