Lallubhai Shah, Kt., Ag. C.J.
1. This is a reference made by the Chief Revenue Authority under Section 51 of the Indian Income-tax Act VII of 1918. The question has arisen with reference to the income of the opponent for the year ending March 31, 1921. The question referred for our decision is in these terms:
Whether the agreement dated Jane 29, 1016, between Ambalal Sarabhai and his wife Saraladevi made the business of Karamchand Premchand & Co., a partnership firm, and whether it constituted the said Saraladevi a partner of her husband Mr. Ambalal so as to render the business liable to be assessed separately to super-tax as an unregistered firm as required by Sections 3 and 4 of the Super-tax Act, 1920, as read with Section 12(1) of the Income-tax Act, 1918.
2. The answer to this question depends upon the view which we take of the said agreement of June 29, 1916. It is clear on reading Section 12(1) of the Indian Income-tax Act VII of 1918 with Section 3 of the Super-tax Act XIX of 1920, that if this agreement constitutes Karamchand Premchand & Co. a firm, then the requirements of Section 8 would be satisfied. It is common ground that it is, if a firm, an unregistered firm. After considering the arguments and the terms of the document referred to, I am of the opinion that in virtue of that agreement the business of Karamchand Fremchand & Co. is constituted a firm within the meaning of Section 12(1) of the Indian Income-tax Act VII of 1918 and of Article 3 of the Super-tax Act XIX of 1920.
3. The reasons for the contrary view have been stated at some length in the letter of reference; and the substance thereof may be stated in the words of the referring authority:
Mr. Ambalal’s contention has not been allowed on the ground that the alleged partnership is not valid in law inasmuch as the conditions of partnership are contrary to the spirit underlying the law relating to partnerships.
4. The-question has been argued before us on the footing that the requirements of the definition of “partnership” as given in Section 239 of the Indian Contract Act are not satisfied by this document. It is not necessary for the purposes of this reference to determine the general question as to whether the meaning of the word “firm” must necessarily be determined with reference to the provisions of Section 239 of the Indian Contract Act.
5. But it is contended before us on behalf of the referring authority that it is not a firm, because the requirements of Section 239 of the Indian Contract Act are not satisfied according to the terms of the document. In other words, it is contended that the persons who executed the document did not constitute a partnership within the meaning of the Indian Contract Act. The document is sufficient, in my opinion, to constitute a partnership between the two executants of the document. The first clause of the document in terms provides that the said Saraladevi Ambalal has been admitted as a partner with the said Ambalal Sarabhai. Paragraphs 2 and 3 of the document have been relied upon as indicating that as the sole control of management, and the power of determining the partnership, and of admitting new partners are reserved by Mr. Ambalal only his wife is not constituted a partner in law by this document. I am unable, however, to accept this contention.
6. This reference has been made on the footing that the document evidences a real transaction between the parties. The learned Advocate General has not suggested, and I do not think that on this reference it could be suggested, that the document does not evidence a real transaction between the parties to the document. Bat be contends that the question of law that arises is whether on a proper construction of this document the two persons are constituted partners in law. In support of his contention it is urged that there is nothing in the document to show that the parties agreed to combine their ‘. property, labour or skill in the business of Karamchand Premchand as Agents and Treasurers of the Ahmedabad Manufacturing and Calico Printing Co. Ltd. There is nothing in the document to exclude the idea of combining her property, labour or skill in the business of this firm. Indeed the papers sent up with the reference tend to show that she did agree to render herself liable to the Bank as a partner of this firm along with her husband. That involves the idea of contributing property to the business of the firm. But apart from that, even if those papers were not there, in my opinion, the idea of combining property, labour or skill is not excluded on the terms of the document. I do not think that it could be held, as contended by the learned Advocate General, that it was so excluded in this case. When the parties agree to become partners it is not necessary to state in terms that they agree to combine property, labour or skill. That may be implied: and in the present case I see nothing to exclude the idea of combining property, labour or skill when and so far as necessary between the partners. The fact that the control is kept with Mr. Ambalal and that he has certain extra rights as a major partner does not in any sense negative a partnership according to law. It is open to two partners to agree, on the lines on which they have agreed in this case, to allow the business of the partnership to be conducted by one of the partners.
7. The real reason of the reference seems to be that this is an unusual document between husband and wife, and that it is difficult to accept the idea that they have become partners in law. In my opinion, they have become partners by this document within the meaning of Indian Contract Act, and that the businsess of Karamchand Fremchand is constituted a firm. As it is an unregistered firm, my answer to the question referred to us is in the affirmative. We make no order as to costs in this case.
8. I agree. In my opinion the question referred to us must be decided on the construction of the document before us, and if on a fair and reasonable construction that document appears to constitute a partnership between these two persons, then the answer must be in the affirmative.
9. I assume for the purposes of this reference, though the point is by no means free from doubt, that we must apply the definition contained in Section 289 of the Indian Contract Act in considering the question of the construction of this document. The first clause in this document, as I read it, constitutes a partnership between Ambalal and his wife, and if that is so, the inference would be, having regard to the definition in Section 239 of the Indian Contract Act, that those two persons did agree to combine their property, labour or skill in the business which forms the subject of the document. There is nothing before us to exclude that interpretation of the word ‘partnership’ and therefore prima facie a partnership is constituted. The second clause of the agreement, on which some stress has been laid, merely provides for the exercise of the management of the firm by Ambalal alone, a matter which is not uncommon in partnerships, and which in itself does not affect the question before us. The third clause of the agreement reserves certain powers to Ambala, but unless and until those powers are exercised, I cannot see how the existence of those powers prevents the document constituting a partnership between these two persons.
10. The reference lays stress upon the rules laid down in Section 253 of the Indian Contract Act. Bat as regards these, it is enough to remark that these rules have no application when there is a contract to the contrary.
11. On these grounds, I am of the opinion that we have here a firm within the meaning of the definition in Section 239 of the Indian Contract Act, and that, therefore, the question referred to us should be answered in the affirmative.