The Commissioner of Income-Tax, Bombay
Vs. M/S. Dwarkadas Khetan & Co [1960] INSC 255 (1 December 1960)
HIDAYATULLAH, M.
KAPUR, J.L.
SHAH, J.C.
CITATION: 1961 AIR 680 1961 SCR (2) 821
CITATOR INFO :
E 1966 SC 15 (8) MV 1966 SC1490 (23)
ACT:
Income Tax--Partnership firm including minor,
if can be registered--Indian Income-tax Act, 1922 (11 of 1922), S. 26A--Indian
Partnership Act, 1932 (IX of 1932), s. 30.
HEADNOTE:
One of the persons who entered into a
partnership was a minor and in the instrument of partnership he was described
as a full partner with equal rights and obligations with the other adult
partners. The deed of partnership which was signed by the minor was produced
before th e Registrar of Firms f or registration and he granted a certificate
showing the minor as a full partner and not as one entitled merely to the
benefits of the partnership. The Income-tax Officer, however, refused to
register the firm under S. 26A of the Indian Income-tax Act and his decision
was upheld by the Income-tax Authorities and the Income-tax Appellate Tribunal.
The High Court differed from the Tribunal and held that the firm should be
registered. On appeal by the Commissioner of Income-tax, Held, that the Rules
framed under S. 26A quite clearly show that a minor who is admitted to the
benefits of partnership need not sign- the application for registration.. 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
partnership would be competent to sign such an application. The definition is
designed to confer equal benefits upon the minor by treating him as a partner;
but it does not render a minor a competent and full partner. For that purpose,
the law of Partnership must be considered, apart from the definition in the
Income-tax Act.
Section 30 of the Indian Partnershi Act
clearly lays down that a minor...cannot become a partner, I tough with the
consent of the adult.....partners, he may be admitted to the benefits of
partnership. .....Any document which goes beyond this section cannot be
regarded as valid for the purpose of registration. Registration can only be
granted of a document between persons who are parties to it and on the covenants
set out in it. If the Income-tax Authorities register the:partnership as
between the adults only contrary to the terms of the document, in substance a
new contract is made out. It is tot open to the Income tax Authorities to
register a document which is different from the one actually executed and asked
to be registered.
Hoosen Kassam Dada v. Commissioner of
Income-tax, Bengal, [1937]5 I.T.R. 182, Hardutt Ray Gajadhar Ram v.
Commissioner of 104 822 Income-tax, [1950] 18 I.T.R. 106, Banka Mal Lajja Ram
and Co. v. Commissioner of Income-tax, [1953] 24 I.T.R. 150, approved.
Jakka Devayya and Sons v. Commissioner of
Income-tax, [1952) 22 I.T.R. 264, disapproved.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 328 of 1959.
Appeal by special leave from the judgment and
order dated 23rd February, 1956, of the Bombay High Court in Income-tax
Reference No. 34 of 1955.
K....N. Rajagopala Ayyangar and D. Gupta, for
the appellant.
Rameshwar Nath, S. N. Andley, J. B.
Dadachanji and P. L. Vohra, for the respondent.
1960. December 1. The Judgment of the Court
was delivered by HIDAYATULLAH, J.-The Commissioner of Incometax has filed this
appeal, with special leave, against the judgment and order of the High Court of
Bombay, by which the High Court answered two questions referred to it in favour
of the respondents, Messrs. Dwarkadas Khetan & Co., Bombay. These questions
were:
"(1) Whether the instrument of
partnership dated 27-3-1946 created a deed of partnership? (2)..If the answer
to question No. 1 is in the affirmative, whether the fact that on 1-1-1946
there was no firm in existence would be fatal to the application for
registration of the firm under Section 26A of the Indian Income-tax Act or
whether the firm could be registered with effect from 26- 3-1946 if it is held
that the firm was genuine?" Prior to January 1, 1945, there was a firm
called Dwarkadas Khetan & Co. On that date, the firm ceased to exist,
because the other partners had previously withdrawn, and it came to be the sole
proprietary concern of Dwarkadas Khetan. On February 12, 1946, Dwarkadas Khetan
obtained the selling agency of Seksaria Cotton Mills, Ltd. On March 27, 1946,
he entered into a partnership, with three others 823 by an instrument of
partnership executed that day. Those three others were Viswanath Purumul,
Govindram Khetan and Kantilal Kasherdeo. Dwarkadas Khetan's share in the
partnership was 7 annas in the rupee, while the remaining 9 annas' share was
divided equally among the three others.
Though Kantilal Kasherdeo was a minor, he was
admitted as a full partner and not merely to the benefits of the partner- ship,
as required by s. 30 of the Indian Partnership Act.
To the instrument of partnership, Kantilal
Kasherdeo was also a signatory, though immediately after his signature there
was the signature of one Kasherdeo Rungta, the natural guardian of the minor.
In the instrument, Kantilal Kasherdeo was described as a full partner entitled
not only to a share in the profits but also liable to bear all the losses
including loss of capital. It was also provided that all the four 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.
In short, no distinction was made between the adult partners and the minor, and
to all intents and purposes, the minor was a full partner, even though under
the partnership law he could only be admitted to the benefits of the
partnership and not as a partner.
The deed of partnership was produced before
the Registrar of Firms showing the names of the four partner,%. The Registrar
of Firms granted a registration certificate, and in the certificate, Kantilal
Kasherdeo was shown as a full partner and not as one entitled merely to the
benefits of the,, partnership. Banks were also informed about the four
partners, and. it does not appear that to them intimation was sent that one of
the named partners was a minor. Though the partnership came into existence on
March 27, 1946, the firm was stated to have started retrospectively from
January 1, 1946. It may be pointed out that the firm has the calendar year as
its account year, and the matter before us refers to the account year, 1946
corresponding to the assessment year, 1947-48.
824 For purposes of that year, registration
of the firm was sought under s. 26A of the Indian Income-tax Act. The
Income-tax Officer refused to accord registration on the ground that a minor
had been admitted as a partner contrary to law, and that the deed could not,
therefore, be registered. The appeal to the Appellate Assistant Commissioner
also failed, the Commissioner holding that registration could only be of a
legal or valid document and not of a document which was invalid in law. An
appeal was then taken to the Tribunal, and it was contended that the document
must be construed as showing only that the minor was admitted not as a full
partner but to the benefits of the partnership. The Accountant Member hold that
the order of the Appellate Assistant Commissioner was correct, giving two
reasons. The first was that the construction sought to be placed upon the
document was not open, and the second, that since retrospective operation was
given to the firm even though no firm existed from January 1, 1946,
registration could not be granted. The Judicial Member differed from the
Accountant Member, holding, as was contended, that the document must be
construed as showing merely that the minor had been admitted to the benefits of
the partnership. The appeal was then placed before the President, who agreed
with the conclusion of the Accountant Member, with the result that the refusal
to register the firm under s. 26A by the authorities was upheld.
Two questions were then posed for the
decision of the High Court. The High Court differed from the Tribunal, and
answered both the questions in favour of the assessee. In so far as the second
question is concerned, the matter is now settled by the decision of this Court
in B. C. Mitter & Sons v. Commissioner of Income-tax (1). But, in our
opinion, the decision of the High Court on the first question was not correct,
and the correct answer does not leave the second quest-ion open at all.
There is a distinct cleavage of opinion among
the High Court’s on this point. The Bombay, Madras and (1) [1959] 36 I.T. R.
194.
825 Patna High Courts have held that where a
minor is admitted as a full partner by adult partners, the document can be
registered after interpreting it to mean that the minor has 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. The Bombay case is the one
which is under appeal, and the Patna High Court followed that decision and the
two earlier decisions of the Madras High Court. The Madras High Court decisions
are of the same Divisional Bench, and were pronounced on the same day. The
leading case in support of the respondents is the Madras decision reported in
Jakka Devayya and Sons v. Commissioner of Income-tax (1), and that case alone
needs to be considered, because all the reasons on which the cases on this side
have proceeded are given there. In that case, there were three partners, one of
whom was a minor. They formed a Hindu undivided family; later, a deed of
partnership was executed in which the minor was represented by his
father-in-law. It was held that the fact that the minor was included as a
partner did not make the partnership as between the two adult partners invalid,
and that the minor must be deemed to have been admitted to the benefits of the
partnership by the two adults. The learned Judges referred to the provision of
s. 2 (6-B) of the Income-tax Act, where it is provided:
" "Partner" includes any
person who being a minor has been admitted to the benefits of
partnership;", and observed that in view of this definition and the fact
that a minor could be admitted to the benefits of partnership under s. 30, the
document was not invalid, but must be read as giving to the minor the rights
laid down by the Partnership Act. They also observed that too rigid a
construction need not be put upon the deed, and referred to Lindley on Partnership,
11th Edn., p. 87 and A. Khorasany v. C. Acha and Others (2). The other cases
which we need not examine are Vincent and Others v. Commissioner of (1) [1952]
22 I.T.R. 264.
(2) (1928) I.L.R. 6 Ran. 198.
826 Income-tax and Sahai Brothers v. Commissioner
of Income- tax On the other hand, there is a decision of the Calcutta High
Court reported in Hoosen Kassam Dada v. Commissioner of Income-tax, Bengal (3),
in which Costello and Panckridge, JJ. have held that under s. 26A of the
Income-tax Act and the Rules, the Income-tax Officer is only. empowered to
register a partnership which is specified in the instrument of partnership and
of which registration is asked for. The learned Judges, therefore, hold that it
is not open to the Department to 'register partnership different from that
which is formed by the instrument. In Hardutt Ray Gajadhar Ram v. Commissioner
of Income-tax(4) Malik, C. J. and Seth, J. hold that where a minor is admitted
as a full partner with equal rights and obligations with adults, the deed is
invalid. It is pointed out that the English law on the subject is different. In
that case, however, there was one other ground for invalidating the deed,
because the minor had been adopted into another family and his natural father
who had signed as his guardian in the deed could not do so, as he had ceased to
be the natural guardian. The decision, however, supports the case of the
Commissioner.
In Banka Mal Lajja Ram & Co. v.
Commissioner of Income-tax (5), it is held that a minor cannot be a partner,
and that the partnership which admits a minor as full partner cannot be
registered. It is true that in that case the High Court did not consider the
question whether the partnership should have. been taken to be a valid
partnership consisting of the adult partners, because no such question was
referred. The decision, however, is against a claim for registration of such a
document.
In our opinion, the Calcutta vie' is
preferable to the view taken by the Madras High Court. The error in the Madras
view is in using the definition to show that a deed including a minor as a
competent partner (1)[1952] 22 I.T.R. 285.
(3)[1937] 5 I.T.R. 182.
(2)[1950] 33 I.T.R. 40.
(4)[1950] 18 I.T.R. 106.
(5)[1953] 24 I.T.R. 150.
827 is valid. What the definition does is to
apply to a minor admitted to the benefits of partnership all the 2 provisions
of the Income-tax Act applicable to partners. The definition cannot be read to
mean that in every case where a minor has, contrary to law, been admitted as a
full partner, the deed is to be regarded as valid, because, under the law, a
minor can be admitted to the benefits of partnership. The Rules which have been
framed under s. 26A quite clearly show that a minor who is admitted to the
benefits of partnership need not sign the application for registration. 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
partnership would be competent to sign such an application. The definition is
designed to confer equal benefits upon the minor by treating him as a partner;
but it does not render a minor a competent and full partner. For that purpose,
the law of Partnership must be considered, apart from the definition in the
Income- tax Act.
Section 30 of the Indian Partnership Act
clearly lays down that a minor cannot become a partner, though with the consent
of the adult partners, he may be admitted to the benefits of partnership. Any
document which goes beyond this section cannot be regarded as valid for the
purpose of registration. Registration can only be granted of a document between
persons who are parties to it and on the covenants set out in it. If the
Income-tax Authorities register the partnership as between the adults only
contrary to the terms of the document, in substance 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. In our
opinion, the Madras view cannot be accepted.
The judgment under appeal has followed the
Madras view, and, in our opinion, it falls into the same error in which the
Madras High Court had fallen earlier. The answer to the first question should,
therefore, have been in favour ;of the Department. The answer given by the High
Court is vacated, and 828 the question will now be answered in the negative. As
already stated, there is no need to answer the second question, which does not
arise.
The appeal is allowed with costs here and in
the High Court.
Appeal allowed.
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