9911796707
TMI Blog1985 (6) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979 i.e. used to carry on the partnership business. Subsequently under the deed dt. 1st Jan., 1979 i.e. under the first reconstitution of the firms in this accounting year S. Nos. 1 to 7 and 5 others carried on the business upto 1st July, 1979, S. No. 11 in his capacity as head of HUF and S. No. 12 in his individual capacity were two of the five other partners who carried on the business for the period from 1st Jan., 1979 to 1st July, 1979. Afterwards Shri Sailesh Shantialal Shah, Mrs. Rajani Raja Kumar Shah, Mrs. Mangal Ramesh Shah, Mr. Shashikant Surendera Mirji, in his capacity of Karta of HUF, Mr. Ashok Surondra Mirji in his individual capacity retired from the partnerships and in their places S. Nos. 9 to 12. partners were substituted in both the reconstitution but the number of partners even after second reconstitution remained at 12. Out of 5 additions in the second reconstitution of the firms the last 4 were described to have become partners as guardians of their respective wards (minor sons/daughters). Clause 8 of the partnership deeds dt. 2nd July, 1979 (hereinafter referred to as latest deeds) stipulate that partners 9 to 12 are to share in profits as well as losses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects prohibited by law. For instance, s. 30 of the Partnership Act prohibits a minor to become fulfledged partner. If so the guardian acting for minor cannot over reach that law and argue that as the guardian is a major, the minor he represents can be made a fulfledged partner which is exactly prohibited. The Calcutta High Court held that such a contract is hit by s. 23 of Contract Act on the ground that it is forbidden by law. The ITO stated that the Calcutta High Court while deciding the case duly took into consideration the Supreme Court decision in CIT vs. Dwarkadas Khetan Co. (1961) 41 ITR 528 (SC). The ITO also mentioned in his orders that Karnataka High Court also adopted a similar view as held by the Calcutta High Court in CIT vs. Jagadish Jakati Co. (1979) 8 CTR (Kar) 40 : (1979) 119 ITR 19 (Kar). The ITO referred the case of registration to the IAC under s. 144A and on receiving his directions the IAC felt that having regard to the facts and circumstances in this case the guardians contracted on behalf of minor wards in such a way as to make the minors fulfledged partners. The other partners are fully aware that the guardians are mere benamidars and the benefits of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matters stand for our consideration. We have heard Shri V. H. Patil, ld. counsel for the assessee firms and Shri Kandaswany, ld. Departmental Representative. In our opinion, the important question that has to be decided in this case is having regard to the facts and circumstances of the whole case who are the partners? Are they the minors or are the their guardians? It is argued by Shri V. H. Patil that under s. 30 of the Partnership Act a minor cannot become a partner of a firm and he can only be entitled to the benefits of partnership. When once we determine that the guardians were the partners though they were benamidars of their wards they should be considered to be partners for all practical purposes as far as outside world is concerned. 7. In CIT vs. Bhagyalakshmi Co. (1965) 55 ITR 660 (SC) delivering the Bench decision Justice Subba Rao, as he then was, held the effect of contract of partnership as follows: "A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the Karta of a joint Hindu family; he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th other members of the partnership. If a partner is only a benamidar for another, it can only mean that he is accountable to the real owner for the profits earned by him from and out of the partnership. Therefore, a benamidar is a mere trustee of the real owner and he has no beneficial interest in the property or the business of the real owner. Therefore, according Shri Patil simply because the guardians of minors were benamidars of their wards in the partnership the minors themselves cannot automatically become partners of the firm. In this connection, Shri Patil also brought to our notice the Bombay High Court decision in Manvi Brothers vs. CIT (1960) 39 ITR 173 (Bom). He submitted that the facts of the Bombay case are entirely similar to the facts on hand. The fact as well as the decision are briefly summarised in the head-note as follows: "A father and two sons who originally formed a joint Hindu family entered into a partnership on 1st April, 1945, when the family was disrupted. The elder of the two sons died on 18th March, 1947 but the partnership was continued, his widow, representing the interest of her three minor sons, stepping into the shoes of her deceased husband. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. went to three other members of the joint family. The question was whether the firm could be targeted renewal of registration for asst. yr. 1950-51 under s. 26A of the Indian IT Act, 1922. It was ultimately held by the Supreme Court that L being the contracting party the application for registration could not be rejected because the other members of the family did not sign the application for renewal or registration of the firm. They held that the partnership agreement was between L on the one hand and the named person on the other. The fact that originally L was Karta of the family and that later the joint family cased to exist by reason for partition did not affect the validity of the partnership or its continuance. 10. Another decision relied on by Shri Patil is the decision of Andhra Pradesh High Court in CIT vs. Keshrimal Hirachand (1971) 81 ITR 693 (AP). There in a reconstituted firm there were five partners out of them 2 were minors and they were admitted to the benefits of the partnership. The minors were made parties to the contract and their respective guardians singned the deed. The CIT cancelled the registration because under the terms of the partnership deed the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the minor resulting in making the minor a partner in a firm will be void ab initio and not voidable. But that should be held only as an obiter. In that case the minor was made a specific party to the deed of partnership whereas in this case the guardian only signed the deed of partnership. He also tried to distinguish the Karnataka High Court decision in the case of Jagdish Jakati Co. (1979) 8 CTR (Kar) 40 : (1979) 119 ITR 19 (Kar). According to Shri Patil the distinguishing feature was that in the case dealt with by Karnataka High Court, the 4th partner Shri Shiv Shankar who was only a minor was shown to be the partner of the firm represented by his guardian Shri Shivasappa Jakety where as in the case before us guardian was the party to the deed and he is held to be a representative of his minor son/daughter. Therefore, according Shri Patil Karnataka High Court decision is distinguishable. 12. As against this the ld. Departmental Representative relied on the passage in Chaturvedi and Pithisaria s Income Tax Law. He also relied on the following case law. CIT vs. Dwarkadas Khetan Co. (1961) 41 ITR 528 (SC) as well as the decisions relied on by the lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs; it is outside the partnership arrangement. If a benamidar possesses the legal character to enter into a partnership with another, the fact that he is accountable for his profits to, and has the right to be indemnified for his losses by, a third party or even by one of the partner does not disgorge him of the said character." Thus it can be held firmly that a benamidar can act as a valid partner and his rights and liabilities are governed by the terms of the partnership deed and by the provisions of the Partnership Act. His liabilities to account for the profits, is outside the partnership arrangement. The Bombay High Court decision in Manvi Brothers vs. CIT (1960) 39 ITR 173 (Bom) coupled with the later Supreme Court decision in CIT vs. A. Abdul Rahim Co. (1965) 55 ITR 651 (SC) and CIT vs. Bhagyalakshmi Co. (1965) 65 ITR 660 (SC) left us in no doubt to conclude that the assessee firm are clearly entitled to registration because the guardians who are the majors and who figured as S. Nos. 9 to 12 of the partnership deed only are to be considered as partners. In our humble opinion the minors whom they represented cannot be considered to be partner both under law and in fact. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
