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PATNA HIGH COURT
Uday Sinha and Nazir Ahmad JJ.
Commissioner Of Income Tax
Versus
J.B.Coal Traders
Taxation Case No. 236 of 1976 ;
Decided On : NOVEMBER 19, 1985
INCOME TAX - Registration of firm - Application for registration - Signature of partner - Partnership deed - Minor partner attaining majority - Rectification of defect in application - Validity of partnership - [Sec. 184(1), 184(3), 185(2), 30(5) of the Income-tax Act, 1961; Sec. 26A, 30(1), 30(5) of the Indian Partnership Act, 1932]
Fact of the Case:
The assessee-firm filed an application for registration under Sec. 184(1) of the Income-tax Act, 1961 (the 1961 Act) for the assessment year 1968-69. The Income-tax Officer (ITO) granted registration to the firm. The Commissioner of Income-tax (CIT) cancelled the registration on the ground that the application for registration was not signed by all the partners and the partnership deed was invalid as a minor partner had been made a full partner without executing a fresh deed after attaining majority. The Tribunal set aside the CIT's order and directed the ITO to rectify the defect in the application by obtaining the signature of the partner who had not signed it.
Finding of the Court:
1. The Tribunal was correct in holding that registration could not be refused on the ground that the application for registration was not signed by a partner and in directing the ITO to give an opportunity to the assessee to correct the application by putting the relevant signature. (Question No. 1 answered in the affirmative and in favour of the assessee and against the Revenue.) 2. The Tribunal was not correct in law in holding that the partnership was valid in spite of the fact that the deed had not been signed by the partner who was a minor at the time of coming into existence of the firm but was a major at the time of the execution of the deed. (Question No. 2 answered in the negative and against the assessee and in favour of the Revenue.)
Issues: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that registration could not be refused on the ground that the application for registration was not signed by a partner and in directing the Income-tax Officer to give an opportunity to the assessee to correct the application by putting the relevant signature? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the partnership was valid in spite of the fact that the deed had not been signed by a partner who was a minor at the time of coming into existence of the firm but was a major at the time of the execution of the deed?
Ratio Decidendi: 1. Under Sec. 185(2) of the 1961 Act, the ITO is bound to give an opportunity to the assessee to remove the defect in the application for registration, but the rectification cannot be in respect of the deed of partnership. 2. A minor admitted to the benefits of a partnership has two options open to him on attaining majority: (i) he may elect to become a partner in the firm; or (ii) he may repudiate or elect not to become a partner. If he elects to become a partner, he need not do anything nor give any public notice. On the expiry of six months, he becomes a partner of the firm. (Proviso to Sec. 30(5) of the Indian Partnership Act, 1932) 3. If a minor partner attains majority during the accounting year, a fresh partnership deed is necessary to specify the shares of profits and losses of all the partners. (Sec. 184(1) of the 1961 Act)
Final Decision: Question No. 1 is answered in the affirmative and in favour of the assessee and against the Revenue. Question No. 2 is answered in the negative and against the assessee and in favour of the Revenue.
Nazir Ahmad, J.
1. A statement of the case has been submitted by the Income-tax Appellate Tribunal, Patna Bench "B", Patna (hereinafter referred to as "the Tribunal"), under Sec.256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the 1961 Act"), referring the following questions of law for the opinion of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that registration could not be refused on the ground that the application for registration was not signed by a partner and in directing the Income-tax Officer to give an opportunity to the assessee to correct the application by putting the relevant signature ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the partnership was valid in spite of the fact that the deed had not been signed by a partner who was a minor at the time of coming into existence of the firm but was a major at the time of execution of the deed ?"
2. The relevant facts of the case can be culled from the statement of the case and several relevant orders available on the records of the case. An application for registration in Form No. 31 was filed by the assessee-firm for the assessment year 1968-69 on December 4, 1967. As the application was not available on the record, the assessee filed a duplicate application on March 24, 1971. The original application was subsequently traced out and was placed on the record by the Income-tax Officer. The accounting year of the assessee ended on March 31, 1968, for the assessment year 1968-69. This goes to show that the accounting year of the assessee-firm was the financial year 1967-68. The Income-tax Officer held that the application for registration was filed in time and was in order. Partners of the firm were Banarsi Das, Tilak Raj, Mahendra Kumar, Jaswant Rai and one minor, Prem Lal, was admitted to the benefits of the partnership. The firm was evidenced by a deed of partnership which was executed on September 25, 1967. The shares of the partners were specified in the deed of partnership and share of profit had been credited as per stipulation in the deed of partnership. The firm was registered with the Registrar of Firms also. The Income-tax Officer, therefore, held that the firm was genuine. He, therefore, granted registration to the firm for the assessment year 1968-69, vide his order dated January 31, 1972. This order of the Income-tax Officer has been annexed and marked as annexure A forming part of the statement of the case.
3. The Commissioner of Income-tax, Bihar, Patna, on a perusal of the records of the assessee-firm for the assessment year 1968-69 came to the conclusion that the order under Sec.185(1) of the 1961 Act granting registration to the assessee-firm passed by the Income-tax Officer, Arrah, on January 31, 1972, was erroneous and prejudicial to the interests of the Revenue. He found that the firm came into existence on March 28, 1967, but the partnership deed was executed on September 25, 1967. In the partnership deed, the date of birth of Prem Lal was mentioned as May 31, 1949, and thus Prem Lal became a major on May 31, 1967, i.e., four months before the date on which the partnership deed was executed. The application for registration in Form No. 11 was filed on December 4, 1967. The Commissioner of Income-tax found that after attaining majority, Prem Lal should have signed the partnership deed and also the application for registration as he was a major on May 31, 1967.
4. The Commissioner of Income-tax issued a notice under Sec.26 3(1) of the 1961 Act. It was contended on behalfof the assessee that the partnership commenced on March 28, 1967, vide Clause 1 of the deed, on which date Prem Lal was a minor. It was further submitted that the fact that he attained majority on May 31, 1967, was not in the knowledge of other partners till March, 1968, and it was only in April, 1968, that Prem Lal informed th
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