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SUPREME COURT OF INDIA
K. Subba Rao, J.C. Shah, S.M. Sikri, JJ.
Commissioner of Income Tax, Mysore, Bangalore (In Both The Appeal) - Appellant
Versus
Shah Jethaji Phulchand, Davangere (In Both The Appeals) - Respondent
Civil Appeals Nos. 146 and 147 of 1964
Decided On : 15-04-1965
INCOME TAX - Registration of firm - Minor as partner - Whether minor can be admitted to benefits of partnership - Partnership Act, 1932, Section 30.
Fact of the Case:
The assessee firm sought registration under Section 26-A of the Indian Income Tax Act for assessment years 1953-54 and 1954-55. The partnership deed included a minor as a partner, and the Income Tax Officer rejected the applications for registration on the ground that there were no valid applications for renewal of registration.
Finding of the Court:
The court held that the minor was not made a full partner but had only been given the benefits of partnership. The court also held that a guardian can agree to the starting of a business and the constitution of a firm on the condition that the minor shall not be a full partner but only entitled to the benefits of partnership.
Issues: Whether a minor can be admitted to the benefits of partnership.
Ratio Decidendi: The court held that a guardian is entitled to do all things necessary for effectuating the conferment of the benefits of partnership. The court also held that there is no bar in law to the guardian entering into a contract to start a business and constitute a firm on the condition that the minor shall not be a full partner but only entitled to the benefits of partnership.
Final Decision: The court answered the question in the affirmative and held that the assessee firm was entitled to be registered.
JUDGMENT :
Sikri, J.
These two appeals pursuant to a certificate granted by the High Court of Mysore under Section 66-A(2) of the Income Tax Act are directed against the judgment of the High Court answering the question referred to it in favour of the respondent assessee. The question referred to is :-
2. The relevant facts are these: The respondent, M/s Shah Jethaji Phulchand, hereinafter called the assessee, is a firm constituted by partnership deed dated November 20, 1950. The assessee sought registration of the firm under Section 26-A of the Indian Income Tax Act for assessment years 1953-54 and 1954-55. The deed of partnership was entered into between five parties; (1) Nathmul Jethaji, (2) Phulchand, (3) S. Babulal, minor son of Jethaji, (4) Sakalchand Thikmaji, and (5) Jethibai. The relevant clauses of the agreement on which the learned counsel have made comments are these:
4. Now they agree between the above 5 parties as hereunder:
(1) That the above five parties shall establish cotton business, and carry on the same at Davangere with branches in the surrounding areas under the name and style Jethaji Phoolchand'.
(2) That the capital of the business shall be Rs. 2,75,000 lakhs contributed from the parties of the firm :-
The 1st party shall contribute Rs. 1,56,000.
(One lakh fifty-six thousand)
The IInd Party shall contribute Rs. 22,500
(Twenty-two thousand five hundred.)
The IIIrd Party shall contribute Rs. 70,000.
(Seventy thousand)
The IVth Party shall contribute Rs. 22,500.
(Twenty-two thousand five hundred).
The Vth Party shall contribute Rs. 10,000.
(Ten thousand)
(3) That all the business of partnership shall be carried on in the name of the partnership only and that the partners shall be at liberty to carry on cotton business or any other business in their individual capacity with different capital without the consent of other parties.
The partners doing business in their individual capacity need not disclose their profits of the individual business to the other partners of this partnership.
(4). That this partnership shall have effect from Deepavail 1950 as previously agreed and as the same has already been working as such with effect from that date and the same shall be in existence for such periods as the parties desire. The partnership shall be terminated at the will of or any of the partners,
(5) That the partners shall have a right to borrow any money required for partnership business at prevailing rate of interest.
(9) That the profits and loss of the company shall be shared by the partners in the following proportions irrespective of the contribution of the capital.
1st Party shall be entitled to Rs. 0-3-6
IInd Party shall be entitled to Rs. 0-3-0
IIIrd Party shall be entitled to Rs. 0-3-3.
IVth Party shall be entitled to Rs. 0-3-0
Vth Party shall be entitled to Rs. 0-3-3
Half an anna of the profits shall be credited to the charity fund. The portion of loss to be contributed by 3rd Party is to be borne by first party and adjust in the accounts.
(16) That (1) Nathmal Jethaji, (2) Phoolchand Nathmal, (3) Sakalchand Thikmaji shall be working partners. They shall have the right of doing business, borrowing moneys from banks and other persons, drawing cheques on the account of the firm in the banks and generally they shall have all the rights connected with the business."
3. The Income Tax Officer rejected the applications for registration for 1953-54 and 1954-55 on the ground that there were no valid applications for renewal of registration. Apparently the firm had been registered in the earlier ass
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