9911796707
TMI Blog1984 (6) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... the resulting profits and losses shall be divided equally. " The above firm applied for registration for the assessment year 1974-75, and the ITO, granted the request, after satisfying himself that a genuine firm was in existence. In proceedings under s. 263, however, the Commissioner took the view that registration should not have been granted. The assessee appealed. The Income-tax Tribunal disagreed with the Commissioner and held that the firm was entitled to registration. At the instance of the Commissioner, therefore, the following question has been referred to this court, in I.T.R. No. 204 of 1979 : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration for the assessment year 1974-75 ? " The question in I.T.R. No. 80 of 1982, is connected, and it is whether the assessee is entitled to continuation of registration for the assessment year 1976-77. The Commissioner's objection to grant of registration were these (i) there was no proper deed evidencing the partnership which existed during the period from April 1, 1973 to May 2, 1973; the recitals in the deed dated May 3,1973, regarding retrospectivity were insufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner. Section 30 deals with the rights and liabilities of minors admitted to the benefits of partnership, and reads: "30. Minors admitted to the benefits of Partnership. -(1) A person who is a minor according to the law to which he is subject may not be partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership. (2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and copy any of the accounts of the firm. (3) Such minor's share is liable for the acts of the firm, but the minor is not personally liable for any such act. (4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48: Provided that all partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contract Act, a minor's contract is void. Section 30 of the Partnership Act, however, permits a minor being admitted to the benefits of partnership. There is probably some anomaly in fitting minor, incompetent to contract, into a scheme of things which essentially rests on contract, but the specific provisions of s. 30 relating to the rights and liabilities of such a minor are intended to take care of practical difficulties that may arise. A minor has a right to a share of the property and the profits of the firm. He can have access to and inspect the accounts. His share is liable for the acts of the firm, but he is not personally liable e cannot sue for account and payment of his share, save when severing connections with the firm. Within six months of attaining majority, he can elect to become a partner ; and when he does so, he becomes personally liable for all the acts of the firm from the time he was admitted to the benefits of partnership. When a partnership commences with some major members and a minor admitted to its benefits, and when the minor attains majority and elects to become a full partner, is there any change in the constitution of the firm ? Is it possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of ss. 40 and 42. In Bhogilal Laherchand v. CIT [1955] 28 ITR 919 (Bom), Chagla C.J. said (p. 923): "Let us look at what the position in law is with regard to a minor who has been admitted to the benefits of a partnership and who attains majority. It is a commonplace that a minor can never become a partner but he can be admitted to the benefits of a partnership, and section 30 of the Partnership Act regulates the rights of a minor who has been admitted to the benefits of a partnership, and broadly speaking the rights of a minor, when he attains majority, are that be has the option either to retire from the partnership or to continue in the partnership and a locus penitentiae of six months is given to him to make up his mind. If he elects to continue as a partner then the partnership does not come to an end, the partnership continues, and sub-section (7)(a) of section 30 expressly provides that his rights and liabilities as a minor continue up to the date on which he becomes a partner but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the partnership. On the other hand, if he elects no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting year were to be divided or credited in accordance with the terms of the instrument (iv) the application for registration was made in accordance with the requirements of the Act and the Rules, and within the time prescribed; and (v) the identity of the firm was the same throughout. According to the decision of the Supreme Court in R. C. Mitter Sons v. CIT [1959] 36 ITR 194, a firm could be registered under the I.T. Act if the above conditions are satisfied. In CIT v. Joseph George [1970] 77 ITR 292, this court had clarified that it was enough if the document evidencing the partnership was in existence at the time of the application for registration ; it was not necessary that it was in existence at the beginning of the year or was in force throughout the accounting year. Turning to the decision in CIT v. Dwarkadas Khetan and Co. [1961] 41 ITR 528 (SC), all that was said there was that a minor could not be made a full partner in a firm with equal rights and liabilities as adult partners. The position was clarified by the Supreme Court in CIT v. Shah Mohandas Sadhuram [1965] 57 ITR 415, by observing that the true approach would be to reasonably construe the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his minority; he had not been made a full partner before May 3, 1973. It cannot, therefore, be said that the firm was an illegal one from its commencement, as was the case in Dwarkadas Khetan [1961] 41 ITR 528 (SC). The only other question is whether clause 7 of the deed, coupled with the provision for retrospectivity from April 1, 1973, would alter the position. The clause, extracted earlier, shows that it only provided for sharing of loss when accounts were closed at the end of the year 1973-74. Taken along with the recital that Ismail was only entitled to the benefits of the partnership during his minority, this provision cannot reasonably be construed as attempting to impose liability on him for losses which might or might not have been sustained during the earlier part of the year when he was only a minor. He had attained majority on May 3, 1973, and it was certainly open to him to agree to partake of the losses ascertained and disclosed by the end of 1973-74. The provision can also be construed, as was done by this Court in Krishna Bros. [1968] 69 ITR 135, as an arrangement for making the minor's share liable for losses, a course permissible under s. 30(3) of the Partners ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
