JUDGMENT
Sujata Manohar, J.
1. The Assessee is a partnership firm. The Assessee firm originally consisted of two partners (1) Mahendrakumar J. Gandhi and (2) Harshadkumar J. Gandhi. A minor brother Nikhilkumar J. Gandhi was admitted to the benefit of the partnership. This was under the partnership deed of 1-5-1959. Thereafter a fresh partnership deed was executed on 5-11-1964. Under this partnership deed Mahendrakumar J. Gandhi became a partner as the Karta of his H.U.F. comprising of himself, his wife and his two minor sons and one minor daughter. The other partners of the firm were Harshadkumar Jayantilal Gandhi and Nikhilkumar Jayantilal Gandhi, who had by then attained majority. Under the partnership deed the three minor children of Mahendrakumar were admitted to the benefit of partnership. The respective share of the partners were —
Mahendrakumar Jayantilal Gandhi (HUF) — 30%
Harshadkumar Jayantilal Gandhi — 20%
Nikhilkumar Jayantilal Gandhi — 20%
and each of the three minor children of Mahendrakumar were admitted to the benefit of partnership to the extent of 10%. The Assessee firm, as constituted under the partnership deed of 5-11-1964, applied for registration of the assessment year 1966-67 and for continuation of registration for the subsequent assessment years. The Income-tax Officer refused registration holding that the minors had not brought in any capital in the partnership firm. Their father, who was the Karta of the H.U.F., was the partner and hence the firm was not a valid partnership firm. The Appellate Assistant Commissioner as well as the Tribunal had dismissed the appeals filed before them by the Assessee. From the order and the judgment of the Tribunal the following question is referred to us under section 256(1) of the Income-tax Act, 1961 :
“Whether, on the facts and in the circumstances of the case, the Income-tax Officer was right in refusing to register the firm for 1966-67 to 1970-71 assessment years and assessing the said firm in the status of an Association of Persons ?”
2. In the case of Ratanchand Darbarilal v. Commissioner of Income-tax, reported in 1985(155) I.T.R. 720, the Supreme Court said that it was a well settled proposition applicable to Hindu law that members of the joint family and even coparceners could, without disturbing the status of the joint family of the coparcenary, acquire separate property or run independent business for themselves. It is, therefore, possible for a coparcener to become a partner in a firm in which the H.U.F. is also a partner. The coparcener can invest his independent property in such a partnership firm. The Supreme Court further said that if such a firm is genuine, it is entitled to registration. It observed that 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 such conditions are satisfied, it is the obligation of the I.T.O. under the Act to extend the benefit of registration and allow the firm to enjoy the benefits provided by the Act.
3. In the case of Chandrakant Manilal Shah v. Commissioner of Income-tax, reported in 193 I.T.R. p. 1 the Supreme Court considered the case where the Karta of a Hindu Undivided Family constituted a partnership along with one of the coparceners who had joined the partnership as a working partner. The coparcener did not contribute any cash asset towards the capital of the firm and was contributing only his skill and labour. The Supreme Court said that the mere fact that the coparcener had neither separated from the family nor brought in any cash asset as his capital contribution to the partnership but was contributing only his skill and labour, could not in law detract from a valid partnership being created. The partnership between the Karta and the coparcener who was his son was valid and the firm was entitled to registration. The Court said that skill and labour are assets of an individual and there is no reason why they cannot be considered as a contribution for earning profit in the business of a firm. The Supreme Court in its judgment explained its earlier observations in Ratanchand Darbarilal v. Commissioner of Income-tax, reported in 155 I.T.R. p. 720, and overruled the judgment of the Bombay High Court in Shah Prabhudas Gulabchand v. Commissioner of Income-tax, reported in 77 I.T.R. p. 870 and the judgment of the Gujarat High Court in Pitambardas Bhikhabhai & Co. v. Commissioner of Income-tax, reported in 53 I.T.R. p. 341. The Supreme Court said that it would be incorrect to hold that there can be a partnership between the Karta of the Hindu Undivided Family and its individual member only when he brings in some capital asset. The Supreme Court in the above case also explained its earlier decision in Firm Bhagat Ram Mohanlal v. Commissioner of Excess Profits Tax, reported in 29 I.T.R. p. 521 and clarified that it would be incorrect to hold that the Karta of the Hindu Joint Family can form a partnership with one of the coparceners only if he brings in capital in his individual capacity.
4. The legal position, therefore, is that there can be a valid partnership between a Karta and a coparcener in his individual capacity. The coparcener who becomes a partner may bring in capital from out of his self-acquired property or he may contribute his skill and labour without bringing in any capital contribution. If the partnership is formed for the purpose of carrying on a business to earn profits and is genuine, there is no reason why it cannot be registered.
5. See also in this connection Commissioner of Income-tax v. Sir Hukumchand Manalal & Co., reported in 78 I.T.R. p. 18 and Lachhman Das v. Commissioner of Income-tax, reported in 16. I.T.R. p. 35. Dr. Balasubramanium, who appeared for the department, relied upon a decision of the Bombay High Court in the case of Manilal Dharamchand v. Commissioner of Income-tax, reported in 1970(78) I.T.R. p. 96. The Bombay High Court in that case held that there cannot be a partnership in law where the Karta of a Hindu Undivided Family has become a partner in a partnership firm in which a coparcener has also become a partner in his individual capacity in respect of the family property brought into the partnership. The Supreme Court has now clarified its decision in Firm Bhagat Ram Mohanlal’s case in the case of Chandrakant Manilal Shah (supra). The judgment of the Bombay High Court above must therefore be read in the light of the Supreme Court judgment in the case of Chandrakant Manilal Shah.
6. In the present case there is a partnership between Mahendrakumar Jayantilal Gandhi as the Karta of his Joint Hindu Family, Harshadkumar Jayantilal Gandhi and Nikhilkumar Jayantilal Gandhi. There is no reason to hold that this is not a genuine partnership firm for the purpose of carrying on a business to earn profit. The three minor children of Mahendrakumar have been admitted to the benefits of the partnership. The minors are clearly not partners of the firm as they cannot be partners, being minors. They are only admitted to the benefit of the partnership under section 30 of the Partnership Act. Such admission of minors to the benefits of the partnership cannot render the partnership firm invalid. The minors are not partners of the firm and therefore their entitlement to the benefits of partnership does not affect the constitution of a valid partnership firm in any manner. Had they been majors, they could have become partners in view of the Supreme Court judgment in Chandulal Manilal Shah’s case. So their being given a share in the benefits of the partnership cannot render the partnership invalid. The partnership is between the Karta of the Joint Hindu Family and two other persons. Such partnership is valid in law. We are not here concerned with the manner in which income from the partnership can be assessed in the hands of the minors.
7. In the premises, the question which is referred to us is answered in the negative and in favour of the Assessee.
8. The question is answered accordingly.
No order as to costs.