1968 (12) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the partnership deed with a minor as a full-fledged partner.
2. Continuation of the partnership after the minor attained majority.
3. Registration of the partnership under section 26A of the Income-tax Act, 1922.

Detailed Analysis:

1. Validity of the Partnership Deed with a Minor as a Full-Fledged Partner:
The primary issue was whether the partnership deed, which included a minor as a full-fledged partner, was valid for registration under section 26A of the Income-tax Act, 1922. Initially, the partnership was formed on 7th July 1951, consisting of three partners, one of whom was a minor, Jaisingh Narandas. The deed was signed by the power-of-attorney holder of his father. For the assessment years 1953-54 and 1954-55, the registration was refused on the grounds that the partnership was invalid due to the inclusion of a minor as a full-fledged partner.

2. Continuation of the Partnership after the Minor Attained Majority:
The partnership, initially set for two years, continued beyond its original term. On 7th November 1953, an endorsement was made to continue the partnership at will. By this time, Jaisingh had attained majority but the endorsement was signed by his father's power-of-attorney holder, not by Jaisingh himself. On 24th February 1955, Jaisingh confirmed all terms and conditions of the partnership deed, accepting the rights, obligations, benefits, and liabilities from the date of the original partnership.

3. Registration of the Partnership under Section 26A of the Income-tax Act, 1922:
The firm sought registration for the assessment years 1954-55 and 1955-56, which was again refused based on the invalidity of the original partnership and the improper execution of the endorsement. For the assessment year 1956-57, the registration was refused because the original deed and the subsequent document by Jaisingh did not constitute a valid partnership. The Appellate Assistant Commissioner and the Tribunal allowed the appeals, relying on precedents that even if a minor was shown as a full-fledged partner, the partnership deed would be valid if the minor was only entitled to profits.

Court's Analysis:
The Supreme Court's decision in Commissioner of Income-tax v. Dwarkadas Khetan & Co. overruled the decisions of the Bombay, Madras, and Patna High Courts, holding that a partnership deed admitting a minor as a full-fledged partner was invalid and could not be registered under section 26A.

However, the court noted that the partnership deed in question was supplemented by the endorsement on 7th November 1953 and the document executed on 24th February 1955. By the time of the endorsement, Jaisingh had become a major, and the partnership continued with three major partners. The court held that it was not necessary for every partner to sign the instrument of partnership as long as it was assented to by all partners. Jaisingh's assent was evident as he had joined in the application for registration.

For the assessment year 1956-57, the court found the partnership valid as Jaisingh had confirmed all terms and conditions of the partnership deed on 24th February 1955, accepting full responsibilities as a partner. The court concluded that the documents presented complied with the legal requirements, and the Income-tax Officer was not entitled to refuse registration.

Conclusion:
The court answered the question in the affirmative, holding that the firm was eligible for registration under section 26A of the Income-tax Act, 1922. The Commissioner was directed to pay the costs of the assessee.

Question answered in the affirmative.