Legal validity of partnership firm. - Income Tax - 1009/CBDT

INSTRUCTION NO. 1009/CBDT Dated : September 21, 1976 Section(s) Referred: 185 Statute: Income - Tax Act, 1961 The Board had occasion to consider the legal validity of partnership firm having seventeen adult partners and four minors admitted to the benefits of the partnership. 2. Section 11(2) of the Companies Act, 1956(Act No. 1 of 1956) reads as under:- "No company association or partnership, consisting or more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the Individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian law." 3. Though under the Indian Partnership Act a minor admitted to the benefit of partnership is not a partner until he attains majority and thereafter exercises the option to remain a partner, he is certainly "a person". A minor admitted to the benefits of a partnership must therefore be included in computing the number of persons carrying on a business for the purpose of section 11(2) of the Companies Act. The number of persons including minors in the case under consideration being more than twenty, the partnership is illegal and has to be assessed in the status of an association of persons. 4. The Income-tax Officers may be directed to bear in mind this legal position. If the number of persons including minors forming a partnership exceeds twenty, the firm would be illegal and the assessment should be made in the status of an association of persons.