The main legal point established in the judgment is that the admission of minors to the benefits of partnership and the specification of individual shares of the partners in the instrument of partnership are crucial factors in determining the entitlement to registration under the Income Tax Act, 1961.

Jagannatha Shetty, J.—The question referred under s. 256(2) of the I.T. Act, 1961 (the "Act"), runs as follows :

"Whether, on the facts and in the circumstances of the case, the assesses-firm was not entitled to continuance of registration under the Income Tax Act, 1961 ?"

2. The assessee is a partnership firm. The firm was established by an indenture dated June 21, 1971. S. N. Gundu Rao and S. C. Madhukar were partners and also parties to the deed. Besides, Master Santosh Kadam (minor)has been admitted to the benefits of partnership. The relevant portions of the deed of partnership are set out below for immediate reference :

"Whereas the parties have agreed to admit Master Santosh Kadam to the benefits of partnership on the same terms and conditions hereinafter mentioned and described.

Clause-8 :

'The net profits and losses of the firm for any year shall be divided among partners as follows :

Sri S. N. Gundu Rao 20%

Sri S. C. Madhukar 40%

Master Santosh Kadam 40%

Clause-13 :

'The minor member admitted to the benefits of the partnership shall have no rights over the goodwill of the firm'."

3. For the assessment year 1972-73, the ITO by an order dated January 29, 1975, granted registration to the firm under s. 185 of the Act. By the same order, he continued the registration for the subsequent year 1973-74.

4. But the Commissioner in the exercise of his powers under s. 263 of the Act has found fault with the order granting registration to the firm. According to him, the minor was made a full-fledged partner. He was not admitted only to the benefits of the partnership. The registration was erroneous and prejudicial to the interests of the Revenue. So, he cancelled the registration of the firm.

5. The firm appealed to the Tribunal. The Tribunal confirmed the order of the Commissioner with some more reasons. It held that there is no specification as to distribution of 40% loss of minor's share as between the major partners. So, the minor cannot be held to have been admitted only to the benefits. The case was governed by the decision of the Supreme Court in Mandyala Govindu and Co. Vs. The Commissioner of Income Tax, Andhra Pradesh, Hyderabad, AIR 1975 SC 2284. The decision of the High Court of Andhra Pradesh in Commissioner of Income Tax Vs. Hyderabad Stone Depot and Others, (1977) 109 ITR 686 AP, is no longer good law in view of the said decision of the Supreme Court. The Tribunal has also referred to some decisions of other High Courts.

6. Sections 184 and 185 of the Act are special provisions applicable to firms for registration.

7. Section 184 provides for filing application for registration of a firm for purposes of the Act.

8. Section 184 provides that the partnership should be evidenced by an instrument. The individual shares of the partners must also be specified in that instrument. The firm must be in existence in the accounting year in respect of which the assessment is required to be made.

9. The second requirement mentioned under s. 184(2) is that the individual shares of the partners should be specified in the instrument of partnership. The purpose behind this requirement is to enable the Income Tax authorities to make proper assessment. If the firm is registered, the assessment on the income of each partner should be at the concessional rate of tax. If there is no specification of such individual shares, it would be difficult for the Income Tax authorities to make proper assessment. There appears to be no other intention in s. 184 in insisting upon that individual shares of the partners should be specified in the instrument.

10. Section 185 prescribes the procedure to be followed by the ITO on receipt of such application. Sub-section (2) thereof requires the ITO to intimate the defect, if any, in the application. If the application is not in order, the ITO must give the firm an opportunity to remove the defect within a period of one month. If