2004 (11) TMI 36 - HC - Income Tax

Firm registration - Income-tax Officer refused to grant registration to the firm on the ground that the minor Lakhan Lal was made liable for the losses of the firm to the extent of his share therein. He was of the opinion that the minor admitted to the benefits of partnership cannot be made liable to the losses of the firm - It was submitted that the partnership being in violation oft-section 30 of the Partnership Act cannot be registered under the Income-tax Act. It was further submitted that the minor was also made liable to the extent of his share in the firm, which is violative of section 30 of the Partnership Act. Therefore, registration cannot be granted to the partnership deed. Held that order of the Tribunal granting registration to the assessee-firm under the Income-tax Act, 1961, is legally not correct.

Summary

Issues:
Grant of registration to the assessee-firm under the Income-tax Act for the assessment year 1977-78.

Analysis:
The case involved a dispute regarding the registration of an assessee-firm under the Income-tax Act for the assessment year 1977-78. The firm applied for registration, but the Income-tax Officer refused registration citing that a minor partner was made liable for the losses of the firm, which was deemed invalid under section 185(1)(b) of the Income-tax Act, 1961. However, the Appellate Assistant Commissioner overturned this decision, stating that the firm was formed in accordance with section 30(3) of the Partnership Act. The Tribunal upheld this decision, leading to the reference to the High Court.

The main contention was whether the minor partner being made liable for losses invalidated the partnership deed and, consequently, the registration of the firm. The partnership deed specified that the minor partner would share profits and losses according to his share. The Revenue argued that making the minor liable for losses meant he was a full partner, contrary to section 30 of the Partnership Act. The court analyzed the partnership deed, emphasizing that the specific provision making the minor liable for losses prevailed over general provisions. The court referred to relevant case laws to support the argument that a minor can only be admitted to the benefits of partnership, not made liable for losses.

The court discussed various judgments, including CIT v. Oriental T. Maritime and Addl. CIT v. Uttam Kumar Pramod Kumar, to establish that minors being made liable for losses goes against partnership laws. The court differentiated cases where minors were only entitled to profits, emphasizing that the specific provision in the partnership deed making the minor liable for losses distinguished the present case. The court also referred to the Privy Council decision in Jafferali Bhalao Lakha v. Standard Bank of South Africa Ltd. to clarify the liability of minors in a partnership.

Ultimately, the court held that the Tribunal's decision to grant registration to the assessee-firm was legally incorrect. The court ruled in favor of the Revenue, stating that the minor partner being made liable for losses rendered the partnership deed invalid for registration under the Income-tax Act, 1961.