P L D 1964 Dacca 295 (PLP)

M. R. KHAN, J.‑This reference under section 66(1) of the Income tax Act by Appellate Income‑tax Tribunal, Dacca Bench arises out of three applications filed by the assessee in respect of assessment years 1955‑56, 1956‑57 and 1957‑

58. As the facts and the questions are the same in all the cases, the Tribunal has made the reference by a single statement. The point referred for determination by this Court is: "Whether on the facts and circumstances of the case the Income‑tax Appellate Tribunal was right in holding that the minor partners' admission to the benefits of the firm simul taneously from the constitution of the firm tantamounts to an admission to the benefits of a non‑existing firm contrary to the provisions of section 30 of the Partnership Act."

2. The facts which are relevant to the present reference are as follows:‑Two persons, named, Ismail Ahmed and Jusab Haji Tayub each having 8 annas share, formed a partnership. The deed of partnership was executed on the 16th January 1950, agreeing to start business under the name and style of "Amin Match Works." On the death of Jusab Haji Tayub on the 25th of September 1954, the said partnership was dissolved. For smooth running of the said business, the other partner agreed to take one A. Razzaq Ahmed as a partner in the existing business. Accordingly, a deed of partnership was executed by Ismail Ahmed and A. Razzaq Ahmed on the 11th of November 1954 to take effect from the 26th of September 1954, the day following the death of Jusab Haji Tayub. According to the terms of this partnership, Ismail Ahmed bad 7 annas share and A. Razzak Ahmed had 3 annas. By the same deed of partnership, the partners admitted three minors, named Wahed A. Karim, Bashir A. Habib and Rafiq Kassam to the benefits of the partnership, each having 2 annas share in the profit. The firm applied for registration of the partnership under section 26‑A of the Income tax Act for each of the assessment years, but the Income‑tax Officer rejected registration on the grounds that the minors did not contribute any labour or capital ; that their admission was without any consideration and that the firm was not genuine.

3. On appeal, the Appellate Commissioner reversed the Income‑tax Officer's order of refusal to grant registration, and directed the applications for registration to be granted. Against that order, an appeal was taken to the Tribunal. The Tribunal set aside the Appellate Assistant Commissioner's order and sent back the case to him with a direction to re‑hear the appeal in the light of certain reported decisions. Meanwhile, the Tribunal considered the same question in another case and gave its decision relying on the reported cases already referred to by the Tribunal in its order remanding the case to the Appellate Assistant Com missioner of Income‑tax. In these circumstances, the Appellate Assistant Commissioner held that the rejection of the application for registration by the Income‑tax Officer for the three years concerned, was correct: The assessee appealed to the Tribunal against the final order of the Appellate Assistant Commissioner. The Tribunal, by its order dated the 12th March 1960, on a review of the reported cases, held that the minors were admitted to the benefits of the partnership which did not exist and that such admission was contrary to the provisions of section 33 of the Partnership Act. The present reference arises from the said order of the Tribunal.

4. The point of reference calls for a closer examination of section 30 of the Partnership Act. Subsection (1) of the said section, which is relevant here, runs thus: "(1) A person who is a minor according to the law to which he is subject may not be a 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." This is an enabling provision. For the applicability of this provision, two things are required, namely ; (1) the existence of a valid partnership on the benefits of which a minor may be admitted, and (ii) the mutual consent of the partners to admit a minor to the benefits of that partnership. In the present case, the partnership was formed by an instrument by two adults, Ismail Ahmed and A. Razzaq Ahmed, both of whom were com petent to enter into a contract of partnership. The deed of partnership, dated the 11th of November 1954, between those two persons records, in first instance, the factum of partnership having been entered into between them as individuals, and later it records the factum of mutual consent of the said two persons as partners admitting the three minors to the benefits of that partnership. As soon as the said two adults as individuals contracted to form a partnership on the terms and conditions laid down in the deed, a valid partnership between them came into existence. After the partnership had thus become an accom plished fact, the two contracting adults as partners, by their mutual consent, admitted the three minors, namely, Wahed A. Kariw, Bashir, A. Habib and Rafiq Kassam to the benefits of that partnership. Although both the constitution of the partnership and the factum of admission of these minors to the benefits thereof are embodied in the self‑same deed, there is no doubt that the former, in point of time, preceded the latter, however short the time lag may be between those two actions. Thus, it follows that in the present case, there had existed a valid partnership at the time of the admission of the minors to the benefits thereof and that the minors were, in fact, admitted to the benefits of that partnership by the mutual consent of the partners. In such view of the matter, both the requirements of subsection (1) of section 30 of the Partnership Act were satisfied in the present case.

5. Relying on the decisions in the cases of Md. Rafiq v. Qamar Din (A I R 1922 Lah. 441), Deviditta Mall v. Firm Thanmal Parjaram (142 I C 293) and Barkatullah v. Hanif (P L D 1955 Lah. 350), the Tribunal held: "We also find that the minor partners were admitted to the benefits of the partnership simultaneously from the constitution of the firm by the oral agreement; such admission tantamounts to an admission to the benefits of a non‑existent firm contrary to the provisions of section 30 of the Partnership Act as inter preted in the case of Barkatullah v. Hanif."

6. Before proceeding to discuss the reported cases relied on by the Tribunal in support of its view, it may be pointed out that the Tribunal, as the words under‑lined (here italicized) in the above quotation show, took the minors in this case to be partners of the firm. This is not correct so far as application of section 30 of the Partnership Act is concerned; the minors are only bene ficiaries under that section and not partners. Although a partner, for the purposes of Income‑tax Act, includes a minor who has been admitted to the benefits of partnership, a partner within the meaning of the Partnership Act does not include a minor. In other words, a minor admitted to the benefits of partnership under section 30 of the said Act, does not become a partner, as defined in that Act. The distinction between "partner" under the Partnership Act and "partner" under the Income‑tax Act not having been kept in view, the Tribunal appeared to have misapplied the reported decisions relied on by it.

7. Now, coming to the reported decisions relied on by the Tribunal, it appears that the decision in Md. Rafiq v. Qamar Din was followed in the subsequent case of Deviditta Mall v. Firm Thanmal Parjaram and that the decisions in those cases were relied on in the last case of Barkatullah v. Hanif. In all those cases, there were minors who along with adults entered into contracts of partnership. As minors are incompetent to enter into a contract, it was held in those cases that the contracts of partnerships were void and, as such, there existed no valid partnership to the benefits of which minors in those cases could be treated to have been admitted. In the said cases, the minors themselves formed partnerships along with some adults, and the minors were partners at the very inception of the partnerships, whereas in the present case, the minors were not parties to the formation of the partner‑ship which was formed, in the first instance, by two adults who, after having duly formed the partnership, admitted the minors, though in the same deed, to the benefits thereof. Thus, the facts and circumstances of the said reported cases are quite different from those of the present case. Hence, the decisions in those 'cases are not applicable in the present case.

8. On an examination of subsection (1) of section 30 of the Partnership Act, I have already formed (sic) that the requirements of the said subsection were satisfied in the present case. Accordingly, the answer to the point of reference is in the negative. The assessee will get costs from the Department, which is assessed at two gold mohurs. CHOWDHURY, C. J.‑I agree. S. Q. Reference answered in the negative.