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Issues: Validity of firm registration with a minor partner
In this judgment, the main issue was whether the assessee should be allowed registration of the firm with a minor partner. The firm in question was constituted by 5 adult partners and 3 minors, with one minor, Padmapriya, having an interest of 20% of profit and loss of the firm as per the partnership deed. The partnership deed was executed after the firm had already started its business, and Padmapriya turned 18 before the books were closed. The Income Tax Officer (ITO) contended that Padmapriya, being a minor when the deed was executed, could only be admitted to the benefits of the partnership, not made a full-fledged partner responsible for losses. The ITO refused registration on this basis. The assessee appealed this decision, arguing that Padmapriya's situation was similar to a previous case where a minor partner became a major before the accounting year ended. Citing a Kerala High Court decision, the assessee contended that Padmapriya's status as a full-fledged partner after turning 18 was valid. The Department, however, argued that Padmapriya had not yet exercised her option of becoming a partner as required by the Partnership Act, pointing out a previous Andhra Pradesh High Court decision regarding profit accrual during the period when she was a minor. The Tribunal noted that Padmapriya had signed the registration application as a full-fledged partner after turning 18, indicating her desire to be considered a partner. The Tribunal also clarified that profit accrues only on the last day of the accounting year, as per a Supreme Court decision, and since Padmapriya was a major by that date, she could not be held responsible for any losses accrued while she was a minor. Consequently, the Tribunal allowed the appeal, granting registration to the firm despite the presence of a minor partner.
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