1965 PTD 11 (PLP)

Sons of Shri Bansi Dhar. (3) Shri Balkishan Das (minor) through his guardian and father, Shri Inder Lal. (4) Shri Madan Lal (5) Shri Balkishan (6) Shri Hanuman Das (minor) through his guardian and father, Shri Bansi Dhar. Copy of the partnership deed is made part of the case and is Annexure "A".

4. It was claimed that there was a partial partition of the business assets in each of the two Hindu undivided families and the members of the two families became partners in the new firm with the assets so carved out of the family business. An application under section 26‑A of the Income‑tax Act signed by the four major partners was duly filed, claiming registration on the strength of the partnership deed dated November 16, 1948. The Income‑tax Officer and the Appellate Assistant Com missioner refused to grant registration, mainly on the ground that there was no satisfactory evidence regarding the disruption of the Hindu undivided families as there was no application under section 25‑A of the Income‑tax Act in respect of the two Hindu undivided families and that up to 1951‑52, Messrs Inder Lal and Bansi Dhar were assessed in the status of Hindu undivided families. It was found by the Income‑tax Authorities that the capital and the immovable property of both the families were not divided in specified shares. It was also found that the capital contribution of Rs. 5,000 by each of the partners in the new firm came from the account books of the old partnership of Messrs Inder Lal Raghbar Dayal, by debiting Rs. 15,000 to the accounts of each of the component Hindu undivided families. Copies of the orders of the Income‑tax Officer and the Appellate Assistant Commissioner are made part of the case and are Annexures "B" and "C" respectively.

5. When the assessee came in second appeal before the Tribunal, it was contended by the Department that there being one minor in each of the groups of partners, who were made full‑fledged partners in the sense that the minors were made liable for the losses of the firm, the partner ship was not properly constituted and, therefore, ineffective. The Tribunal held that although the two Hindu undivided families of Shri Inder Lal and Shri Bansi Dhar continued to exist as such, what had happened was only a partial partition of the business assets of the two families which were pooled together to constitute a partnership between the respective members as from November 16, 1948. The Tribunal also held that the valid construction that could be placed on the partner ship deed was that the minors were admitted merely to the bene fits of the partnership. The Tribunal relied for this view on the ruling of the Madras High Court in the case of Jakka Devayya & Sons v. Commissioner of Income‑tax ((1952) 22 I T R 264), which was followed by the same High Court in another case, P. Vincent v. Commis sioner of Income‑tax ((1952) 22 I T R 285). The Tribunal distinguished the ruling of the Punjab High Court in the case of Banka Mal Lajja Ram & Co. v. Commissioner of Income‑tax ((1953) 24 I T R 150), by pointing out that in that case the question of the minor having been admitted to the benefits of the partnership not being raised, the Tribunal had found as a fact that the minor had become a full partner and the Punjab High Court decided the case on the basis of the admitted facts. Holding that way, the Tribunal accorded registration to the firm under section 26‑A of the Income‑tax Act. Copy of the Tribunal's order is made part of the case and is Annexure "D".

6. It is on these facts that we refer the following question of law for the opinion of their Lordships of the Punjab High Court: "Whether on a true interpretation of the deed of partnership dated November 16, 1948, a firm had been legally constituted which was entitled to registration under section 26‑A of the Income‑tax Act?"

7. The draft statement of the case was placed before the parties. Neither the assessee nor the Commissioner of Income -tax has any suggestions to make. The statement is accordingly finalised. D. N. Awasthy and H. R. Mahajan for the Commissioner. F. C. Mittal and A. S. Mahajan for S. S. Mahajan for the Assessee. TEK CHAND, J.‑The question which is referred to this Court for its opinion is as follows: "Whether on a true interpretation of the deed of partnership dated November 16, 1948, a firm had been legally constituted which was entitled to registration under section 26‑A of the Income‑tax Act?" The facts of this case giving rise to the dispute are as under: The assessee is a partnership firm consisting of six partners. The deed of partnership was executed on 16th November 1948. Out of six partners three are sons of Inder Lal. One of his sons, Balkishan Das, is a minor. The other three partners are sons of Bansi Dhar and one of his sons; Hanuman Das, was stated to be a minor on the date of the execution of the deed. It is provided in the partnership deed that each partner will be equally responsible for the profits and losses of the partnership. It is also mentioned in the deed that in case of profit each partner will be entitled to share the profit, and in case of loss each partner will pay his share of loss in equal shares. In the assess ment year 1950‑51, this deed of partnership was set up for regis tration of the firm under section 26‑A. The Income‑tax Officer by his order dated the 21st February 1952, declined the registra tion. The assessee was also unsuccessful in his appeal before the Appellate Assistant Commissioner of Income‑tax who agreed with the Income‑tax Officer and expressed the view that the partnership was not genuine. The assessee then went up in appeal to the Income‑tax Tribunal and by its order, dated the 18th August 1954, the appeal was allowed. The Tribunal placed reliance on Jakka Devayya & Sons v. Commissioner of Income tax and P. Vincent v. Commissioner of Income‑tax. This Court had taken a different view in Banka Mal Lajja Ram & Co. v. Commissioner of Income‑tax. The Tribunal expressed the view that in the Punjab case the question of the minor having been admitted to the benefits of the partnership had not been raised and the Tribunal had found as a fact that the minor had become a full partner. In our view the decision of this Court in Banka Mal Lajja Ram & Co. v. Commissioner of Income‑tax, ought to have been applied and could not be distinguished. It is provid ed by section 30 of the Indian Partnership Act that a person who is a minor may not be a partner in ‑a firm, but, with the consent of all the partners for the time being, he may be admit ted to the benefits of partnership. The clear language of the deed of partnership infringes the provisions of section 30 of the Indian Partnership Act. The controversy between this Court and the Madras High Court has now been completely set at rest by a decision of the Supreme Court in Commissioner of Income tax v. Dwarkadas Khetan & Company ((1961) 41 I T R 528). Their Lordships of the Supreme Court after noticing the cleavage of opinion among the High Courts on this point agreed with the view expressed by this Court in the case of Banka Mal Lajja Ram & Company. The Bombay, Madras and Patna High Courts have held that where a minor was admitted as a full partner by adult partners, the document could be registered after interpreting it to mean that the minor had been admitted to the benefits of partnership and not as a full partner. The Calcutta, Allahabad and Punjab High Courts have taken a contrary view. Their Lordships of the Supreme Court are of the view that the law requires all partners to sign the application, and if the definition were to be carried to the extreme, even a minor who is admitted to the benefits of the partnership would be competent to sign such an application. Section 30 of the Indian Partnership Act clearly indicates that a minor cannot become a partner, though with the consent of the adult partners he may be admitted to the benefits of partnership. In view of this exposition of the law any document beyond this section cannot be regarded as valid for the purpose of registration. Their Lordships further observed that registration can only be granted of a document between the persons who were parties to it and on the covenants set out in it. If the Income‑tax Authorities registered the partnership as between the adults only contrary to the terms of the document, a new contract is made out. It is not open to the Income‑tax Authorities to register a document which is different from the one actually executed and asked to be registered. Their Lord ships rejected the reasoning of the Madras High Court. The decision of the Supreme Court concluded the matter under refer ence. In the light of the decision of the Supreme Court which had accepted the Punjab view in the case of Banka Mal Lajja Ram and Company the question referred to this Court cannot but be answered in the negative. We would, therefore, answer the ques tion as follows: "On a true interpretation of the deed of partnership dated the 16th November 1948, a firm had not been legally constituted which could be entitled to registration under section 26‑A of the Income‑tax Act." In the circumstances of this case, however, we leave the parties to bear their own costs. P. D. SHARMA, J.‑I agree.