We have seen hereinabove that though HUF cannot be a partner in a partnership firm, but the Karta can enter into partnership for the benefit of the HUF. A question arises whether in such a case of a partnership, the other partner can be another member of HUF or not. In the case of Chandrakant Manual Shah vs CIT (1992) 1 SCC 76[E (1992) 193 ITR 1], a similar question arose albeit in a different context where the Karta of a Huf entered into partnership with another member and the another member bought into Partnership by way of his capital contribution only his skill and labour and the question arose whether in such a circumstance, the partnership was a valid partnership. The Apex court ruled in favour of the assessee by holding that it is clear that if a stranger can enter into partnership, with reference to his own property, with a joint hindu family through its karta, there is no sound reason to withhold such opportunity from a coparcener in respect of his separate and individual property. Further, the Apex Court also approved thfhe separate and individual property need not be in monetary terms and it can be even skill and labour and it observed in this regard as follows in the judgement:
As seen above, the definition of the term “learning” is very wide and almost encompasses within its sweep every acquired capacity which enables the acquirer of the capacity “to pursue any trade, industry, profession or avocation in life”. The dictionary meaning of “skill”, inter alia, is: “the familiar knowledge of any science; art, or handicraft, as shown by dexterity in execution or performance; technical ability” and the meaning of “labour” inter alia is: “physical or mental exertion, particularly for some useful or desired end”. Whether or not skill and labour would squarely fall within the traditional jurisprudential connotation of property e.g. jura in re pro pria, jura in ré aliena, corporeal and incorporeal etc. may be a moot point but it cannot be denied that skill and labour involve as well as generate mental and physical capacity. This capacity is in its very nature an individual achievement and normally varies from individual to individual. It is by utilisation of this capacity that an object or goal is achieved by the person possessing the capacity. Achievement of an object or goal is a benefit. This benefit accrues in favour of the individual possessing and utilising the capacity. Such individual may, for consideration, utilise the capacity possessed by him even for the benefit of some other individual. The nature of consideration will depend on the nature of the contract between the two individuals. As is well known, the aim of business is earning of profit. When an individual contributes cash asset to become partner of a partnership firm in consideration of a share in the profits of the firm, such contribution helps and at any rate is calculated to help the achievement of the purpose of the firm namely to earn profit. The same purpose is, undoubtedly, achieved also when an individual in place of cash asset contributes his skill and labour in consideration of a share in the profits of the firm. Just like a cash asset, the mental and physical capacity generated by the skill and labour of an individual is possessed. by or is a possession of such individual. Indeed, skill and labour are by themselves possessions. “Any possession” is one of the dictionary meanings of the word ‘property’. In its wider connotation, therefore, the mental and physical capacity generated by skill and labour of an individual and indeed the skill and labour by themselves would he the property of the individual possessing them. They are certainly assets of that individual and there seems to be no reason why they cannot be contributed as a consideration for earning profit in the business of a partnership firm. They certainly are not the properties of the HUF but are the separate properties of the individual concerned. |
