Partnership between two Hindu Undivided Families (HUF)

Issue relating to Registration of Partnership firm formed by two Hindu Undivided Families for the purposes of provisions of the Income Tax Act and conditions necessary in connection related thereto.

In the judgment as passed by the Supreme Court in Ratanchand Darbarilal vs Commissioner of Income Tax, M.P. dated 16.08.1985 (AIR 1985 SC 1572=(1985) 48 CTR SC 349) the Court dealt with the issue relating to Registration of Partnership firm formed by two Hindu Undivided Families for the purposes of provisions of the Income Tax Act and conditions necessary in connection related thereto. The holding arrived at in this matter can certainly be considered as timeless ratio and worth including in this category. The Apex Court in the above case while negating the view taken in the impugned judgment passed by the High Court held that Members of the joint family and even co-partners can, without disturbing the status of the joint family or the coparcenary, acquire separate property or run independent business for themselves. By living within the joint family or being coparceners, the members could draw a part of their interest in the family business and invest the same in their separate business. The Apex Court following the view taken in the matter of R.C. Hitter & Sons v. C.I.T. (36 I.T.R. 194), affirmed the conditions to be satisfied in order that a firm may be entitled to registration and the conditions are as under: (i) The firm should be constituted under an instrument of partnership specifying the individual share of the partners; (ii) An application on behalf of and signed by all partners and containing all the particulars as set out in the Rules must be made; (iii) The application should be made before the assessment of the firm under Section 23 of the Act for that particular year; (iv) The profits or loss, if any, of the business relating to the accounting year should have been divided or credited, as the case may be, in accordance with the terms of the instrument; and (v) The partnership must be genuine and must actually have existed in conformity with the terms and conditions of the instrument of partnership in the accounting year. Once the above conditions are satisfied, it is then the obligation of the Income-tax Officer under the Act to extend the benefit of registration and allow the firm to enjoy the benefits provided by the Act.