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High Court Of Allahabad
R.M.Sahai, V.K.Mehrotra JJ.
Besant Behari Gopal Behari
Vs.
Commissioner Of Income-Tax
Income-tax Reference 357 of 1977 and 708 of 1978
Decided on : May 10,1983
INCOME TAX - Change in constitution of firm - Minor admitted to benefits of partnership - Attainment of majority - No change in constitution - Fresh deed of partnership not necessary.
Fact of the Case:
The assessee, a partnership firm, admitted a minor, Surendra Swarup Mathur, to the benefits of the partnership. The deed of partnership provided that on attaining majority, Surendra Swarup Mathur would become a full-fledged partner. The Income-tax Appellate Tribunal held that on the attainment of majority by Surendra Swarup Mathur, a change in the constitution of the firm took place and the benefit of registration would not be available to the firm in the year following the attainment of majority.
Finding of the Court:
The court held that if after attaining majority, the erstwhile minor partner does not repudiate the partnership and the instrument of partnership provides both for his share as well as for the loss incurred by the firm during the minority of such partner, there is no change in the constitution of the firm when the minor partner attains majority.
Issues: 1. Whether, on a minor admitted to the benefits of partnership attaining majority, a change takes place in the constitution of the firm and the execution of a fresh deed of partnership is necessary? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law to hold the assessment under Section 144 and grant of registration were not in two parts and the registration order passed therein was also set aside Under Section 146 along with the assessment order and, if not, whether the Income-tax Officer could cancel the registration already granted in the manner done by him without resorting to Section 186?
Ratio Decidendi: The court relied on the decision of a Full Bench of the court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, which held that if after attaining majority, the erstwhile minor partner does not repudiate the partnership and the instrument of partnership provides both for his share as well as for the loss incurred by the firm during the minority of such partner, there is no change in the constitution of the firm when the minor partner attains majority.
Final Decision: The court answered the first question in the negative, in favor of the assessee and against the Department. The court held that it was not necessary to record any opinion on the second question.
Mehrotra, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for the opinion of this court:
"Whether, on a minor admitted to the benefits of partnership attaining majority, a change takes place in the constitution of the firm and the execution of a fresh deed of partnership is necessary ?"
2. It also referred another question, again at the instance of the assessee, when directed by this court to do so, and that question is this:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law to hold the assessment under Section 144 and grant of registration were not in two parts and the registration order passed therein was also set aside Under Section 146 along with the assessment order and, if not, whether the Income-tax Officer could cancel the registration already granted in the manner done by him without resorting to Section 186 ?"
The latter question arises in the connected I.T.R. No. 708 of 1978. The year in question is 1968-69.
3. The deed of partnership is on the record of the case before us and the relevant conditions are conditions Nos. 8 and 9, which are in these terms:
"8. That the said Surendra Swarup Mathur, minor son of Sri Basant Behari Lal Mathur, has been admitted to the benefits of the partnership firm. During his minority he will not be personally responsible for the loss of the firm, if any, but his responsibility shall extend to his accumulated share of profit in the firm, if any. On attaining majority if the said Surendra Swarup Mathur shall not repudiate the partnership he shall ipso facto become a full-fledged partner in the partnership.
9. That the profit and loss of all the business of partnership including the profit and loss of the capital which shall be ascertained after accounting for all the business expenses and interest to the partners as provided hereinbefore and shall be divided and borne by the partners in the following proportions:
1. Sri Nawalbehari Mathur--Two annas and eight paise in a rupee.
2. Sri Gopal Behari Mathur--Two annas and eight paise in a rupee.
3. Sri Hari Shanker Mathur--Two annas and eight paise in a rupee.
4. Sri Basant Behari Lal--Eight upon nine annas in a rupee.
5. Sri Anand Swarup Mathur--Eight upon nine annas in a rupee.
6. Sri Jagannath Swarup Mathur--Eight upon nine annas in a rupee.
7. Sri Virendra Swarup Mathur--Eight upon nine annas in a rupee.
8. Sri Jyoti Swarup Mathur--Eight upon nine annas in a rupee.
9. Sri Daya Swarup Mathur--Eight upon nine annas in a rupee.
10. Sri Jagadamba Swarup Mathur--Eight upon nine annas in a rupee.
11. Sri Bhupendra Swarup Mathur--Eight upon nine annas in a rupee.
12. Sri Surendra Swarup Mathur--Eight upon nine annas in a rupee."
Provided further in case the loss falling to the share of the minor cannot be set off as provided in Clause 8 above, the same shall be borne by the parties of the 4th to 11th parts in equal proportions."
4. The Income-tax Appellate Tribunal has taken the view, following some decisions of this court, that on the attainment of majority by a minor, admitted to the benefits of partnership, a change in the constitution of the firm takes place. And, consequently, it held that the benefit of registration would not be available to the firm in the year following the attainment of majority by such a minor partner. THEre arose some doubt in this court about the correctness of the view taken by the court earlier in three decisions, namely, in Ganesh Lal Laxmi Narain v. CIT [1968] 68 ITR 696 (All), Ram Narain Laxman Prasad v. ITO [1972] 84 ITR 233 (All) and CIT v. Wajid Ali [1972] UPTC 532 (All), where it had been held that upon attainment of majority by a minor partner, the firm ceased to be constituted as before and a change in constitution takes place. THE matter was considered by a Full Bench of the court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858. Spe
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