1961 (5) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Whether on a true construction of the partnership deed dated 7th April, 1949, registration under section 26A of the Income-tax Act can be granted to the assessee.
2. The capacity of a minor to enter into a contract of partnership under Indian law.
3. The interpretation of section 30 of the Indian Partnership Act regarding a minor's status in a partnership.
4. The validity of a partnership deed under section 26A of the Income-tax Act and the rules made thereunder.

Issue-wise Detailed Analysis:

1. Whether on a true construction of the partnership deed dated 7th April, 1949, registration under section 26A of the Income-tax Act can be granted to the assessee:
The primary question was whether the partnership deed could be registered under section 26A of the Income-tax Act. The Tribunal referred the matter to the High Court due to differing opinions among its members. The Accountant Member believed the deed was valid, interpreting clause 5 as subject to section 30 of the Partnership Act, which restricts a minor's liability to his share of the firm's losses. The Judicial Member disagreed, viewing clause 5 as making the minor liable for losses, contrary to section 30. The President of the Tribunal sided with the Accountant Member, allowing the deed's registration. However, the High Court emphasized that the question required an examination of the entire deed, not just clause 5.

2. The capacity of a minor to enter into a contract of partnership under Indian law:
The judgment discussed that under section 10 and section 11 of the Indian Contract Act, a minor is not competent to contract. The Privy Council in Mohori Bibee v. Dharmodas Ghose established that a minor cannot make a binding contract. Thus, a minor's signature on a partnership deed does not create a valid contract. The rules under section 26A of the Income-tax Act also reflect this, as they exclude minors from signing the application for registration.

3. The interpretation of section 30 of the Indian Partnership Act regarding a minor's status in a partnership:
Section 30 of the Partnership Act allows a minor to be admitted to the benefits of a partnership but not to become a partner. The judgment analyzed various sub-sections of section 30, concluding that while a minor can benefit from the partnership, he cannot be a partner. The minor's rights and liabilities are limited, and he cannot be held personally liable for the firm's obligations.

4. The validity of a partnership deed under section 26A of the Income-tax Act and the rules made thereunder:
The partnership deed in question described the minor as a partner and imposed obligations on him, such as sharing losses and contributing capital, which contravenes section 30 of the Partnership Act. The High Court held that the deed's provisions were illegal and could not be modified to comply with the law. The Supreme Court's decision in Commissioner of Income-tax v. Dwarkadas Khetan & Co. was cited, emphasizing that registration cannot be granted to a document that includes a minor as a full partner. The High Court concluded that the partnership deed did not meet the requirements of section 26A of the Income-tax Act, and thus, registration could not be granted.

Conclusion:
The High Court answered the question in the negative, holding that on a true construction of the partnership deed dated 7th April, 1949, registration under section 26A of the Income-tax Act could not be granted to the assessee. There was no order as to costs.