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TMI Blog1984 (6) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... rm for any year shall be divided among partners as follows : Sri S. N. Gundu Rao 20% Sri S. C. Madhukar 40% Master Santosh Kadam 40% Clause-13 : 'The minor member admitted to the benefits of the partnership shall have no rights over the goodwill of the firm'." For the assessment year 1972-73, the ITO by an order dated January 29, 1975, granted registration to the firm under s. 185 of the Act. By the same order, he continued the registration for the subsequent year 1973-74. But the Commissioner in the exercise of his powers under s. 263 of the Act has found fault with the order granting registration to the firm. According to him, the minor was made a full-fledged partner. He was not admitted only to the benefits of the partnership. The registration was erroneous and prejudicial to the interests of the Revenue. So, he cancelled the registration of the firm. The firm appealed to the Tribunal. The Tribunal confirmed the order of the Commissioner with some more reasons. It held that there is no specification as to distribution of 40% loss of minor's share as between the major partners. So, the minor cannot be held to have been admitted only to the benefits. The case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, he may be admitted to the benefits of partnership ". Sub-sections (2) and (3) of s. 30 provide that such minor has a right to such share of the property and of the profits of the firm, but not loss. It, therefore, goes without saying that if a minor is admitted as a full partner with the rights and liabilities of an adult partner, then the deed of partnership would not be valid. (See CIT v. Dwarkadas Khetan Co. [1961] 41 ITR 528 (SC). It is now necessary to examine the true nature and incidents of benefits of partnership " and the rights of the guardian of a minor in regard to it. In CIT v. Shah Mohandas Sadhuram [1965] 57 ITR 415 (SC), the, Supreme Court observed at page 420 thus: "... it is necessary to consider what are the incidents and true nature of benefits of partnership and what is a guardian of a minor competent to do on behalf of a minor to secure the full benefits of partnership to a minor. First, it is clear from sub-section (2) of section 30 of the Partnership Act that a minor cannot be made liable for losses. Secondly, section 30, sub-section (4), enables a minor to sever his connection with the firm and if he does so, the amount of his share has to be determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deed expressly states that it is the major members who had decided to constitute the partnership and admitting the minors to the benefits of the said partnership, then the rest of the clauses must be construed in light of that recital. (underlining is ours). With these preliminary observations, let us have a close look at the deed in question. The deed of partnership was between two major partners : (i) Sri S. N. Gundu Rao, and (ii) Sri S.G. Madhukar. They were the only two parties to the deed. They constituted the firm to do business under the name and style of " Conpro Corporation ". Preamble to the deed states that the said two persons agreed to admit Master Santosh Kadam to the benefits of partnership. The minor represented by the guardian was not eo nomine party to the deed. The business, as the preamble states, was required to be conducted only by the parties to the deed. The entire capital of the firm was contributed only by the parties to the deed. By clause (9), Sri S.N. Gundu Rao was constituted as the managing partner charged with the duty to do the day-to-day business of the firm. Clause (12) provides for dissolution of the partnership and distribution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise and the partners have to share profits and losses according to the ratio prescribed in para. 16 of that deed. The High Court while construing the instrument held that the minor was admitted only to the benefits of the partnership, but to determine the shares of the major partners in the losses, the parties would be free to take any digit or figure as a unit. The court observed at page 692: "There is no rule which compels the partners to always take 100 paise or 16 annas as a unit and then determine the shares of the partners in the losses. The parties are free to take any digit or figure as a unit and specify the shares of the major partners in the losses in that unit. As long as the partnership deed specifies the shares of the partners in profit and loss, whatever may be the method by which that is specified, it cannot be argued that the deed does not specify the shares of the partners in profit and loss as required by section 26A of the Act. As long as the shares can be worked out according to the specification made in the deed, the registration cannot be refused on the ground that the deed omits to specify the share in profit or loss." The view taken in the above decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was not justified in taking that view. The decision in Hyderabad Stone Depot's case [1977] 109 ITR 686 [FB] was rendered by the Andhra Pradesh High Court on July 14, 1972. The Supreme Court gave the decision in Mandyala Govindu Co.'s case [1976] 102 ITR 1 on October 6, 1975. There was no occasion for the Supreme Court to consider the validity of the ratio of that decision of the Andhra Pradesh High Court. But the effect of the decision of the Supreme Court in Mandyala Govindu Co.'s case [1976] 102 ITR 1, on the correctness of the decision in Hyderabad Stone Depot's case [1977] 109 ITR 686 (AP) [FB], came up for consideration before a larger Bench of the Andhra Pradesh High Court in Krishna Mining Company's case [1980] 122 ITR 362. There, the Andhra Pradesh High Court after considering both the decisions has reiterated the view taken in Hyderabad Stone Depot's case [1977] 109 ITR 686, by observing thus at page 378 : " We must, therefore, hold that the case of Mandyala Govindu Co. v. CIT [1976] 102 ITR 1 (SC), is distinguishable on facts. The decision of the Full Bench of this court in CIT v. Hyderabad Stone Depot [1977] 109 ITR 686 must be upheld as, on a reasonable constr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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