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TMI Blog1975 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... er terms of this indenture of partnership in greater detail a little later. This partnership was registered under the Partnership Act on July 8, 1960, when the two major partners, Brijgopal and Madangopal, were shown as partners while Rajendrakumar was shown as being admitted to the benefits of the partnership with effect from February 1, 1960. On or about November 1, 1960, a further agreement was entered into between these parties as a result of which, inter alia, the shares of the partners, i.e., the parties to the original indenture of partnership were altered and some other alteration was made in the original deed. On November 14, 1962, a deed of rectification was entered into between Madangopal and Brijgopal, the two major partners. In the recital of this deed of rectification it is stated that the partnership agreement was entered into between the two majors, Madangopal and Brijgopal, while the minor was admitted to the benefits of the partnership. It also further recited that the parties were advised that the original indenture of partnership was defective inasmuch as the said minor has been made a party thereto and thereafter the deed was executed with a view to show that R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereto. In the opinion of the Tribunal the partnership agreement contravened the provisions of section 30 of the Indian Partnership Act and was not entitled to registration. Mr. Dastur on behalf of the assessee-firm contended that where a question arises whether a partnership firm is entitled to registration under the Act, one has to look at the guiding or main clause of the indenture of partnership and in the light of such main or guiding clause, the other clauses of such indenture should be construed. For example, he referred to three guiding clauses, which would normally be found in an indenture of partnership. There may be a clause which indicates that the minor is admitted to the benefits of the partnership. There may be a clause that the minor is not liable to bear losses and is only entitled to a share in the profits and there may be a clause where the major partners were only entrusted with the management of the business. Ordinarily, he submitted, when the minor is not liable to bear losses, the existence of such a clause by itself will be enough to treat the indenture of partnership as admitting the minor to the benefits of the partnership unless such a clause could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a factor alone will, therefore, be not sufficient to negative a conclusion that a minor has become a full-fledged partner upon the proper construction of the provisions of the indenture of partnership. Section 30(1) of the Partnership Act provides that 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 the partnership. Sub-section (2) thereof provides that such a 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. Under sub-section (3) such minor's share is liable for the acts of the firm, but the minor is not personally liable for any such act. Sub-section (4) provides that 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 a 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. On behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership will be valid if upon a proper construction of its terms, Rajendrakumar, a minor, is regarded as being admitted to the benefits of the partnership. On the other hand it will not be valid if it is held that upon a proper construction of the indenture of partnership he is treated as a full-fledged partner like every other major partner. In Md. Khalid Faquih & Co.'s cases decided by this court the facts were that a partnership was entered into by ten persons of whom two were minors and the deed was signed by the eight adult persons and also by one among these eight persons as guardian for the minors. The deed, inter alia, provided that all the members including the minor members entered into an agreement to carry on business in partnership and share its profits. It further provided that the duration of the firm will be at will. The deed also contained a term whereunder Mohamed Khalid A.R. Faquih had been authorised to conduct the business in the best interests of the firm, i.e., on behalf of the partners. The other partners' right is of being consulted by the managing partner. Under the deed the losses of the business were to be shared only by the adult partners. Upon anal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instrument, though his natural guardian also signed it. Not only was he entitled to share in the profits but he was also liable to bear all the losses including loss of capital. All the partners were to attend to the business, and if consent was needed, all the partners, including the minor, had to give their consent in writing. The minor was also entitled to manage the affairs of the firm, including inspection of the account books and was given the right to vote, if a decision on votes had to be taken. It was held that the partnership deed in which the minor was admitted as a full partner was not valid and could not be registered under section 26A of the Income- tax Act. The attention of the Supreme Court in this case was invited to the cleavage of opinion among the High Courts on this point and the Supreme Court agreed with the view taken by the Calcutta High Court. After referring to the definition of the word " partner " in section 2(6B) of the Income-tax Act to the effect that " partner " includes any person who being a minor has been admitted to the benefits of a partnership, the Supreme Court points out that this definition cannot be read to mean that in every case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the same day and they are in the case of Shah Mohandas Sadhuram and in the case of Shah Jethaji Phulchand. In Shah Mohandas Sadhuram's case the partnership deed first described the parties and then recited : " Whereas the above four members were till this day members of a joint family, whereas yesterday, that is, on March 31, 1962, the said four members have become divided not only in interest but also by metes and bounds, each of the said members taking to his share one-fourth (1/4) of the said joint family assets and liabilities as detailed in the books of account as maintained by the firm known as Seth Mohandas Sadhuram and whereof we the first and second members have decided to constitute all the said four members as a partnership admitting the third and fourth members thereof to the benefits of the said partnership but not to the liabilities thereunder." Clause 8 of the partnership deed dealt with the share of profit and loss and it is as under : " It is further agreed that after debiting all working expenses inclusive of those referred to in paragraph 6, the profits of the firm less six pies per every rupee of profits which will be reserved for charity fund will be dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long as it is not so avoided. A guardian is further entitled to assent to the mode of keeping accounts. As regards duration, it is pointed out that the duration of a partnership has to be fixed between the major members, and the guardian on behalf of the minor may agree to accept the benefits of the partnership only if the duration is to the benefit of the minor. A guardian may on behalf of a minor sever his connections with a firm in which he is admitted to the benefits of the partnership. Where a partnership is for a definite period and the deed enables the members to agree to continue the partnership beyond that period, he is also entitled to refuse to accept the benefits of partnership or agree to accept the benefits of the partnership for a further period on terms which are in accordance with law. Upon the construction of the terms of the partnership deed in the case the Supreme Court held that the partnership deed in that case, reasonably construed, only conferred benefits of partnership on the minors and did not make them full partners. Their guardian had agreed to certain clauses in order to effectuate the decision of the major members to confer the benefits of the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that the minor was admitted to the benefits of partnership, the fact that the minor partner was not liable to bear losses is treated as sufficient to come to the conclusion that the partnership was for the benefit of the minor. Such cannot be regarded as the ratio of the case. The Supreme Court has clearly pointed out that sub-clause (9) which dealt with sharing of profit and loss and sub-clause (16) which provided for business to be carried on, were treated as principal clauses and the other clauses in the deed were to be interpreted and construed in the light of these two principal sub-clauses. Under sub-clause (5) of clause 4 of the partnership deed the partners were given a general right to borrow any money required for partnership business at prevailing rate of interest, but such general power was construed by reading along with sub-clause (16) by which the managing partners have been designated as working partners. It was upon the combined effect of sub-clause (9) which deals with sharing of profit and loss and sub-clause (16) which deals with management and carrying on business of the firm by the three named managing partners, that the Supreme Court took the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nors were made partners under a deed or whether they become only entitled to the benefits of the partnership, the question must depend upon the construction of the deed as a whole. If the dominant clause of the deed indicates that the minors were only admitted to the benefits of partnership, then that dominant clause must be taken to colour the deed itself and must fix the extent of the liability and responsibility of the minors. In order to construe a partnership deed, the entire document must be read as a whole and a reasonable construction should be placed on it. In a document where several clauses appear, what clauses dominate the document should be found out with a view to ascertain the real intention of the partners. When the intention of the executants of the document is clear from the dominant clause therein which states that the minor is admitted only to the benefits of the partnership, the other clauses of the document should be so read as to reconcile with that manifestly brought out intention of the parties to the document. Mr. Dastur has drawn our attention to the decision of the Calcutta High Court in the case of National Trading Company v. Commissionerof Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership even though the deed was signed by some of the minors and also by a paternal uncle of theirs acting as guardian. As we are bound by the decision taken by the Bombay High Court it will not be possible for us to consider whether the view taken by the Calcutta High Court or the Jammu & Kashmir High Court can be regarded as erroneous or not. Reference to the other cases cited by Mr. Dastur is unnecessary because in Shah Mohandas Sadhuram's case and in each one of the cases so cited there was either an express term or recital to the effect that the minor was only admitted to the benefits of partnership. This takes us to the relevant provisions of the indenture of partnership with which we are concerned. The indenture of partnership is made between three parties one of whom is a minor and on behalf of the minor his guardian has entered into the agreement. The recital in the indenture of partnership is as under " WHEREAS the parties hereto desire to commence and carry on business in partnership AND WHEREAS the parties desire to reduce to writing the terms and conditions under which they have agreed to carry on business in partnership and it is hereby mutually agreed between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho shall furnish regular periodical statements to the partners as required by them and also submit the annual accounts of the firm within three months from the close of the accounting year to the partners. The accounts shall be got audited by a Chartered Accountant. 11. That each partner shall : (a) punctually pay his separate debts and indemnify the other partners and the assets of the firm against the same and all expenses thereon ; (b) upon every reasonable request inform other partners of all the accounts, writings and other things which shall come to his hands or knowledge concerning the business of the partnership ; (c) render true and faithful accounts of all transactions and dealings done or entered into on behalf of the firm ; (d) be just and faithful to the others and give full information and true explanations for all matters relating to the affairs of the partnership and offer every assistance in his power in carrying on and promoting the business for their mutual benefit ; ......... 13. The accounts of the partnership shall be made up at the end of each March and the profits and losses, as the case may be, shall be respectively divided according to the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haring of losses by a minor is not an essential element for constitution of a partnership and there can be a partnership valid and effective in law whereunder even a major partner may be excluded from the obligation to bear any share in the lossess suffered by the firm. Thus, the mere fact that a party to an indenture of partnership is not liable to bear the losses will not by itself be decisive of the question whether he is a full-fledged partner or is a minor admitted to the benefits of partnership. If all the provisions of the indenture of partnership including the recitals and several terms are carefully scrutinised, then it is not possible to take the view that the provision in this indenture that Rajendrakumar, the minor, shall not be liable to bear the losses of the partnership should be treated as a dominant clause and the other clauses of the partnership deed should be construed in the light of such a provision. If the recitals and the various clauses of the indenture are carefully scrutinised it is quite evident that Rajendrakumar is clothed with a power to do everything which the other partners are entitled to do and under some of the clauses he is also saddled with liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inor through his guardian will have power to participate in such an arrangement for funds including borrowing of funds. Under clause 7 the duration of the partnership is at will. In Shah Mohandas Sadhuram's case the Supreme Court has pointed out that such a clause only means that having regard to the provisions of section 30 of the Partnership Act the minor is entitled to sever his connection with the firm. Clause 7, however, goes a little further and does not stop by merely providing that the duration of the partnership shall be at will. It further states that " each of the parties hereto shall be at liberty to determine the partnership by giving to the other one month's notice in writing of his intention in that behalf ". Ordinarily, under section 30 of the Partnership Act a minor through his guardian may decide to sever his connection with the firm but he will have no right to enforce a dissolution of the firm upon the major partners. Under this clause such a thing is possible and Rajendrakumar through his guardian will always be at liberty to see that he does not merely sever his connection with the firm but the firm itself is entirely dissolved after giving the requisite notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he major can do the minor is clothed with a power to do. What only a major can be called upon to explain a minor is called upon to explain. By way of illustration we will merely refer to the provisions of sub-clause (c) with a view to find out the effect thereof. Under that sub-clause each partner shall render true and faithful accounts of all transactions and dealings done or entered into on behalf of the firm. If Rajendrakumar is anxious to call upon the other partners, then he is entitled to do so under this provision. Section 30 of the Partnership Act does not contemplate such a thing. He is merely given a right of inspection of the accounts and a right to have accounts taken at the time of his severance. Further, the wording of clause 11 indicates that just as a major partner can act on behalf of the firm a minor can do so through his guardian and when such act is done through his guardian he can be called upon to render true and faithful accounts of all transactions and dealings done or entered into on behalf of the firm. Such a clause prima facie really goes to show that everything which a major partner can do Rajendrakumar, the minor, can do. Everything that a major partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its provisions, therefore, will not be helpful to the assessee. Primarily, the question whether Rajendrakumar has become a fullfledged partner or was admitted to the benefits of partnership has to be decided upon scrutiny of the provisions of the indenture of partnership dated February 17, 1960, and, as pointed out above, upon such scrutiny he can be regarded as a fullfledged partner. Reliance was placed by Mr. Dastur upon an entry when the firm was registered with the Registrar of Firms in July, 1960. In this entry it is mentioned that there are only two major partners, Brijgopal and Madangopal, and go far as minor, Rajendrakumar, is concerned, he is admitted to the benefits of partnership. In our opinion, such a provision in the entry will not be helpful to the assessee, because the question whether Rajendrakumar was admitted to the benefits of partnership or was made a fullfledged partner under the initial indenture of partnership has to be decided having regard to the terms of the original indenture. This is not a case where any ambiguity exists in the provisions of the original indenture and, therefore, other evidence will not be of any use in deciding the question whether u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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