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TMI Blog1985 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... coming into existence of the firm but was a major at the time of execution of the deed ? " The relevant facts of the case can be culled from the statement of the case and several relevant orders available on the records of the case. An application for registration in Form No. 11 was filed by the assessee-firm for the assessment year 1968-69 on December 4, 1967. As the application was not available on the record, the assessee filed a duplicate application on March 24, 1971. The original application was subsequently traced out and was placed on the record by the Income-tax Officer. The accounting year of the assessee ended on March 31, 1968, for the assessment year 1968-69. This goes to show that the accounting year of the assessee-firm was the financial year 1967-68. The Income-tax Officer held that the application for registration was filed in time and was in order. Partners of the firm were Banarsi Das, Tilak Raj, Mahendra Kumar, Jaswant Rai and one minor, Prem Lal, was admitted to the benefits of the partnership. The firm was evidenced by a deed of partnership which was executed on September 25, 1967. The shares of the partners were specified in the deed of partnership and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a fact that the other partners of the firm had no knowledge about Prem Lal having attained majority on June 31, 1967, because his date of birth being May 31, 1949, had been clearly mentioned in the deed itself, and so on September 26, 1967, when the deed was drawn up, the other partners knew that Prem Lal had attained majority and so Prem Lal should have been made a fullfledged partner instead of being admitted to the benefits of the partnership only. The Commissioner of Income-tax also took the view that Prem Lal should have elected in terms of section 30(5) of the 1932 Act to become partner in the firm by November 30, 1967, i. e., within six months from May 31, 1967. Consequent upon his failing to do so, he was deemed to have become a full-fledged partner at the expiry of the six-month period ending on November 30, 1967. The Commissioner of Income-tax also held that as a full-fledged partner, Prem Lal should have signed the application for registration which was filed in this case on December 4, 1967. The Commissioner of Income-tax has also held that under section 184(1) of the 1961 Act, an application for registration of a firm may be made to the Income-tax Officer on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of executing the partnership deed, Prem Lal had become major but he was shown as a minor in the deed and the date of birth had also been mentioned. As regards the first objection of the Commissioner, the Tribunal held that this was an objection of a technical nature as there does not appear to be any intention on the part of the assessee to misstate the fact, and that Prem Lal's date of birth was mentioned in the partnership deed and, therefore, the fact that he had become a major had been missed and in that there was no misrepresentation. The Tribunal held that Prem Lal was a minor when he was admitted to the benefits of the partnership at its inception. There was no requirement that if a minor is admitted to the benefits of the partnership and he attains majority, another deed should be written and the Board in their circular have also clarified the position that where there is no doubt about the genuineness of the partnership, registration should not be refused simply because minor, previously admitted to the benefits of the partnership, became full-fledged partner on attaining majority and no new partnership deed is drawn up to give effect to this change. The Tribunal took t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case. On the aforesaid facts, the aforesaid questions have been referred for the opinion of this court. I shall first take up question No. 1. The Tribunal has taken the view that registration could not be refused on the ground that the application for registration was not signed by one of the partners and was justified in directing the Income-tax Officer to give an opportunity to the assessee to correct the application by putting the signature. I have already pointed out above that the accounting year of the assessee is the financial year 1967-68 from April 1, 1967, to March 31, 1968. This will be evident from the order of the Income-tax Officer contained in annexure A where he has clearly mentioned that the accounting year of the assessee-firm ended on March 31, 1968, and the application in Form No. 11 was filed on December 4, 1967. It cannot be doubted that Prem Lal became a major on May 31, 1967, and even after six months' period is taken from May 31, 1967, then this period will expire on November 30,1967. The application for registration of the firm was filed on December 4, 1967, and so it cannot be doubted that Prem Lal was bound to sign this application on December 4, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Assistant Commissioner had under rule 2(c) was to accord permission to the appellants to make the application in proper form to the Income-tax Officer signed by all the partners personally including the 7th partner before the assessment was confirmed, reduced, enhanced or annulled, but the Appellate Assistant Commissioner had no power to direct the Income-tax Officer to register the firm after obtaining the signature of the 7th partner in the deed of partnership. Thus, from this decision, it is evident that the defect in the application form can be removed but the defect in the deed of partnership cannot be removed. There are other decisions also supporting the view that the Income-tax Officer is bound to give an opportunity to the assessee under section 185(2) of the 1961 Act to remove the defect in the application form. It has been held in the case of Singh Brothers Co. v. CIT [1982] 137 ITR 63 (Gauhati), that the power and jurisdiction of the Income-tax Officer under section 185(2) is limited to allow the assessee to rectify the defect in the application for registration but the rectification cannot be in respect of the deed of partnership. In this case, it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectify the application. It has been held in the case of Brij Ratan Lal Bhoop Kishore v. CIT [1982] 136 ITR 722, by the Allahabad High Court that sub-sections (2) and (3) of section 185 regarding grant of registration to a firm indicate the intention of the Legislature that registration to a firm should not be refused on account of defects in the application for registration which can be cured and the law now enjoins that an opportunity should be afforded to the firm to remove the defects, if any, and an application for registration should not be rejected without affording an opportunity to the firm and, therefore, if an application for registration is not personally signed by one of the partners of a firm, the Income-tax Officer ought to give an opportunity to the firm to rectify the defect in the application and registration cannot be refused without giving such opportunity. Thus it is evident that if Prem Lal had not signed the application for registration in Form No. 11 which was filed on December 4, 1967, the Income-tax Officer could have issued notice under section 185(2) of the 1961 Act for removal of the defect and then Prem Lal could have signed the application in Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been admitted to the benefits of the partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm, and such notice shall determine his position as regards the firm. The proviso to section 30(5) of the 1932 Act lays down that if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months (automatically). Thus it is evident that on December 1, 1967, Prem Lal under the proviso to section 30(5) of the 1932 Act became a partner of the firm. The deed of partnership is not before us. It is not mentioned in any of the orders that in the partnership deed executed on September 25, 1967, there was any mention that if Prem Lal attains majority, he will have so much share in the profits and so much share in the losses. Under such circumstances, it has to be held that there was no such clause in the deed as no such argument has been advanced on this point by Mr. Rameshwar Prasad No. 2 who argued the case for the assessee-firm. I do not mean to say that six months' period as a rule should be allowed to Prem Lal in the present case but even if the six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be granted. In the view which I have taken I am supported by various decisions. It has been held in the case of Niadar Mal Jagdish Parshad v. CIT [1959] 37 ITR 349, which is a Full Bench decision of the Punjab High Court, that the requirements of law as to the registration of a partnership firm under section 26A of the 1922 Act are : (a) the factual existence of the partnership during the whole of the accounting year under an oral agreement or a written instrument, (b) the existence of a written instrument during the accounting year specifying the individual shares of the partners and that if these requirements are satisfied, then the firm has to be registered for the assessment year to which the accounting year corresponds and it is immaterial when, during the accounting year, the instrument is executed. It was also held in this decision that a firm which came into existence by verbal agreement was entitled to be registered under section 26A of the 1922 Act if on the date of the application for registration, the terms and conditions of the partnership had been reduced to writing and the application for registration had been accompanied by such an instrument provided that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal instrument of partnership, the redistribution of the shares in losses cannot be ascertained, it will be a case where the instrument of partnership does not evidence the change in the shares and in case the original instrument of partnership envisages this change, the firm will be entitled to a continuance of the registration under section 184(7) of the 1961 Act. It has also been held in this decision that it is necessary to see the original instrument of partnership with a view to find out whether it makes an adequate provision for the share in loss on the minor attaining majority and that it is not necessary that in a case where the relevant information is available in the original instrument of partnership itself, fresh instrument of partnership must be drawn up. It has also been held in this decision that the matter cannot be decided merely on the footing that a fresh deed of partnership was not executed and that the original deed of partnership has to be looked into and if it fails to provide requisite information, then alone the cancellation of registration could be held valid on the footing that a fresh deed of partnership had not been executed. Thus, it is evident th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the assessee-firm was not entitled to the renewal of registration for the assessment years 1963-64 and 1964-65. It was observed in this connection that the benefits of continuance of registration in the years subsequent to the year of original registration under section 184(7) of the 1961 Act is dependent upon two conditions, namely, that the assessee files a declaration in Form No. 12 along with its return and there has not been a change in the constitution of the firm or in the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted. In the case of CIT v. Mathura Prasad Annoolal [1978] 115 ITR 372 (All), two minors had been admitted to the benefits of a partnership. Registration of the firm had been continued up to the assessment year 1968-69. One of the minors, RL, became a major on March 14, 1969. For the assessment year 1969-70, a fresh application for registration in Form No. 11A was filed by the firm along with a new deed of partnership executed on June 12, 1969. The Income-tax Officer rejected the application for registration as a fresh partnership deed had not been executed before March 31, 1969. In thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e already pointed out above that the accounting year of the assessee is the financial year which ended, on March 31, 1968, and so when Prem Lal became a major on May 31, 1967, fresh deed of partnership should have been executed on December 1, 1967, after a lapse of six months but no fresh deed of partnership has admittedly been executed during the accounting year from April 1, 1967 up to March 31, 1968, and, on this basis, the assessee-firm is not entitled to registration. However, I have already pointed out above that Prem Lal became major on May 31, 1967, and so when the partnership deed was executed on September 25, 1967, Prem Lal should have been made a partner on September 25, 1967, and he could not be described as a minor on that date as all the partners knew that Prem Lal had become a major on May 31, 1967, when in the deed itself the date of birth of Prem Lal was shown as May 31, 1949. Under such circumstances, the partnership deed dated September 25,1967, showing Prem Lal as a minor admitted to the benefits of the partnership was not a legal deed of partnership and so no legal firm came into existence on September 25,1967, and so the firm was not entitled to registration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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