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TMI Blog1990 (12) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... rest in this partnership firm of M. Vedachala Mudaliar Co. (Pondicherry) to her minor grandson, Santhanakrishnan, son of M.V. Kamalakannan. Thereafter M.V. Kamalakannan and his wife Smt. M.K. Rajalakshmi have constituted themselves into a partnership and executed a partnership deed dated 27-3-1981 agreeing to carry on the business under the same name and style of " M. Vedachala Mudaliar Co., Pondicherry ". In the preamble to the partnership deed it is stated as follows : " Whereas, in terms of a Will executed by her on 26-11-1980 she has bequeathed her capital and interest in this partnership firm to her grandson minor Santhanakrishnan, son of M. V. Kamalakannan (the Party of the First Part herein) residing at No. 10, GST Road, Melamaiyur, Chingleput and the said minor had therefore become entitled to her capital and interest in this partnership firm with effect from 20-3-1981, and Whereas it was agreed to between the parties hereto that the Party of the Second Part shall be taken in as a partner in this firm, who shall hold the interest in the partnership for the benefit of her minor son the said Santhanakrishnan," This partnership was to take effect from 20-3-1981. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd again on 26-3-1982, claiming registration/for continuation of registration. It also filed a declaration in Form No. 12A. 5. After examining the assessee's application for registration in the light of the recitals in the partnership deed, the Income-tax Officer held that Smt. M.K. Rajalakshmi has been admitted as a partner on behalf of her minor son, Santhanakrishnan, in terms of the Will left by the deceased partner, Smt. M. Rajeswari Vedachalam. He further pointed out that as per clause 7 of the partnership deed, Smt. M.K. Rajalakshmi is not liable for any share of loss. He took into account the fact that the capital of Smt. M.K. Rajalakshmi had also come from the asset of the deceased partner, for which the minor Santhanakrishnan is the only beneficiary. Taking into account all these facts, the Income-tax Officer concluded that Smt. M.K. Rajalakshmi was only a benami of her minor son Santhanakrishnan, that as there was only one partner there could not be any partnership and therefore the assessee was not entitled to registration under section 185(1)(a) of the Act. 6. This order passed by the Income-tax Officer was confirmed by the Appellate Asst. Commissioner on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her capital investment in the partnership business. He pointed out that Smt. M.K. Rajalakshmi was not a partner in her own right, but was taken as a partner as the guardian representing the minor, Santhanakrishnan. Shri Goyal submitted that no partnership had come into existence on the facts of this case, as there must be at least two major or adult partners before a minor can be admitted to the benefits of such partnership. He therefore submitted that the departmental authorities were fully justified in rejecting the application for registration, as no genuine and valid partnership firm had constituted by the deed dated 27-3-1981. In support of these submissions, Shri Goyal relied on the decision of the Supreme Court in S.P. Gramophone Co. v. CIT [1986] 158 ITR 313, wherein it has been held that the concept of a firm being valid in law is distinct from its factual genuineness and for the purpose of granting registration under the Income-tax Act, both the aspects are relevant and must be present, one without the other will be insufficient. The Supreme Court further held that even if a firm brought in to existence by executing an instrument of partnership deed is shown to possess al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister the said properties on behalf of the minor and hand them over the same to him on his attaining majority. The preamble in the partnership deed, which we have quoted above, taken along with clause 5 of the partnership deed shows that Smt. M.K. Rajalakshmi has been taken as a partner as the guardian of her minor son Santhanakrishnan and that she was holding the interest in the partnership for the benefit of the said minor Santhanakrishnan. Since she is representing her minor son as his guardian, she is not to bear any loss which was to be borne entirely by the other partner M.V. Kamalakannan, who is the husband of Smt. M.K. Rajalakshmi and the father of minor Santhanakrishnan. 11. On the above facts, we have no hesitation in reaching the conclusion that the departmental authorities were right in their conclusion that no genuine and valid partnership has been constituted by the deed dated 27-3-1981 in order to qualify for registration. We are unable to accept the contention of the assessee's learned counsel that Smt. Rajalakshmi should be regarded only as a trustee and not as a guardian of her minor son. For this, there is no basis or support in the recitals in the Will dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefits of the partnership, that a guardian can accept benefits of partnership on behalf of a minor, that he has power to scrutinise the terms on which such benefits are received by the minor, that he has also the power to accept the conditions on which the benefits of partnership are being conferred and that the guardian can do all that is necessary to effectuate the conferment and receipt of the benefits of partnership. Their Lordships also held that a guardian is entitled to agree to contribute capital on behalf of the minor, that if contribution of capital was one of the terms on which benefits of partnership are being conferred, either the guardian must refuse to accept the benefits or he must accept these terms and that such an agreement by a guardian may be avoided by the minor, if it was not entered into for his benefit, but the agreement will remain valid as long as it is not so avoided. The Supreme Court also held that a guardian is entitled to assent to the made of keeping accounts. Their Lordships further held that the duration of a partnership has to be fixed between the major members and that the guardian on behalf of the minor may agree to accept the benefits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M.V. Kamalakannan and his wife Smt. M.K. Rajalakshmi, which can be recognised as a partnership under the Indian Partnership Act. It would be noticed that the intention of the parties, as could be gathered from the recitals in the Will of Smt. Rajeswari Vedachalam and from the partnership deed, is only to confer the benefits of partnership on minor Santhanakrishnan and nothing more, because the entire interest of the deceased partner Smt. Rajeswari Vedachalam has been bequeathed to minor Santhanakrishnan. It is for this reason the entire losses, if any, under clause 7 of the partnership deed is to be borne by M.V. Kamalakannan alone and not by Smt. Rajalakshmi, who is shown as the other partner in the partnership deed. There can hardly be any dispute that a partnership is a creature of contract and that atleast there should be two majors or adults, who are competent to contract, in order to constitute a valid and genuine partnership in the eye of law. These two majors or adults must have entered into partnership as partners in their own right and it would be competent for them to admit to the benefits of such partnership a minor under section 30 of the Partnership Act. This posi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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