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PUNJAB & HARYANA HIGH COURT
Mehar Singh and Bal Raj Tuli JJ.
Kishore Chand Ramji Dass
Versus
Commissioner Of Income-tax
Income tax Reference No. 5 of 1964,6 of 1964,7 of 1964,
Civil Miscellaneous No. 716 of 1964,
Decided On : OCTOBER 28, 1969
INCOME TAX - Registration of firm - Application for registration - Signature of all partners (not being minors) - Requirement - Amendment of Rule 2 of Indian Income-tax Rules, 1922 - Effect - Appellate Assistant Commissioner's power to entertain application after expiry of time-limit - Deletion of Rule 2(c) - Consequence - Sufficient cause for entertaining application out of time - Finding of Income-tax Officer - Challenge - Maintainability.
Fact of the Case:
The assessee-firm, constituted under a partnership deed dated December 3, 1947, applied for registration under Section 26A of the Indian Income-tax Act, 1922, for the assessment year 1953-54. The Income-tax Officer refused to register the firm on various grounds, including the absence of signatures of some of the partners on the application. On appeal, the Appellate Assistant Commissioner did not accept these grounds, but the Tribunal restored the order of the Income-tax Officer. The assessee-firm filed three references to the High Court, raising questions regarding the validity of the partnership deed, the specification of individual shares of minor partners, and the refusal of registration due to the absence of signatures of all partners on the application.
Finding of the Court:
The High Court held that the application for registration was rightly refused because it was not signed by all the partners (not being minors), as required by Rule 2 of the Indian Income-tax Rules, 1922. The court noted that the amendment of Rule 2 in 1952 had taken away the power of the Appellate Assistant Commissioner to entertain an application after the expiry of the time-limit, and that the Income-tax Officer had not found any sufficient cause for entertaining the application out of time.
Issues: 1. Whether the Tribunal was right in holding that the minors were made full-fledged partners and as such the instrument of partnership was void and was not entitled to registration? 2. Whether the assessee's claim was rightly rejected on the ground that the individual shares of partners, Mohinder Paul, Harish Chander, and Romesh Chander, were not specified in the instrument of partnership? 3. Whether registration was rightly rejected on the ground that the application for renewal of registration was not signed by Mohinder Paul?
Ratio Decidendi: 1. The court held that the Tribunal was right in holding that the minors were made full-fledged partners and as such the instrument of partnership was void and was not entitled to registration. The court relied on Clause 8 of the partnership deed, which made the minors liable for all losses payable not only out of profits and capital, but also in the case of further deficiency by the partners in the shares in which they were entitled to the net profits or losses. 2. The court held that the assessee's claim was not rightly rejected on the ground that the individual shares of partners, Mohinder Paul, Harish Chander, and Romesh Chander, were not specified in the instrument of partnership. The court relied on a previous decision of a Division Bench of the same court, which had held that the mere fact that the shares of some minors in a firm were shown collectively and the share of each one of them was not separately stated in express words, is not a sufficient ground for refusing registration of the firm, if it is clear from the context beyond doubt that the minors took the shares allotted to them collectively, in equal shares. 3. The court held that registration was rightly rejected on the ground that the application for renewal of registration was not signed by Mohinder Paul. The court noted that Rule 2 of the Indian Income-tax Rules, 1922, required the application to be signed by all the partners (not being minors), and that the amendment of Rule 2 in 1952 had taken away the power of the Appellate Assistant Commissioner to entertain an application after the expiry of the time-limit.
Final Decision: The High Court answered the questions in the references in favor of the Commissioner of Income-tax and dismissed the assessee-firm's applications to call for the applications made before the Income-tax Officer and the Appellate Assistant Commissioner.
Mehar Singh, J.
1. This will dispose of Income-tax References Nos. 5, 6 and 7 of 1964, Kishore Chand-Ramji Das of Ludhiana v. Commissioner of Income-tax.
2. The assessee-firm was a partnership constituted under the partnership deed of December 3, 1947, effective and operative from October 25, 1947, in the preamble of which the description of the partners given was "(1) Kishore Chand, (2) Ramji Das, (3) Dayal Chand, (4) Roshan Lal, (5) Mohinder Paul, Harish Chander and Romesh Chander, minor sons of Balbir Chand, through Kishore Chand, their uncle, (6) Surrender Kumar, minor son of Balbir, Chand, through Kaushalya Devi, his mother, and (7) Kaushalya Devi, wife of Balbir Chand." So there were seven partners. The first four and the seventh partners were majors whereas the fifth partner consisted of three brothers, namely, Mohinder Paul, Harish Chander and Romesh Chander, minors, and the sixth partner, another minor. Surrender Kumar. The deed stated the shares of the partners as below :
(1) Kishore Chand 1/5th
(2) Ramji Das 1/5th
(3) Dayal Chand 1/5th
(4) Roshan Lal 1/5th
(5) Mohinder Paul, Harish Chander, and Romesh Chander 1/10th
(6) Surrender Kumar 1/20th
(7) Kaushalya Devi 1/20th
3. So the fifth partner consisting of three minor brothers had one-tenth share and the sixth partner, Surrender Kumar, minor, had one-twentieth share. The partnership deed was executed and signed on behalf of the three minors, partner 5 by their uncle Kishore Chand, partner 1, and on behalf of minor, partner 6, by his mother Kaushalya Devi, partner 7.
4. The assessee-firm had been registered under Section 26A of the Indian Income-tax Act, 1922 (Act 11 of 1922), for and up to the assessment year 1952-53, but when an application for registration for the assessment year 1953-54 was made on behalf of the firm on June 8, 1953, to the Income-tax Officer, it was signed by partners 1 to 4 and 7, but not by Mohinder Paul out of the three minor brothers as partner 5, though Mohinder Paul had attained majority on September 1, 1951, and the finding of the Income-tax Officer that he had elected to become partner of the assessee-firm on attainment of majority by him has been endorsed by the Income-tax Appellate Tribunal in its order of July 26, 1962. It is a finding of fact which is not open to question in these references and has in fact not been questioned, The copy of the partnership deed is annexure "A" to Income-tax Reference No. 5 of 1964, After the preamble describing the partners, as has been given above, of the terms and conditions of partnership between the parties, as given therein, Nos. 4, 8 and 9 are material for the present purpose, and those are :
"4. That partners 5 and 6 have been admitted to the benefits of partnership,
8. All outgoings and expenses of the partnership and all losses including interest shall be payable first out of the profits, next out of the capital, and in the case of further deficiency by the partners in the shares in which they are entitled to the net profits or losses of the business.
9. The partners are entitled to the net profits or losses of the business in the following shares--Kishore Chand l/5, Ramji Das 1/5, Dayal Chand 1/5 Roshan Lal 1/5, Mohinder Paul, Harish Chander, Romesh Chander 1/10, Surrender Kumar 1/20, Kaushalya Devi 1/20."
5. The Income-tax Officer refused to register the partnership under Section 26A of Act 11 of 1922, on various grounds including-
(a) the four minors, partners 5 and 6, having been made full-fledged partners under the deed of partnership, thus making that deed void, (b) the individual shares of three minors of partner 5 not having been specified in the deed of partnership, and (c) the application for registration not having been signed by Mohinder Paul out of partner 5.
On appeal the Appellate Assistant Commissioner did not accept these grounds in support of the refusal of registration pointing out with regard to the third ground that the absence of the signature
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