1976 (4) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Attainment of majority by a minor partner.
2. Validity of partnership deed post-attainment of majority.
3. Refusal of registration by the Income Tax Officer (ITO).
4. Application of the Central Board of Direct Taxes (CBDT) circular.

Issue-wise Detailed Analysis:

1. Attainment of Majority by a Minor Partner:
The primary issue revolved around whether Sri Sureshchand, a minor initially admitted to the benefits of the partnership, had attained majority during the accounting period corresponding to the assessment year (asst. yr.) 1971-72. The Income Tax Officer (ITO) inferred that Sri Sureshchand had attained majority during the accounting period, based on his signature on Form No. 12 filed on 30th June 1971. The assessee later provided evidence from the Principal, Higher Secondary School, Ajmer, certifying that Sri Sureshchand's date of birth was 4th May 1953, indicating that he attained majority on 4th May 1971, which was after the end of the accounting period for asst. yr. 1971-72.

2. Validity of Partnership Deed Post-Attainment of Majority:
The ITO contended that since Sri Sureshchand had attained majority during the accounting period, the partnership deed dated 16th July 1969, which did not account for his majority, could not be considered valid for the entire period. The ITO argued that a new partnership deed should have been executed. The assessee argued that according to section 30(5) of the Indian Partnership Act, the minor had six months after attaining majority to decide whether to become a partner, and during this period, the existing partnership deed remained valid.

3. Refusal of Registration by the Income Tax Officer (ITO):
The ITO refused registration for the asst. yrs. 1971-72 and 1972-73, citing that the partnership was not constituted as per the deed dated 16th July 1969 after Sri Sureshchand attained majority. The Appellate Assistant Commissioner (AAC) allowed registration, following the CBDT circular which stated that registration should not be denied simply because a minor admitted to the benefits of partnership becomes a full-fledged partner upon attaining majority.

4. Application of the Central Board of Direct Taxes (CBDT) Circular:
The CBDT circular No. F-26/35/61-IT(A-1) dated 3rd Jan 1962, directed that registration should not be refused if the partnership's genuineness is not in doubt, even if a minor becomes a full-fledged partner upon attaining majority. The Tribunal noted that the assessee was initially taken in by the ITO's suggestion and did not contest the majority attainment issue adequately. However, the Tribunal emphasized that the exact date of birth and attainment of majority were crucial and needed proper establishment.

Conclusion and Directions:
The Tribunal concluded that the exact date of birth and attainment of majority by Sri Sureshchand were critical and required proper inquiry. The case was remanded back to the ITO for a thorough investigation into the date of birth. If it was established that Sri Sureshchand attained majority on 4th May 1971, registration for asst. yr. 1971-72 should not be refused, as he remained a minor throughout the accounting period. For asst. yr. 1972-73, since the six-month period post-majority had not expired by the end of the accounting period, the existing partnership deed should be considered valid. The ITO was directed to re-evaluate the registration applications based on the findings. The Departmental appeals and cross objections were treated as allowed for statistical purposes.