K D Kamath and Co v Commissioner of Income Tax

Facts

• A deed was executed between K D Kamath and two others to carry on business as engineering contractors.
• Under the deed, Kamath alone had control and management of the business.
• Kamath alone was entitled to operate the bank accounts and to borrow.
• The other partners contributed capital and shared profits and losses in agreed proportions.
• The other partners had no right to interfere in the management.
• Registration of the firm was refused on the view that the relation was one of employer and employees rather than partnership.

Issue

1. Whether a partnership exists where the entire control and management of the business is vested in one partner and the remaining partners have no managerial rights.

Held

• A valid partnership existed and registration should be granted. The Court identified the two essential conditions of S.4: first, that there be an agreement to share the profits of the business; second, that the business be carried on by all or any of them acting for all, that is, mutual agency. Both were present. That the deed placed management exclusively in one partner was merely a regulation of the internal relations of the partners, which S.11 permits them to determine by contract.

Ratio Decidendi

The definition in S.4, read with the true test in S.6 and the Explanations to it, does not require equality of powers. Sharing of profits is evidence but not conclusive, and the decisive element is the agency relation. Where a partner manages, he manages for all, and the others are bound by his acts. That is agency, and it is precisely what the section demands. Internal arrangements as to who exercises the power do not alter the character of the relation.