RAJENDRA TRADING CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee by this reference under S. 256(1) of the IT Act, 1961, the following question has been referred to us for our determination :

(2.) THE question referred relates to the asst. year 1962 63 for which the corresponding financial year ends on March 31, 1962. Under an instrument of partnership dt. February 17, 1960, the assessee firm was constituted as a partnership firm. The indenture of partnership is between Madangopal Damani, Brijgopal Damani and Rajendrakumar Bagri, a minor by his mother and natural guardian, Kamaldevi Devratan Bagri. We will refer to the other terms of this indenture of partnership in greater detail a little later. This partnership was registered under the Partnership Act on July 8, 1960, when the two major partners, Brijgopal and Madangopal, were shown as partners while Rajendrakumar was shown as being admitted to the benefits of the partnership w.e.f. February 1, 1960. On or about November 1, 1960, a further agreement was entered into between these parties as a result of which, inter alia, the shares of the partners, i.e., the parties to the original indenture of partnership were altered and some other alteration was made in the original deed. On November 14, 1962, a deed of rectification was entered into between Madangopal and Brijgopal, the two major partners. In the recital of this deed of rectification it is stated that the partnership agreement was entered into between the two majors, Madangopal and Brijgopal, while the minor was admitted to the benefits of the partnership. It also further recited that the parties were advised that the original indenture of partnership was defective inasmuch as the said minor has been made a party thereto and thereafter the deed was executed with a view to show that Rajendrakumar, the minor, was never intended to be a partner and that he was shown as a partner through his mother by reason of ignorance of law. The next day, i.e., November 15, 1962, an application for registration of the firm was made for the asst. year 1962 63 to the ITO. The ITO refused registration to the assessee firm, inter alia, on the ground that no valid instrument of partnership did in fact exist in the year of account. He pointed out that the deed of rectification executed long after the close of the accounting year could not be availed of by the assessee in getting registration for the period prior to its execution. This order of the ITO was upheld in appeal by the Appellate Asstt. CIT and was further upheld in second appeal by the Tribunal. In the first place, the Tribunal has pointed out that the facts in the present case were similar to those in the case of CIT vs. Md. Khalid Faquih & Co. (1963) 47 ITR 383 (Bom). The Tribunal also scrutinised the terms of the indenture of partnership and pointed out that the partnership agreement was specifically entered into between the major partners and the minor acting through his guardian. The minor was described as a third party to the indenture of partnership and the deed was signed on behalf of the minor by his guardian. Under cl. 2 the business of the partnership was, inter alia, to be carried on at such places as the parties may determine from time to time. Under cl. 7, the parties including the minor was given liberty to determine the partnership by giving to the other or others one month's notice in writing of his intention in that behalf. Under cl. 8, if any party was found guilty of contravening the provisions of the deed, etc., the other parties were given the right to determine the partnership. Under the same clause powers were conferred upon the minor to determine the partnership. Under cl. 9, opening of an account on behalf of the partnership was by mutual consent of all the partners including the minor. The Tribunal also referred to the relevant provisions of the deed of rectification dt. November 1, 1960, and, inter alia, pointed out that the very recital therein indicated that the parties were advised that the original indenture of partnership was technically defective inasmuch as the said minor had been made a party thereto. In the opinion of the Tribunal the partnership agreement contravened the provisions of S. 30 of the Indian Partnership Act and was not entitled to registration.

(3.) SEC . 30(1) of the Partnership Act provides that a person who is a minor according to the law to which he is subject may not be partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of the partnership. Sub s. (2) thereof provides that such a minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and copy any of the accounts of the firm. Under Sub S. (3) such minor's share is liable for the acts of the firm, but the minor is not personally liable for any such act. Sub s. (4) provides that such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such a case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in S. 48.