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1960 (12) TMI 2 - SC - Income TaxWhether the instrument of partnership dated March 27, 1946, created a valid partnership ? Whether the fact that on January 1, 1946, there was no firm in existence would be fatal to the application for registration of the firm under section 26A of the Indian Income-tax Act or whether the firm could be registered with effect from March 26, 1946, if it is held that the firm was genuine ? Held that - Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner, though with the consent of the adult partners he may be admitted to the benefits of partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it. If the income-tax authorities register the partnership as between the adults only contrary to the terms of the document, in substance a new contract is made out. It is not open to the income-tax authorities to register a document which is different from the one actually executed and asked to be registered. In our opinion, the Madras view cannot be accepted. Appeal allowed.
Issues:
Validity of partnership created by an instrument dated March 27, 1946 and the registration of the firm under section 26A of the Indian Income-tax Act. Analysis: The case involved an appeal by the Commissioner of Income-tax challenging the judgment of the High Court of Bombay in favor of the respondents, Messrs. Dwarkadas Khetan & Co. The questions referred to the High Court were regarding the validity of the partnership created by an instrument dated March 27, 1946, and the registration of the firm under section 26A of the Indian Income-tax Act. The partnership in question included a minor, Kantilal Kasherdeo, as a full partner, contrary to the provisions of the Indian Partnership Act which only allows minors to be admitted to the benefits of partnership. The deed of partnership was registered with the Registrar of Firms, showing Kantilal Kasherdeo as a full partner, and banks were also informed about the partnership without mentioning that one of the partners was a minor. The Income-tax Officer refused to register the firm under section 26A due to the inclusion of a minor as a full partner, deeming the deed invalid in law. The Tribunal upheld the decision, stating that the document could not be registered as it included a minor as a full partner and granted retrospective operation to the firm from a date when no firm existed. The High Court, however, differed from the Tribunal and ruled in favor of the assessee, following the Madras High Court's view that a minor can be deemed to have been admitted to the benefits of partnership even if included as a full partner in the deed. The Supreme Court analyzed the conflicting views of different High Courts on the issue. While the Bombay, Madras, and Patna High Courts held that a minor can be interpreted as admitted to the benefits of partnership even if included as a full partner, the Calcutta, Allahabad, and Punjab High Courts took a contrary view. The Supreme Court concluded that the Calcutta view was preferable, emphasizing that a minor cannot be a full partner under the Indian Partnership Act and registration can only be granted for a document that complies with the law. The Court held that the Madras view, followed by the High Court, was erroneous and ruled in favor of the Department, vacating the High Court's decision. In conclusion, the Supreme Court allowed the appeal, stating that the first question regarding the validity of the partnership should have been answered in the negative, and there was no need to address the second question. The judgment highlighted the importance of adhering to the legal requirements for partnership agreements and registration under the Indian Income-tax Act.
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