1979 (5) TMI 34 - AT - Income Tax

Issues Involved:
1. Refusal of registration benefits to the assessee firm under Section 185(1)(b) of the IT Act, 1961.
2. Validity of the partnership deed concerning the status of Sunil Kumar as a partner.
3. Non-signing of the partnership deed by the guardians of minors admitted to the benefits of the partnership.
4. Applicability of the Supreme Court and High Court judgments cited by the Income Tax Officer (ITO) and Appellate Assistant Commissioner (AAC).
5. Retrospective effect of the partnership deed.

Detailed Analysis:

1. Refusal of registration benefits to the assessee firm under Section 185(1)(b) of the IT Act, 1961:

The Income Tax Officer (ITO) refused to grant registration benefits to the assessee firm for the assessment year 1973-74, stating that the partnership deed did not comply with the necessary legal requirements. The Appellate Assistant Commissioner (AAC) upheld this decision, leading to the second appeal.

2. Validity of the partnership deed concerning the status of Sunil Kumar as a partner:

The ITO observed that Sunil Kumar was wrongly made a full-fledged partner effective from 1st June 1972, despite attaining majority only on 13th June 1972. The AAC supported this view, citing that this contravened Section 30 of the Indian Partnership Act. However, the Tribunal found this contention to be based on a misapprehension. The Tribunal noted that the partnership deed dated 20th July 1972 merely followed the statutory principle that a minor who elects to become a partner upon attaining majority becomes liable for losses from the date he was admitted to the benefits of the partnership, as per Section 30(7) of the Indian Partnership Act.

3. Non-signing of the partnership deed by the guardians of minors admitted to the benefits of the partnership:

The ITO and AAC both pointed out that the guardians of the minors had not signed the partnership deed, referencing the Allahabad High Court judgment in the case of Addl. CIT vs. Uttam Kumar Parmod Kumar. The Tribunal, however, found this reasoning insufficient, emphasizing that the minors were admitted to the benefits of the partnership with the consent of their guardians, and the lack of signatures should not result in the denial of registration benefits. The Tribunal also criticized the AAC for not considering the CBDT circular dated 19th March 1966, which allowed firms the opportunity to rectify such mistakes.

4. Applicability of the Supreme Court and High Court judgments cited by the Income Tax Officer (ITO) and Appellate Assistant Commissioner (AAC):

The ITO and AAC relied on the Supreme Court judgment in CIT vs. Dwarka Das Khetan & Co. and the Allahabad High Court judgment in Addl. CIT vs. Uttam Kumar Parmod Kumar. The Tribunal found these judgments inapplicable to the present case. It clarified that Sunil Kumar, having attained majority on 13th June 1972, could legally enter into a contractual relationship and ratify any prior acts as a minor. The Tribunal also noted that the partnership deed did not have retrospective operation in creating a legal fiction but merely conformed to a statutorily permissible event.

5. Retrospective effect of the partnership deed:

The Tribunal addressed the contention that the partnership deed dated 20th July 1972, effective from 1st June 1972, should result in the denial of registration. It clarified that while a partnership cannot come into existence retrospectively, a partnership deed can be given retrospective operation to date the accounts of profit or loss. The Tribunal emphasized that relief-giving provisions like Section 185(1)(a) of the IT Act should not be neutralized on technical grounds.

Conclusion:

The Tribunal allowed the appeal, stating that the AAC's approach was incorrect and that the assessee firm was entitled to registration benefits. The Tribunal emphasized that the partnership deed dated 20th July 1972 was valid, Sunil Kumar's status as a partner was legally permissible, and the non-signing of the partnership deed by the guardians of minors should not result in the denial of registration benefits. The Tribunal also criticized the AAC for ignoring the CBDT circular and highlighted that the firm should be given an opportunity to rectify any missing signatures or consents.

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