ASHIYANA GREENS Vs. COMMISSIONER OF AGRICULTURAL INCOME TAX

JUDGEMENT

(1.) The judgment of the Court was delivered by Balagangadharan Nair, J.- This a reference at the instance of the assessee made by the Commissioner of Agricultural Income Tax, Trivandrum ("the Commissioner") under S.60(2) of the Agricultural Income Tax Art, 1950 ("the Act"). The assessee is a firm which was initially set up under a partnership deed dated 1st April 1955, with Sri A. K. Kunhalikutty Hajee and his wife Smt. P. K. Ayisumma as partners and with their four minor children, P. K. Raizia, P. K. Saleem, P. K. Shameen and P. K. Nazreem being admitted to the benefit of the partnership. The capital of the firm was Rs. 60,000 shared equally by the partners and the minors, the shares of the minors having been contributed by the two partners. Under Clause.9 of the Partnership deed the profits were divisible equally-l/6th-among the partners and minors while the loss, if any, was to be borne by the partners alone in equal shares. Clause.8 repeated the same provisions in respect of the minors and it further specifically exempted the minors from liability for the losses. That clause also provided that "On attaining majority, each one of the minors is entitled to elect whether he or she would be a partner and in case he or she elects to be a partner, shall be a partner bound by the terms and conditions hereof". Clause.10 which is a residuary clause provided that "In the other respects, not hereunder expressly provided for, the rights and liabilities of the Firm as well as among the partners inter se, shall be governed by the Indian Partnership Act". The minors attained majority on 26th December, 1963, 28th August 1966, 14th August, 1967 and 23rd February 1969 respectively during the relative assessment years 1965-66, 1967-68, 1968-69 and 1969-70. On the attainment of majority by each minor a resolution was passed by the old partners and the erstwhile minor reciting that he or she having elected to become a partner of the firm by notice given to that effect was admitted as a full partner in the partnership and would be liable to share the losses of the firm equally along with the other adult partners of the firm and that the share of his or her profit would continue to be the same as before. The second part of the resolution also recorded that the partnership would be continued by the partners (including the quondam minor who has attained majority) "along with the minors who are admitted to the benefits of the partnership in accordance with the terms and conditions of the deed of partnership dated 1st day of April 1955, as modified by this resolution". This was the purport and trend of the resolutions which were passed on 30th January, 1964, 30th September 1965, 30th August 1967 and 28th February 1969 except that in the second part of the last resolution passed after the fourth minor attained majority it was merely resolved (as there was no minor left) that the partnership be continued by all "in accordance with the terms and conditions of the deed of partnership dated 1st day of April 1955, as modified by this resolution'', This last resolution dated 28th February 1969 was signed by all the six partners, while each of the other resolutions was signed by the original two partners and the quondam minor or minors who had attained majority and had elected to become full partner.

(2.) The assessee had obtained registration of the firm under the Agricultural Income Tax Act. For the assessment years 1969-70, 1970-71 and 1971-72 the assessee filed returns before the Agricultural Income Tax Officer, Manantoddy ("the Income Tax Officer") along with applications for renewal of registration of the firm. The applications which were signed by all the six partners certified that the constitution of the firm and the individual shares of the partners as specified in the partnership deed dated 1st April 1955 remained unaltered and that the profits and losses were shared on an one sixth basis, in terms of the deed during the relative previous years. By separate but substantially identical orders dated 30th March 1973 the Income Tax Officer granted renewal of registration of the firm and finalised the assessments for the three years assigning the assessee the status of a registered firm and assessing the share of the partners individually in the income of the firm.

(3.) On examining the records of the assessment, the Commissioner thought that the renewal of registration of the firm and assessment of the individual shares of the partners on that basis were irregular and improper. In exercise of his revisional powers under S.34 of the Act he issued a notice to the assessee dated 19th July 1977 to show cause why the grant of renewal of registration and the assessment on that basis should not be set aside. To this the assessee filed a detailed objection asserting its right to registration and justifying the orders of the Income Tax Officer. The Commissioner however adhered to his initial view and by his order, dated, 4th May 1978 cancelled the registration granted to the firm and modified the status of the firm as an unregistered firm. As a corollary he directed the Income Tax Officer to revise the assessments in the light of the revisional order and issue fresh assessment orders, within three months.