1976 (6) TMI 49 - AT - Income Tax

Issues Involved:
1. Entitlement to registration under Section 185(1) of the IT Act, 1961.
2. Requirement of executing a partnership deed when a minor attains majority.
3. Harmonious construction of the IT Act and the Partnership Act.
4. Validity of the partnership deed and its effect on registration.

Issue-Wise Detailed Analysis:

1. Entitlement to Registration under Section 185(1) of the IT Act, 1961:
The primary contention was whether the assessee firm was entitled to registration under Section 185(1) of the IT Act, 1961. The firm M/s. Garibdas Dhannalal, Gadarwara, initially constituted by a partnership deed dated 16th Nov., 1963, included four major partners and four minors admitted to the benefits of partnership. During the previous year, two minors attained majority. The ITO refused registration on the grounds that no separate partnership deed was executed when the first minor, Shri Santhosh Kumar, attained majority on 2nd July, 1972. The assessee argued that under Section 30(5) of the Partnership Act, a minor has six months to decide whether to become a partner, and thus, a single partnership deed executed on 2nd Oct., 1972, was sufficient.

2. Requirement of Executing a Partnership Deed when a Minor Attains Majority:
The ITO's refusal was based on the absence of a partnership deed between 1st July, 1972, and 2nd Oct., 1972. The assessee contended that according to Section 30(5) of the Partnership Act, a minor has six months to elect to become a partner, and thus, a single partnership deed executed after both minors attained majority was sufficient. The Tribunal agreed with the assessee, stating that the six-month period allowed under the Partnership Act must be respected, and the execution of a single deed incorporating both changes was adequate.

3. Harmonious Construction of the IT Act and the Partnership Act:
The assessee argued for a harmonious construction of the IT Act and the Partnership Act, suggesting that the provisions of one Act should not render the other nugatory. The Tribunal concurred, emphasizing that the IT Act should not negate the six-month period provided by the Partnership Act for a minor to decide on becoming a partner. The Tribunal highlighted that during this six-month period, no change in the firm's constitution should be considered for the purposes of registration under the IT Act.

4. Validity of the Partnership Deed and Its Effect on Registration:
The Tribunal examined the partnership deed dated 2nd Oct., 1972, which included a clause stating that the partnership commenced from 2nd Oct., 1972. The departmental representative argued that this indicated no partnership deed existed between 1st July, 1972, and 2nd Oct., 1972. However, the Tribunal found that the declaration in the partnership deed that the minors, upon attaining majority, elected to continue as full-fledged partners with retrospective effect from 19th Oct., 1972, was sufficient. The Tribunal concluded that the ITO and AAC were overly technical in refusing registration and that the partnership deed, when properly construed, did not warrant refusal of registration.

Conclusion:
The Tribunal allowed the appeal, granting registration to the assessee firm. It emphasized the harmonious construction of the IT Act and the Partnership Act, recognizing the six-month period for minors to elect to become partners and validating the partnership deed executed within this period. The Tribunal found the refusal of registration by the ITO and AAC to be hypertechnical and not justified.

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