1971 (5) TMI 12 - HC - Income Tax

Registration - Minor who was admitted to the benefits of partnership attaning majority - as per deed minors attaining majority automatically become full fledged partners - it results in change in constitution of the firm - previously granted registration cannot be continued

Issues Involved:
1. Change in the constitution of the firm upon a minor attaining majority.
2. Requirement of a fresh partnership deed.
3. Entitlement to continued registration under the Income-tax Act.
4. Opportunity to file a fresh application for registration.
5. Change in the shares of the partners.

Issue-wise Detailed Analysis:

1. Change in the Constitution of the Firm Upon a Minor Attaining Majority:
The court examined whether there is a change in the constitution of a firm when a minor admitted to the benefits of partnership attains majority and elects to become a partner. It was noted that a minor cannot enter into a contract and thus cannot be a partner in a firm. However, under Section 30 of the Indian Partnership Act, a minor can be admitted to the benefits of partnership but must elect to become a partner upon attaining majority. The court held that upon Ram Mohan attaining majority and electing to become a partner, there was a change in the constitution of the firm.

2. Requirement of a Fresh Partnership Deed:
The court discussed the necessity of a fresh partnership deed when a minor attains majority. It was argued that Clause (2) of the partnership deed, which stated that minors would automatically become full-fledged partners upon attaining majority, was meaningless as minors could not bind themselves to become partners. The court concluded that the partnership deed could not hold good for the change in the constitution of the firm, and a fresh partnership deed was required.

3. Entitlement to Continued Registration Under the Income-tax Act:
The court examined whether the firm was entitled to the continued benefit of registration under Section 184(7) of the Income-tax Act, 1961. It was held that upon Ram Mohan attaining majority and becoming a partner, a change took place in the constitution of the firm. Consequently, the firm was obliged to apply for fresh registration under Section 184(8). The benefit of the original registration continuing was no longer available as there was a change in the constitution of the firm.

4. Opportunity to File a Fresh Application for Registration:
The petitioner-firm contended that the Income-tax Officer should have afforded an opportunity to file a fresh application for registration in compliance with Section 184(8). The court noted that the Income-tax Officer was not bound to do so, as he is only required to afford an opportunity where there is a defect in an application for registration made under Section 184(1). However, the court observed that such an opportunity should be given when there is a bona fide doubt as to the requirements of the law, provided it can be afforded within the limitations set by the Income-tax Act and the rules.

5. Change in the Shares of the Partners:
The petitioner-firm argued that there was no change in the shares of the partners as evidenced by the partnership deed upon Ram Mohan attaining majority. The court found that since there was a change in the constitution of the firm, one of the prerequisites of Section 184(7) was not satisfied, making it unnecessary to examine this contention further.

Conclusion:
The court held that when Ram Mohan attained majority and became a partner, there was a change in the constitution of the firm. Consequently, the petitioner-firm was not entitled to the continued benefit of the registration originally granted. The petition was dismissed with costs.

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