Distinction between joint family business and partnership .
srinivasan
(Querist) 06 July 2009
This query is : Resolved
Dear sir, DISTINCTION BETWEEN JOINTFAMILY BUSINESS AND PARTNERSHIP BUSINESS
M. PIRAVI PERUMAL
(Expert) 06 July 2009
HUF is a joint family consists of all persons lineally descended from a common ancestor. Hence, HUF is a group of members of the same family.
The "father", or the "senior member" of the family called "Karta", ordinarily manages the property belonging to Joint Family. Hence, the status of HUF cannot be termed as person.
The partnership is a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Hence, to become a partner in a partnership firm, the partner should be a natural person or recognized as person by the law (Company - by virtue of Companies Act 1956). Since, HUF is not a "person", but only group of persons belonging to the same family and carrying on the family business, HUF cannot be a partner in a partnership firm.
The above view is supported by a catena of judgments.
The Supreme Court of India held (AIR-1930-PC-300 & AIR1956-SC-854) - HUF is an association of persons is "not a person" within the meaning of expression in the Partnership Act. "… it is now well settled that HUF cannot enter into contract of partnership with another person or persons."
The Supreme Court of India, in another case M/s Rasiklal & Co Vs Commissioner of held that "…………. an HUF directly or indirectly cannot become a partner of a firm because the firm is an association of individuals." "…….in law, an HUF can never be a partner of partnership firm."
Under the Indian Partnership Act, partnership is defined under Section 4 as “a relationship between persons who have agreed to share profits of a business carried on by all or any of them acting for all.” Now the question is whether a HUF can be treated as a person under the law. Unlike a company, a HUF has no separate existence from its members. A Company as a separate entity can enforce its rights, whereas, a HUF, has to be necessarily represented by a Kartha or an adult member for enforcing any of its rights. A HUF cannot be treated as a person.
Though under the Income Tax Act, a person includes a HUF also, the Supreme Court in the case of Dulichand Laxminarayanan vs. Commissioner of Income Tax (AIR 1956 SC 354) has clearly held that the said definition cannot be imported to Section 4 of the Partnership Act and a firm cannot enter into partnership with a HUF. Further, in Rashiklal & co vs. Commissioner of IT, Orissa 9AIR 1998 SC 401) it was held that a HUF directly or indirectly cannot become a partner of a firm because firm is an association of individuals. Hence on the strength of the above rulings, it may be stated that a HUF as such cannot be a partner in a partnership firm.
However, in CIT Vs. Seth Govindram Sugar Mills [ ( 1965) 57 ITR 510 SC] THE Supreme Court has held that a Kartha of a HUF or an adult member of the family in their individual capacity can enter into a partnership as a representative of the family. In such cases, it is the individual who is becoming a partner and not the HUF.
It is generally presumed that money required for carrying on family business is a family necessity and that the business is carried on with the consent or acquiescence of all the members of the family. Thus, if debts are incurred by the Manager in the ordinary course of the family business, all the coparceners become liable. Ordinary course of the family business, all the coparceners become liable. However, their liability is limited to the extent of their interest in the family property and not beyond that. No doubt, the adult coparceners become personally liable when they themselves are actually contracting parties along with the Manager, or if they ratify the contract entered into by the Manager, except in the case of a minor coparcener, who does not become personally liable unless the contract is ratified by him after attaining majority.
The powers of a Manager are more extensive than those of a Karta. The manager of a joint Hindu Family has all the powers required for the purposes of carrying o
PALNITKAR V.V.
(Expert) 06 July 2009
Mr. Piravi Perumal has given elaborate reply supported by SC and other rulings. I would like to add that the mode of succession and shares may also differ in the case of partnership and joint family business.
G. ARAVINTHAN
(Expert) 07 July 2009
HUF is one where only the members of a family are the partners and they doing business without any agreement between them. Kartha is the head of their business.
In a partnership, an agreement binds all the members and all the business transactions to be done as per the agreement
adv. rajeev ( rajoo )
(Expert) 07 July 2009
All the learned frnds have given right answers, I agree with them.
SANJAY DIXIT
(Expert) 07 July 2009
I agree with the views made by ld. friends.
