1983 (5) TMI 20 - HC - Income Tax

Summary

Issues:
1. Whether a change in the constitution of a firm is required when a minor admitted to the benefits of partnership attains majority.
2. Whether the Income-tax Appellate Tribunal was justified in holding the assessment under section 144 and grant of registration were not in two parts.

Analysis:
1. The judgment addresses the question of whether a change in the constitution of a firm is necessary when a minor admitted to the benefits of partnership attains majority. The court examined the deed of partnership, specifically conditions 8 and 9, which outlined the rights and responsibilities of the minor partner upon attaining majority. The Income-tax Appellate Tribunal had previously held that a change in the firm's constitution occurs when a minor partner becomes a major partner. However, a Full Bench decision clarified that if the partnership agreement provides for the minor partner's share and loss distribution upon attaining majority, there is no change in the firm's constitution. The court held that in this case, no change in the firm's constitution occurred when the minor partner reached majority, as per the terms of the partnership deed.

2. The second issue pertains to the Income-tax Appellate Tribunal's decision regarding the assessment under section 144 and the grant of registration. The Tribunal had set aside the registration order along with the assessment order under section 146. However, the court's decision on the first issue rendered the second question moot. The court ruled in favor of the assessee on the first issue, concluding that no change in the firm's constitution took place upon the minor partner attaining majority. Consequently, the court did not provide an opinion on the second question due to the resolution of the primary issue. The case was remanded to the Department for appropriate orders in accordance with the Income Tax Act, with costs awarded to the assessee.

This judgment clarifies the legal position regarding the impact of a minor partner attaining majority on the constitution of a partnership firm and highlights the importance of partnership agreements in determining such changes.