Back
1969 Supreme(AP) 129
Andhra Pradesh High Court
Judges : C.KONDAIAH, N.KUMARAYYA
Raraachandra Ginning and Oil Mills Gollaprolu - Appellant
Versus
Commissioner of Income tax A.P., Hyderabad - Respondent
Decided On : 09-26-69
A guardian cannot purport to enter into a partnership on behalf of a minor, and the admission of a minor to the benefits of partnership does not make the partnership invalid.
Headnote:
INCOME TAX - REGISTRATION OF FIRM - CONDITIONS - VALIDITY OF PARTNERSHIP DEED - ADMISSION OF MINORS TO BENEFITS OF PARTNERSHIP - INTERPRETATION OF DEED - REVISION OF ORDER GRANTING REGISTRATION - POWERS OF COMMISSIONER.
Fact of the Case:
The assessee, a firm, claimed registration under Section 26-A of the Income Tax Act, 1922, on the strength of a partnership deed executed on February 24, 1955, and a deed of rectification dated March 29, 1955. The Income-tax Officer granted registration to the assessee firm by his order dated June 29, 1956, which was allowed to become final. Thereafter, the application for renewal of registration of the assessee-firm for the assessment year 1956-57 was granted by the Income-tax Officer by his order dated March 18, 1961. The Commissioner of Income-Tax, considering clause 11 of the Partnership deed, was of the opinion that the minors described as partner Nos. 9 and 16 were made liable for both profits and losses, thereby disentitling the firm for the grant of registration under Sec. 26-A of the Act. The Commissioner issued a notice under Sec. 33-B of the Act on Feb. 16, 1963, calling upon the assessee to show cause why the renewal of registration granted on March 18, 1961 should not be set aside as, in his opinion, it was erroneous and prejudicial to the interests of the revenue. The Tribunal confirmed the order of the Commissioner.
Finding of the Court:
The court held that the Commissioner was entitled to revise the order granting registration passed by the Income-tax Officer before 1-4-1962, under Section 33b of the Income-tax Act, 1922, after 1-4-1962, in view of the decision of the Supreme Court in Kalawati Devi Harlalka v. Commissioner of Income Tax- West Bengal and Others. The court also held that the two minors were not made full partners but were only admitted to the benefits of partnership, as the partnership deed, when read as a whole, showed that the minors were not liable to bear losses and their guardians had agreed to contribute the share capital and bear losses for and on behalf of the minors.
Issues: 1. Whether the Commissioner of Income Tax was entitled to revise under Section 33b of the Income-tax Act, 1922, after 1-4-1962, an order granting registration passed by the Income-tax Officer before 1-4-1962? 2. Whether on the facts and in the circumstances of the case and on a proper construction of the instrument dated 24-2-1955 and 29-3-1955, the Tribunal was justified in holding that no valid firm had come into existence, and as such the assessee was not entitled to registration under Sec. 26-A of the Income-tax Act, 1922, for the Assessment year 1956-57?
Ratio Decidendi: 1. The court held that the expression "proceedings for the assessment" in Section 297 (2) (a) of the Income Tax Act, 1961, had a comprehensive meaning and included the whole procedure for ascertaining and imposing liability upon the taxpayers. Therefore, the Commissioner was entitled to revise the order granting registration passed by the Income-tax Officer before 1-4-1962, under Section 33b of the Income-tax Act, 1922, after 1-4-1962. 2. The court held that the two minors were not made full partners but were only admitted to the benefits of partnership, as the partnership deed, when read as a whole, showed that the minors were not liable to bear losses and their guardians had agreed to contribute the share capital and bear losses for and on behalf of the minors.
Final Decision: The court answered the first question in the affirmative and in favour of the Department and answered the second question in the negative and in favour of the assessee and against the Department.
( 1 ) THE Income-tax Appellate Tribunal, Hyderabad Bench; under Section 66 (1) of the Income Tax Act, 1922, (hereinafter called the Act) referred the following two questions for the opinion of this court. " (i) Whether on a proper construction of sec. 297 and 298 of the Income tax Act, 1961, and of the Income Tax Removal of difficulties order (No. 2) 1962, the Commissioner of Income Tax was entitled to revise under Section 33b of the Income-tax Act, 1922. after 1-4-1962, an order granting registration passed by the Income tax Officer before 1-4-1962 and (ii) Whether on the facts and in the circumstances of the case and on a proper construction of the instrument dated 24-2-1955 and 29-3-1955, the Tribunal was justified in holding that no valid firm had come into existence, and as such the assessee was not entitled to registration under Sec. 26-A of the Income-tax Act, 1922, for the Assessment year 1956-57".
( 2 ) SRI Ramacbandra Ginning and Oil Mills, Gollaprolu (herein after referred to as the assessee) was a firm which claimed registration under Section 26 A of the Act on the strength of a partnership deed executed on February, 24, 1955 a deed of rectification dated March, 29, 1955 (Annexure A and C to the statement of the case) for the assessment year 1955-56 as the firm was purported to have been formed on April, 1, 1954, The Income-tax officer, kakinada granted registration to the assessee, firm by bis order dated june 29, 1956 which was allowed to become final.
( 3 ) THEREAFTER the application for renewal of the registration of the assessee-firm for the assessment veair 1956-57 corresponding with the accounting year ending with March, 31, 1956, was granted by him by his order dated March. 18, 1961. The Commissioner of income-Taken a consideration of clause 11 of the Partnership deed, was of the opinion that the "minors described as partner Nos. 9 and 16 wore made liable for both profits and losses, thereby disentitling the firm for the grant of registration under Sec. 26-A of the Act. As the original order of registration had been passed earlier than two years, the Commissioner could not revise that order. But he issued a notice under Sec. 33-B of the Act on Feb. 16, 1963, which was served on the assessee on Feb. 21, 1963. catling upon the assessee to show cause why the renewal of registration granted on march, 18, 1961 should not be set aside as, in his opinion, it was erroneous and prejudicial to the interests of the revenue. Rejecting the objections of the assessee that the firm was valtdly constituted under the deed of partnership read with the rectification deed and that the minors were admitted only for benefits, "though the assessee had modified the application made to the Registrar of Firms on march, 30, 1955 for registration under the Indian Partnership Act specifically mentioning that the minprs were admitted only for bene fits, the Commissioner revised the order of the Income-tax Officer granting renewal of registration for the assessment year 1956-57 and directed him to pass consequential orders thereon. On appeal to the Income-tax Appellate Tribunal, it was found that the deed of rectification was sent by the assessfe to the Income-Tax offcer on march, 30, 1955, relying, upon the certificate of posting produced by the assessee. However, the Tribunal agreed with the Commissipner that the rectification deed did not improve the case of the assessee" as the partners 9 and 16. who were minors, were considered to be full partners in the firm and the losses were to be borne by the respective guardians. The Tribunal reiving upon the decision of the calcutta High Court in COMMISSIONER OF INCOME-TAX, WEST bengal V. KHETAN AND Co. , (1) and that of the Bombay High court in COMMISSIONER OF INCOME-TAX BOMBAY SOUTH v. MD. KHALID FAQUIH and CO. , (2) held that a guardian cannot purport to enter into a partnersbip on behalf of a minor, and confirmed the order of the Commissioner, The objections of the assesee
