COMMISSIONER OF INCOME TAX Vs. DURGAPRASAD RAJARAM ADATIYA

JUDGEMENT

(1.) THIS is a reference made by the Tribunal referring for our answer the following question of law :

(2.) THE reference relates to the asst. yrs. 1971-72 and 1972-73. THE assessee-firm was constituted by a deed of partnership executed on 10th November, 1961, and it consisted of four partners and three minors were admitted to the benefits of the partnership. THE minors attained majority on 4th May, 1966, 27th May, 1967, and 21st July, 1971, respectively, and elected to become partners. THE partnership was not granted continuation of registration for the asst. yrs. 1967-68, 1968-69 and 1969-70. THEre was a reference to this Court in respect of these assessment years. THE judgment of the Court, in this reference, is Durgaprasad Rajaram Adatiya vs. CIT (1982) 21 CTR (MP) 4 : (1982) 134 ITR 601 (MP). It was held that as the instrument of partnership did not provide, as to how the losses would be distributed after each minor became major and elected to become a partner, the partnership could not be granted continuation of registration. In the normal course, following that decision, we should hold that the Tribunal was in error in granting continuation of registration for the asst. yrs. 1971-72 and 1972-73. THE Tribunal has, however, relied upon two circulars, one issued by the CBR and the other by the CBDT. THE first circular is dated 3rd January, 1962. It is to the effect that where there is no doubt about the genuineness of a partnership, registration need not be refused simply because a minor previously admitted to the benefits of the partnership has been made a full-fledged partner on attaining majority and no new partnership deed has been drawn up to give effect to this change. THE second circular is dated 20th March, 1969. It is stated therein that the Board was of the opinion that the view taken by the Allahabad High Court was a narrow view of the law and the claim for continuation was not to be refused simply because a minor previously admitted to the benefits of the partnership had been made a full-fledged partner on attaining majority and no new partnership deed had been drawn up to give effect to this change if the firm was otherwise genuine. THE view then held by the Allahabad High Court was that in every case whenever a minor admitted to the benefits of a partnership attained majority and elected to be a partner of the firm, there was a change in the constitution of the firm and the partnership was not entitled to continuation of registration. This view was taken in Ganesh Lal Laxmi Narain vs. CIT (1968) 68 ITR 696 (All) and Ram Narain Laxman Prasad vs. ITO (1972) 84 ITR 233 (All). It was to get over this view that the Board issued the second circular of 1969. THE view taken by the Allahabad High Court in these cases was overruled by a Full Bench in Badri Narain Kashi Prasad vs. Addl. CIT 1978 CTR (All) 390 (FB) : (1978) 115 ITR 858 (All) (FB). THE view of the Full Bench is that if the deed of partnership envisages the eventuality of the minor becoming a full-fledged partner on attaining majority and provides for the distribution of profits and losses, in that event, there would be no change in the constitution of the firm and the partnership would be entitled to continuation of the registration. It is this view which our High Court followed in Ganesh Rice Mills vs. CIT (1980) 15 CTR (MP) 148 : (1981) 132 ITR 257 (MP) and Durgaprasad Rajaram Adatiya vs. CIT (supra). According to the view that now prevails, continuation of registration cannot be refused simply on the ground that a minor admitted to the benefits of the partnership has become a partner on attaining majority. It will be refused on the ground that the eventuality of the minor becoming a partner on attaining majority was not foreseen in the deed of partnership and it does not provide for the distribution of profits and losses on the minor attaining majority. This view does not go counter to the circulars issued by the Board. THE circulars emphasized that continuation of registration should not be refused simply because a minor previously admitted to the benefits of the partnership has been made a full-fledged partner, and departed from the view which was then held by the Allahabad High Court but which now stands overruled by the Full Bench. THE circulars do not provide anything contrary to the view of the Full Bench of the Allahabad High Court which this High Court has followed in the two cases mentioned above.

(3.) THERE will be no order as to costs of this reference.