Hindu Undivided Family - HUF As A Partner in A Partnership Firm

HUF As A Partner in A Partnership Firm

HUF is a joint family consists of all 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 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."HUF is person under Section 2(31) (ii) of Income Tax Act 1961. The section reads like: (2)(31) “person” includes" i)an individual,(ii) a Hindu undivided family, (iii)a company,iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.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 cannot be a partner in a partnership firm.However, in CIT Vs. Seth Govindram Sugar Mills 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.