1987 (9) TMI 87 - AT - Income Tax

Summary

Issues:
1. Validity of partnership registration for the assessment year 1982-83 due to a minor partner being involved.

Analysis:
The appeal by the department was against the AAC's order directing the ITO to allow registration to the assessee-firm for the assessment year 1982-83. The partnership firm was formed by an oral agreement with five partners, one of whom was a minor at the time of partnership formation. The ITO refused registration, stating that a minor cannot legally enter into an agreement, thus the firm was not legally constituted. The AAC, however, held that the parties were competent to enter into the partnership contract, and directed the ITO to allow registration. The Departmental Representative argued that even if there was an implied agreement to admit the minor partner on attaining majority, the partnership was not entitled to registration. The assessee's counsel argued that the minor partner was admitted to the benefits of the partnership and was intended to be a partner upon attaining majority, making the firm genuine and eligible for registration.

The partnership deed revealed that an oral agreement was formed for the partnership business, but the Departmental Representative objected, stating that the agreement was void ab initio due to the minor partner's involvement. The main question was whether a valid partnership existed during the assessment year 1982-83 with a minor partner involved. Referring to a previous court decision, it was noted that a minor admitted to the benefits of partnership had the option to become a partner upon attaining majority. It was observed that the firm was not considered bogus, and the minor partner had exercised the option to join the partnership upon attaining majority, even though not explicitly recorded in the partnership deed. Citing legal precedents, it was concluded that the firm was entitled to registration as the partnership was valid when the deed was executed, and profit allocation was in accordance with the partnership deed.

In conclusion, the ITAT upheld the AAC's order, finding no grounds to interfere as the firm was genuine and met the requirements for registration under the Income-tax Act, 1961. The involvement of a minor partner did not invalidate the partnership deed, and the firm was deemed eligible for registration for the assessment year 1982-83.