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TMI Blog1987 (2) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals), confirmatory letters from the erstwhile minors that they have opted to remain as partners and also a confirmatory letter from a major partner were produced by the assessee and this evidence was accepted by the Commissioner of Income-tax (Appeals) as representing the factual position. The department has not challenged the acceptance of the above evidence at the first appeal stage. 3. In the first appeal, the Commissioner of Income-tax (Appeals) accepted the plea of the assessee that the mere fact that the assessment was completed under section 144 of the Act would be no ground for refusing to continue the registration already granted under section 184(7) of the Income-tax Act so long as there was no change in the constitution of the firm and the declaration was filed in Form No. 12. The CIT (Appeals) held that there was no change in the constitution of the firm or in the profit sharing ratio of the partners and the minors had opted to continue in the firm with the same profit sharing ratio. He applied the ratio of the decision of the Allahabad High Court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858 (FB) and also the circular of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In this connection, he referred to the terms of section 184(3) of the Income-tax Act. As for ground No. 2, he submitted that the department has raised a new plea which should not be admitted at this stage. As regards ground Nos. 3 and 4, he submitted that the partnership deed should be construed as a whole and not piecemeal. Clause 9 of the partnership deed should be read with clause (vii) of the preamble to the said deed. Merely because the assessment was completed under section 144, it does not result in automatic refusal of continuation of registration. 6. We have heard rival submissions and perused the records. Once reason for the refusal of continuation of registration is that the assessment was made under section 144. In our view, this is not correct. Section 185(5) starts with a non obstinate clause. It would refer to only matters contained in section 185. Thus this sub-section overrides other provisions of section 185. Section 184 makes a distinction between initial registration and mere continuation of registration for subsequent years. The provisions of section 185(5) are not attracted where a declaration for continuation of registration under section 184(7) has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect for the relevant assessment year." The reference to sub-section (7) of section 184 in this sub-section is to the continuation of registration originally granted. In the case before us, no such opportunity would appear to have been afforded to the assessee and, therefore, we uphold the contention of the assessee that the defect in the application in Form No. 12 is not fatal but is curable. Thus ground No. 2 is rejected. 8. Ground Nos. 3 and 4 are as follows: "3. The CIT (A) failed to appreciate that the terms of partnership do not take into account the eventuality of any minor admitted to the benefits of partnership becoming major and the consequential re-distribution of losses. 4. The terms of partnership do not deal with the position as to in what proportion the loss would be distributed, i.e., to say whether the loss would also be borne by a major immediately on attaining majority in any year." Ground No. 1 is a corollary of the above grounds. The partnership consists of 15 partners some of whom were minors. There is a preamble to the partnership deed. Clause (vii) thereof is as follows: "Whereas the Party of the First Part and the Party of the Second Part, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profits only as prescribed in clause 9 and if they become majors, they will be entitled to share profits and losses again as prescribed under clause 9. We are not persuaded by the argument of Shri Padmanabhan that, there was no specific provision for allotment of share in the case of loss as loss could be shared only of drafting the partnership deed and the real intention of the partners has to be gathered only from reading the partnership deed as a whole but not by taking a hindsight at it. This principle has been accepted by their Lordships of the Allahabad High Court in Badri Narain Kashi Prasad's case. At page 868 of the report, their Lordships observed as follows: "Under the Indian Partnership Act a minor is admitted to the benefits of the partnership; he is not a partner. Parliament knew this position and for that reason it, in section 2(23), specifically included such a minor in the definition of "partner". For purposes of the I. T. Act a minor was a partner just as a major is. The expression "partner" as used in section 184 or section 185 will be presumed to carry the defined meaning unless there is something to the contrary in the context. It is agreed that the phrase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 of the Indian Partnership Act, if a minor on attaining majority elects to continue as a partner, the partnership does not come to an end. It continues and the minor, having become a partner, is entitled to his profits as computed at the end of the year regulated by the partnership deed. On the other hand, if a minor elects not to be a partner it is equally clear that he serves all his connections with the partnership and he becomes entitled to whatever amount is due to him on the date when he makes the election not to become a partner. Therefore, whereas in the first case there is no break in the continuity of the partnership and there is no need to make up any accounts otherwise than in the ordinary course, in the latter case there is a break in the partnership and the accounts have to be made up as on a particular date, because the minor who has become major has the right to claim a specific amount as due to him on a particular date. 10. We notice that though the Income-tax Officer stated in his order under section 185(5) that it is not known to him whether these two persons have exercised their option to continue in the same firm or not, letters of confirmation from the ers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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