A firm can be registered under Section 26A, Income Tax Act, 1922, even though the partnership deed is executed after the commencement of business.

1. This reference raises a question as to the right of the assessee firm to be registered under Section 26A, Income Tax Act.

2. The facts are that prior to 1-1-1945 four partners, one of whom was Dwarkadas Khetan, carried on a partnership business. On 1-1-1945 the partnership Was dissolved and Dwarkadas carried on the business as a proprietary concern. Dwarkadas acquired the rights of the selling agency of the Seksaria Cotton Mills on 12-2-1946 and although the instrument which gave him this right was dated 12-2-1946 the right was to commence from 1-1-1946.

On 27-3-1946 an instrument of partnership was executed by four persons who agreed to carry on the business of the selling agency in partnership, One was Dwarkadas Khetan. There were two other major partners and the third was a minor Kantilal Keshardeo. The partnership agreement was executed both by the minor himself and also by his natural guardian, his father, on behalf of the minor, and the assessee firm which was constituted under this partnership deed applied for registration under Section 26A and the application was rejected. .

3. The Tribunal has agreed with the Income tax authorities that registration in law cannot be granted to this partnership and the Tribunal has come to this conclusion on two grounds. The first ground, is that under this partnership deed a minor is made a partner and therefore the partnership deed is void.

The Advocate General has drawn our attention to the various provisions of the partnership deed which seems to make the minor liable for losses, if any losses were incurred by this partnership. But it seems to us that the position in law is perfectly clear. A minor cannot Become a partner in a business; he could only be admitted to the benefits of the partnership.

In other words, although he can be given a share in the profits of a partnership business, he cannot be made liable for any losses incurred by the partnership. Assuming this partnership deed purports to make the minor a partner, its legal effect is perfectly clear. In law the minor does not become a partner; he does not become liable for losses; he would only be entitled to the profits according to his share, it is difficult to understand how the Tribunal could possibly have taken the view that the partnership deed itself was void.

If, the partnership deed was void it could create no rights and no right would now from it. In other words, even as between the major partners according to the Tribunal -no rights were created and no liabilities imposed. It is impossible to accept that contention, The proper view and the only legal view was that on a proper construction of this partnership deed the three major signatories became the partners and tile minor signatory was admitted to the benefits of the partnership.

Under the Income-tax Act itself the expression "partner" includes a minor who is admitted to the benefits of the partnership and this is for obvious reasons because when a partnership is registered to the benefits of which a minor has been admitted, his share is considered as a share for the purposes of allocation of profit, and therefore no difficulty whatever could be experienced in registering this instrument of partnership under a 26A.

4. The Advocate General has relied on a decision reported In -- Banka Mal Lalja Ram Co. v. Commissioner of Income-tax, Delhi, AIR 1953 Punj 270 (A). There the Punjab High Court held, as the headnote indicates,

"that a minor under Section 30, Partnership Act cannot be a full fledged partner in a partnership firm. A minor cannot therefore enter into a partnership through his guardian even when the other partners are consenting, such a contract would be invalid and the partnership cannot be registered under Section 26A, income-tax Act, 1922".

But significantly the headnote adds in brackets:

"The High Court did not consider the question whether the partnership should be taken to be a valid partnership consisting of the adult Partners excludi