1985 (10) TMI 131 - AT - Income Tax

Summary

Issues:
Validity of partnership deed with a minor partner
Granting of registration to the assessee-firm
Cancellation of registration by the Commissioner under section 263

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad-A dealt with the issue of the validity of a partnership deed with a minor partner and the subsequent granting of registration to the assessee-firm. The Commissioner, under section 263 of the Income-tax Act, 1961, had cancelled the registration granted by the ITO to the firm for the assessment years 1979-80 and 1980-81. The crux of the matter was that a partnership deed executed on 23-7-1977 included a minor partner, which rendered the deed invalid. The ITO had granted registration based on subsequent actions by the minor partner after attaining majority. The Commissioner disagreed with this approach and directed the ITO to treat the firm as unregistered. The assessee appealed against this decision.

The assessee contended that the minor partner had attained majority during the relevant accounting year and had subsequently confirmed his status as a full-fledged partner by signing the necessary forms and a letter agreeing to the terms of the partnership deed. The assessee argued that there was a valid partnership in existence during the relevant years, and the ITO was correct in granting registration. The assessee relied on a Full Bench decision of the Kerala High Court to support their position.

On the other hand, the departmental representative argued that an invalid partnership deed could not be validated by subsequent actions and that there was no valid partnership during the relevant years. Therefore, the assessee was not entitled to registration, and the Commissioner's decision was justified.

The Tribunal analyzed the facts and found that the minor partner had indeed attained majority during the relevant years and had confirmed his status as a full-fledged partner. The Tribunal noted that the partner's actions, including signing the necessary forms and a letter agreeing to the partnership terms, indicated a valid partnership. Drawing parallels with the Kerala High Court decision, the Tribunal held that the ITO was justified in granting registration to the firm. Consequently, the Tribunal allowed the appeals, cancelling the Commissioner's order and restoring the registration granted by the ITO for the assessment years in question.