1980 (9) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Requirement of a fresh instrument of partnership upon minors attaining majority.
2. Justification for modifying the status of the firm from registered to unregistered.
3. Eligibility for renewal of registration for the assessment years 1969-70, 1970-71, and 1971-72.

Detailed Analysis:

1. Requirement of a Fresh Instrument of Partnership:
The primary issue was whether a fresh instrument of partnership specifying the individual shares was necessary when minors admitted to the benefits of the partnership attained majority. The Commissioner held that such an instrument was required, citing that the constitution of the firm and the shares of the individual partners had changed. The court, however, found that the original partnership deed dated April 1, 1955, sufficiently covered the eventuality of minors attaining majority and electing to become full partners. The court noted that the minors had elected to become partners within six months of attaining majority, as required by Section 30(5) of the Partnership Act. The partnership deed explicitly stated that upon attaining majority, the minors would be bound by the terms and conditions of the deed, which included sharing profits and losses equally. Therefore, a fresh deed was not necessary as the original deed already provided for this change.

2. Justification for Modifying the Status of the Firm:
The Commissioner modified the status of the firm from registered to unregistered, arguing that the firm's constitution had changed with the minors attaining majority, and in the absence of a fresh partnership deed, the firm was not entitled to renewal of registration. The court disagreed, stating that the original partnership deed and the subsequent resolutions adopted by the partners provided for the minors' transition to full partners without altering the firm's constitution. The court emphasized that the minors were already considered partners under the Agricultural Income-tax Act, and their attainment of majority did not necessitate a change in the firm's registration status.

3. Eligibility for Renewal of Registration:
The Commissioner denied the renewal of registration for the assessment years 1969-70, 1970-71, and 1971-72, based on the same reasoning that the firm's constitution had changed. The court found that the firm was eligible for renewal of registration as the original partnership deed remained valid and comprehensive, covering the transition of minors to full partners. The court referenced the Full Bench decision in Badri Narain Kashi Prasad v. Addl. CIT, which held that a minor admitted to the benefits of a partnership is deemed a partner for the purposes of the Act, and their attainment of majority does not change the firm's constitution.

Conclusion:
The court answered all three questions in the negative, ruling in favor of the assessee and against the department. It concluded that the original partnership deed was sufficient to cover the changes upon minors attaining majority, and thus, no fresh instrument of partnership was required. Consequently, the firm's status as a registered firm was upheld, and it was eligible for renewal of registration for the specified assessment years. The court's decision was based on a detailed analysis of the relevant provisions of the Agricultural Income-tax Act, the Partnership Act, and judicial precedents.