(Appeal by special leave from the judgment and order dated July 22, 1974, of the Bombay High Court in I.T.R. No.45 of 1965).

Income-tax---

----Firm---Registration---M and his son S partners in firm in individual capacity---Death of M---S forming partnership with C (M's widow)---C representing the family of the deceased---Partnership valid and entitled to registration.

M and his son, S were partners in a firm in their individual capacity, sharing profits equally. Their respective shares in the income of the firm were assessed in their hands as their individual profits. On M's death, a fresh deed of partnership was drawn under which S, the son, had taken his mother C (i.e. M's widow) as a partner representing the family of the deceased, M. The parties, the Appellate Tribunal and the High Court proceeded on the footing that M's interest in the firm survived to the other members of his family and, in this view, the High Court held that C was not competent to act as Karta and was not entitled to enter into a partnership with her son S. On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that since M was a partner in his individual capacity, on his death, his interest devolved on C and S, both inheriting in equal shares. They were fully competent to enter into a partnership in regard to the business and the firm was entitled to registration.

Decision of the Bombay High Court reversed. .

B.K. Mehta, Senior Advocate with Mrs. Aniali K. Verma, Advocate (of M/s. J.B. Dadachanji & Co.) for Appellant.

B.B. Ahuja, and Ms. A. Subhashini, Advocates for Respondent.

JUDGMENT

This is an appeal from a decision of the Bombay High Court in a reference made to it under section 66(1) of the Indian Income-tax Act, 1922, in relation to the assessment year 1959-60 in respect of which the relevant previous year as the Samvat Year 2014. A few facts may be stated just to clarify the real issue that has arisen in the case. Mohan Lal Daulat Ram and his son, Sevanti Lal, were partners under a deed of partnership dated November 12, 1953, under which the partners shared profits equally, but the goodwill was to belong solely to Mohan Lal. It is important here to mention that Mohan Lal Daulat Ram and Sevanti Lal were partners in the firm in their individual capacity. Their respective shares of income from the firm were assessed in their hands as their individual profits.

Mohan Lai Daulat Ram died on December 17, 1955. Thereupon, a fresh deed of partnership was drawn up on December 26, 1955, which was to take effect from December 18,1955. Under that deed, the partners of the firm were Sevanti Lal and his mother, Bai Chandanbai. It was, however, recited in the deed that Sevantilal "has taken Bai Chandanbai, widow of Mohan Lal Daulat Ram, as a partner (representing the family of the deceased Mr. Mohan Lai Daulat Ram)".

The question before the High Court was whether this was a valid partnership and the question referred to the High Court was whether the partnership "which was allegedly brought into existence by the deed of December 26, 1955, wherein the other partner was Bai Chandanbai, the widow of Mohan Lal Daulat Ram, as representing the family of the deceased Mohan Lal Daulat Ram, could be said to be a valid partnership brought into existence or not".

The recital in the partnership deed appears to have created a lot of misapprehension in the minds of the parties. Both parties, the Tribunal and the High Court have proceeded on the footing that, on the death of Mohan Lal Daulat Ram, his interest in the partnership survived to the other members of the family consisting of Bai Chandanbai (widow of Mohan Lal Daulat Ram) and Sevantilal. In this view of the matter, it was held by the High Court that Bai Chandanbai, the widow of Mohan Lal Daulat Ram, was not competent to act as Karta of the family and was not entitled to enter into the partnership as a coparcener, since there are judicial decisions to the effect that, under the Hindu law, a female member cannot become the Karta of a joint Hindu family.

We think that the answer given by the High Court to the reference has been coloured by misapprehension. As we pointed out at the very outset, there is no dispute that Mohan Lal Daulat Ram was a partner in his individual capacity in the firm. On his death, his interest in the partnership devolved on his widow, Bai Chandanbai, and his son, Sevantilal. After the death of Mohan Lal Daulat Ram, his widow, Bai Chandanbai, and the son, Sevantilal, both inherited in equal shares the property of the deceased and they were fully competent to enter into a partnership is regard to the business.

We, therefore, set aside the order passed by the High Court and hold that the Tribunal was right in granting registration to the assessee-firm, though not for the reasons mentioned by it.

Shri B.B. Ahuja, learned counsel for the respondent, vehemently contended that, all through, the case has proceeded on the footing that, on the death of Mohan Lal Daulat Ram, his interest in the firm became the property of the joint Hindu family of Mohan Lal Daulat Ram. This is no doubt true.

But, on the admitted facts as set out in the statement of case, this is not the correct position. The real position we have set out follows on the facts stated and found. We are, therefore, of the opinion that the Tribunal's final conclusion should be upheld.

We, therefore, allow the appeal and restore the decision of the Tribunal. There will, however, be no order as to costs.

M.BA.1228/T????????????????????????????????????????????????????????????????????????????????????? Appeal allowed.