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HIGH COURT OF CALCUTTA
BANERJEE, MASUD, JJ.
Jeewanram Gangaram - Appellant
Versus
Commissioner Of Income Tax – Respondent
Appeal No : IT Ref. No. 138 of 1965
Decided On : Jan 02, 1967
INDIAN IT ACT, 1922 - S. 26A - PARTNERSHIP - REGISTRATION - MINOR PARTNER - BENEFITS OF PARTNERSHIP - VALIDITY OF PARTNERSHIP DEED - INTERPRETATION OF DEED - CANCELLATION OF REGISTRATION - ASSESSMENT AS UNREGISTERED FIRM.
Fact of the Case:
The assessee firm was granted registration under s. 26A of the Indian IT Act, 1922. The CIT cancelled the registration on the ground that the firm was not validly constituted as it included two minor partners who were admitted as full partners and not merely to the benefits of partnership. The Tribunal upheld the CIT's decision. On reference, the High Court held that the partnership deed was valid and the firm was entitled to registration.
Finding of the Court:
The Supreme Court held that the partnership deed did not make the minors full partners but only admitted them to the benefits of partnership. The Court interpreted the deed in the light of the dominant clause that the minors were admitted to the benefits of partnership and held that the other clauses in the deed should be examined in the light of this clause. The Court further held that the provision in the deed that the minors were to bear the loss and to conduct the management of the business of the firm was capable of an innocent interpretation, namely, that their share only would be burdened and the loss, if any, suffered by the firm and their responsibilities for mismanagement would also be limited to their share in the partnership.
Issues: 1. Whether the partnership deed was valid and the firm was entitled to registration under s. 26A of the Indian IT Act, 1922? 2. Whether the cancellation of registration was justified?
Ratio Decidendi: 1. The Court held that the partnership deed did not make the minors full partners but only admitted them to the benefits of partnership. The Court interpreted the deed in the light of the dominant clause that the minors were admitted to the benefits of partnership and held that the other clauses in the deed should be examined in the light of this clause. The Court further held that the provision in the deed that the minors were to bear the loss and to conduct the management of the business of the firm was capable of an innocent interpretation, namely, that their share only would be burdened and the loss, if any, suffered by the firm and their responsibilities for mismanagement would also be limited to their share in the partnership. 2. The Court held that the cancellation of registration was not justified as the firm was not invalidly constituted.
Final Decision: The Court answered the questions referred to it in the negative, holding that the partnership deed was valid and the firm was entitled to registration under s. 26A of the Indian IT Act, 1922, and that the cancellation of registration was not justified.
BANERJEE, J.
1. This reference, under s. 66(1) of the Indian IT Act, 1922 (hereinafter referred to as the Act), was made in the circumstances hereinafter stated in brief. Under an instrument of partnership, dt. 15th March, 1938, the firm of M/s Jewanram Gangaram was constituted of seven partners, viz.,
(i) Kanayalal Mimani, (ii) Mulchand Mimani, (iii) Surajmal Mimani, (iv) Chantratan Mimani, (v) Lunkaram Mimani, (vi) Chaitandas Mimani, and (vii) Lachmandas Mimani.
2. This firm was granted registration, under s. 26A of the Act. One of the partners, named Lachmandas Mimani died on February 24, 1947, leaving him surviving two minor sons, named Gokuldas Mimani and Jamnadas Mimani, and his widow, named Smt. Ram Piyari Devi. Partner Chandratan Mimani used to represent his HUF in the partnership of Jewanram Gangaram. There was a partition in this family and Chandratan and his brother, Chhoganlal, separated. Consequent upon the death of Lachmandas Mimani and the separation between Chandratan and Chhoganlal, it became necessary to reconstitute the firm. So as to bring some of the legal representatives of Lachmandas and also Chandratan and Chhoganlal in their separated status, into the firm, a new partnership deed was executed on 25th March, 1947. The parties to this deed were :
(i) Kanayalal Mimani, (ii) Mulchand Mimani, (iii) Surajmal Mimani, (iv) Chandratan Mimani, (v) Lunkaram Mimani, (vi) Chaitandas Mimani, (vii) Chhoganlal Mimani, (viii) Gokuldas Mimani, minor by his guardian mother and next friend, Ram Piyari Devi, and (ix) Jamunadas Mimani, also a minor by his guardian mother and next friend, Ram Piyari Devi.
The minors above-named were expressly admitted to benefits of the partnership. Clauses 6 (which should be 5), 7 and 8 of the deed provided as follows :
"6. The profits and losses of partnership shall be distributed amongst the partners in shares as specified against the name of each of them given below : 1. Kanailal Mimani of the First Part ... One anna nine pies. 2. Mulchand Mimani of the Second Part ... Three annas. 3. Surajmal Mimani of the Third Part ... Three annas. 4. Chandratan Mimani of the Fourth Part ... One anna six pies. 5. Chhoganlal Mimani of the Fifth Part ... One anna six pies. 6. Lunkaram Mimani of the Sixth Part ... One anna nine pies. 7. Chaitandas Mimani of the Seventh Part ... One anna nine pies. 8. Gokuldas Mimani, a minor by his guardian mother and next friend, Srimati Rampiyari Devi of the Eighth Part ... Ten and hald pies. 9. Jamunadas Minani, a minor by his guardian mother and next friend, Srimati Ram Piyari Devi of the Ninth Part ... Ten and half pies.
7. Accounts of partnership shall be adjusted once is every year on the day preceding the Ramanavami and all assets and liabilities shall be taken into consideration. The balance-sheet and the profit and loss account shall be prepared in the separate statement to be made up every year and shall be approved by the partners or by whoever of the partners be present at Calcutta at the time and shall be open to inspection by all the partners in person or by their duly authorised representative at all reasonable times and the profit or loss of any year ending shall be duly credited or debited to the account of each of the partners in the books of accounts, in proportion to their respective shares hereinbefore specified.
8. The responsibilities of the management of the partnership concern shall equally rest with each of the partners hereto...."
The firm had been originally registered by the Registrar of Firms and the change in the constitution of the firm, consequent upon the execution of the deed dt. 25th March, 1947, was also recorded in the Register of Firms, showing that Lachmandas, one of the partners had died on the 24th Feb., 1947, and his two minor sons, Gokuldas Mimani and Jamunadas Mimani, were admitted to the benefits of the partnership. Registration of partnership, under s. 26A of the Act, had been granted to the firm, as reconstituted unde
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