1982 (12) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the partnership deed including a minor as a full partner.
2. Competence of the Income Tax Officer (ITO) to cancel the registration under Section 154.
3. Applicability of Section 186 for cancellation of registration.
4. Legality of the partnership for the assessment year 1959-60 after the minor attained majority.

Issue-wise Detailed Analysis:

1. Validity of the Partnership Deed Including a Minor as a Full Partner:
The partnership deed dated January 1, 1957, included fourteen persons, including a minor represented by his mother and guardian, as full partners. Initially, this was considered valid, and the ITO granted registration for the assessment year 1958-59 and renewal for 1959-60. However, the Supreme Court in CIT v. Dwarkadas Khetan & Co. [1961] 41 ITR 528 ruled that admitting a minor as a full partner rendered the partnership deed invalid and ineligible for registration under Section 26A of the Indian I.T. Act, 1922. Consequently, the ITO sought to cancel the registration based on this ruling.

2. Competence of the Income Tax Officer (ITO) to Cancel the Registration under Section 154:
The ITO invoked his power of rectification under Section 154 to cancel the registration for the assessment years 1958-59 and 1959-60. The Tribunal, however, held that Section 154 did not extend to rectifying an order granting registration to a firm. The Tribunal argued that the words "any other order" in Section 154 should be construed ejusdem generis with "order of assessment or of refund," and thus, could not include every type of order passed by the ITO. The Tribunal also applied the principle "special excludes general," suggesting that the specific power to cancel registration under Section 186 excluded the general power under Section 154.

3. Applicability of Section 186 for Cancellation of Registration:
Section 186 provides for the cancellation of registration on the ground of non-genuineness of the firm. The Tribunal opined that the power to cancel registration was confined to this ground alone. However, the court disagreed, stating that the words "any other order" in Section 154 should be given their full effect, covering all types of orders, and not be restricted. The court also noted that some High Courts, like the Allahabad and Gauhati High Courts, had construed Section 186 to include cases of illegality, thus supporting the ITO's action under both Sections 154 and 186.

4. Legality of the Partnership for the Assessment Year 1959-60 After the Minor Attained Majority:
For the assessment year 1959-60, the erstwhile minor attained majority on October 27, 1958, and opted to continue as a full-fledged partner, which was recorded by a rectification deed dated October 29, 1958. This fact was brought to the ITO's notice, and all necessary documents were filed. The Tribunal held that for the assessment year 1959-60, there was no basis for cancelling the renewal as the partnership deed, as modified by the rectification deed, was not illegal.

Conclusion:
The court concluded that the cancellation of registration under Section 154 was competent and valid for the assessment year 1958-59 due to the illegality of the partnership deed involving a minor as a full partner. However, for the assessment year 1959-60, the cancellation was incompetent and unsustainable because the minor had attained majority and opted to continue as a partner, making the partnership deed legal for that year. The reference was ordered accordingly, with no costs.