1979 (7) TMI 69 - HC - Income Tax

Change In Constitution Of Firm Firm Registration Income Tax Act Minor Admitted To Benefits Of Partnership Partnership Deed

Summary

Issues: Assessment of firm with minor partners turning major, renewal of registration based on old deed, cancellation of registration by Additional Commissioner, entitlement to benefit of registration under Income-tax Act.

Analysis:
The judgment concerns an assessee-firm with 5 partners, including two minors, as per a partnership deed dated 29th October, 1965. One of the minors, Sri Krishna Chandra, turned major on 12th February, 1967, during the relevant accounting period ending on 12th November, 1967. The firm sought renewal of registration based on the old deed after Krishna Chandra became a major partner. Initially, the Income Tax Officer (ITO) allowed the renewal, but later, following a court decision, the ITO referred the matter to the Additional Commissioner for cancellation of the registration. The Additional Commissioner canceled the registration, directing the firm to be treated as unregistered. The Tribunal upheld this decision, stating that the firm was not entitled to registration even for the period when Krishna Chandra was a minor, citing relevant court precedents. The Tribunal referred two questions to the High Court for opinion regarding the change in the firm's constitution and entitlement to registration benefits.

The High Court noted that the decisions in the earlier court cases cited by the Tribunal had been overruled by a Full Bench decision in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858. The Full Bench clarified that not every case of a minor becoming major results in a change in the firm's constitution. The ITO must review the partnership instrument to determine if it accounts for such changes to decide on registration continuity. The High Court emphasized that assessments should be made separately for the period before and after the minor partner turns major, as per the Full Bench decision.

The department argued for reconsideration of the Full Bench decision, indicating an appeal to the Supreme Court. However, the High Court found no immediate need for reconsideration and upheld the Full Bench decision. The High Court answered both questions in the negative, indicating that the Tribunal should reassess the firm's constitution considering the principles established in the Full Bench decision. The assessee was awarded costs amounting to Rs. 125 for the proceedings.