il Appeals Nos 144 145 of 1964
Appeals from the order dated November 16 1960 of the Mysore High Court in Income tax Reference No 31959
ND Karkhanis and RN Sachthey for the appellant in both the appeals
K Ganapathy lyer for the respondent in both the appeals
772 The Judgment of the Court was delivered by Sikri J
These two appeals pursuant to a certificate granted by the High Court of Mysore under section 66 A2 of the Income tax Act 1922 are directed against its judgment answering the question referred to it in favour of the respondent assessee
The question referred to is Whether the assessee Mohandas Sadhuram can be granted registration under Section 26 A of the Indian Income Tax Act on the basis of the partnership deed made on 1 4 1952 for the assessment year 1953 54 and on the basis of the said deed read with the supplementary deed on 1 4 1953 for the assessment year 1954 55
The respondent Ms Shah Mohandas Sadhuram hereinafter referred to as the assessee is a firm
The assessee claimed registration under section 26 A of the Indian Income Tax Act on the strength of a Partnership Deed executed on April 1 1952
As the answer to the question in part turns on the construction of the deed the relevant Clauses may be set out here
The Partnership Deed first describes the parties and then recites Whereof the above four members were till this day members of a Joint Family whereof yesterday that is on 31 3 1952 the said four members have become divided not only in interest but also by metes and bounds each of the said members taking to his share one fourth 14 of the said joint family assets and liabilities as detailed in the books of account as maintained by the firm known as Seth Mohandas Sadhuram and whereof we the first and second members have decided to constitute all the said four members as a partnership admitting the third and fourth members thereof to the benefits of the said partnership but not to the liabilities thereunder
The first and second members referred to in the recital are Atmaram and Doulatram both majors
The other relevant clauses are as follows 4 The said firm is agreed to do business of Banking and Commerce which term includes all that is usually and customarily is understood to be done thereunder and also to deal in Automobiles business
The Automobiles business having been started by the said first and second members under the name and style of Vijaya Automobiles Mysore when they were members of the said joint family as a partnership venture apart from the said family it is agreed between us now that the said Automobiles business shall hereafter be continued to be done under the name and style of Vijaya Automobiles as part of the said firm
773 7 It is agreed that the capital contribution of each member will be equal and the accounts to be maintained to
indicate the said capital contribution
will show what each member has so contributed in the personal capital ledger account
8 It is further agreed that after debiting all working expenses inclusive of those referred to in para 6 supra
the profits of the firm less six pies per every rupee of  profits which will be reserved for Charity Fund will be distributed pro rata according to the proportion of capital investment as detailed of each member
all to be paid to his account in the books of account
from where each member can draw
The losses are agreed to be shared by the members in the like manner
The share of profits for the 3rd and 4th member will be
paid to them
the said profits to be credited to theft accounts and from there their maintenance charges and other expenses of necessities if any may be drawn by the said Guardian from the said accounts
10 It is agreed that the duration of this partnership will be for a period of one year ie from 1st of April 1952 to 31st March 1953 and the members might agree to continue the said partnership even thereafter under these terms or on terms to be determined then
11 It is agreed that the profits and losses of the Bombay branch and other branches if any outside the State of  Mysore will be credited or debited separately in the books of account of these branches and final allocation made in those books of account as distinct from the profits and losses of the firm in State of Mysore
12 It is agreed that the first and the second members do maintain proper accounts as is customarily to be maintained
For the assessment year 1953 54
the Income Tax Officer rejected the application for registration on the ground that in the case of the assessee
the minors are made parties to a contract by the eldest brother acting on their behalf
The minor has actually been debited with a share of loss
Taking these facts into account
I hold that the partnership is not entitled to the benefits of registration
For the assessment year 1954 55 he also rejected the application but added this further ground that a supplementary deed of partnership extending the life of the partnership beyond 1 4 1953 for a further period at the will of the partners is filed
This is on 10 annas stamp paper
The supplementary deed rests on clause
10 of the original deed I have already held that the original deed is not registerable
The supplementary deed cannot confer any fresh rights in the matter
774 The Appellate Assistant Commissioner on appeal upheld the orders of the Income Tax Officer in respect of both the assessment years
On further appeal the Appellate Tribunal following the decision of the Madras High Court in Jakka Devayya and Sons vs Commissioner of Income tax Madras1 construed the deed as having admitted the minors only to the benefits of the partnership
It accordingly held that the assessee was entitled to be registered for both the years
At the instance of the Commissioner of Income Tax the Tribunal referred the question already set out above to the High Court
The High Court following its judgment in Income Tax Reference No 2 of 1959 which is the subject matter of appeal before us in The Commissioner of Income Tax Madras vs Ms Shah Jethaji Phulchand2 answered the question in favour of the assessee
The main reason given in that judgment of the High Court is that an instrument of partnership entered into between persons some of whom are by law incompetent to contract as might happen if one of them is a minor is not necessarily null and void and in a case like the present one where the execution of the instrument of partnership on behalf of a minor by his guardian was for the purpose of admitting the minor to the benefits of partnership no question of the invalidity of the instrument can properly arise
Mr Karkhanis the learned counsel for the appellant contends that on a proper construction of the deed it is clear that the minors have been made partners and therefore the deed is not valid
He relies on clauses 4 7 8 10 11 and 12 of the Partnership deed set out above to establish that the minors were admitted as full partners
He further urges that a guardian is not entitled to contract on behalf of a minor and the deed is consequently void
This Court held in Commissioner of Income Tax Bombay vs Dwarkadas Khetan  Co3 that the income tax officer was only empowered to register a partnership which was specified in the instrument of partnership and it was not open to the Department to register a partnership different from that which was formed by the instrument
It further held that section 30 of the Indian Partnership Act was designed to confer equal benefits upon the minor by treating him as a partner but it did not render a minor a competent and full partner and any document which made a minor full partner could not be regarded as valid for the purpose of registration
But the facts in that case were that in the instrument of partnership Kantilal Kasherdeo was described as a full partner entitled not only to a share in the profits but also liable to bear all the lossess including loss of capital
It was also provided that all the four partners 1 22 ITR 26t 2 Civil Appeals Nos 146 147 of 1964 judgment delivered on April 15 1965
3   775 were to attend to the business and if consent was needed all the partners including the minor had to give theft consent in writing
The minor was also entitled to manage the affairs of the firm including inspection of the account books and  was given the right to vote if a decision on votes had to be taken
As Hidayatullah J observed in short no distinction was made between the adult partner and the minor and to all intents and purposes the minor was a full partner even though under the partnership law he could only be admitted to the benefits of the partnership and not as a partner
Does this deed then make the minors full partners or does it only confer benefits of partnership on them Is any clause of the deed void Before we discuss these questions it is necessary to consider what are the incidents and true nature of benefits of partnership  and what is a guardian of a minor competent to do on behalf of a minor to secure the full benefits of partnership tO a minor
First it is clear from sub s2 of section 30 of the Partnership Act that a minor cannot be made liable for losses
Secondly section 30 sub s 4 enables a minor to sever his connection with the firm and if he does so the amount of his share has to be determined by evaluation made as far as possible in accordance with the rules contained in section 48 which section visualises capital having been contributed by partners
There is no difficulty in holding that this severance may be effected on behalf of a minor by his guardian
Therefore sub s4 contemplates that capital may have been contributed on behalf of a minor and that a guardian may on behalf of a minor sever his connection with the firm
If the guardian is entitled to sever the minor s connection with the firm he must also be held to be entitled to refuse to accept the benefits of partnership or agree to accept the benefits of partnership for a further period on terms which are in accordance with law
Sub Section 5 proceeds on the basis that the minor may or may not know that he has been admitted to the benefits of partnership
This sub section enables him to elect on attaining majority either to remain a partner or not to become a partner in the firm
Thus it contemplates that a guardian may have accepted the benefits of a partnership on behalf of a minor without his knowledge
If a guardian can accept benefits of partnership on behalf of a minor he must have the power to scrutinise the terms on which such benefits are received by the minor
He must also have the power to accept the conditions on which the benefits of partnership are being conferred
It appears to us that the guardian can do all that is necessary to effectuate the conferment and receipt of the benefits of partnership
It follows from the above discussion that as long as a partnership deed does not make a minor full partner a partnership deed cannot be regarded as invalid on the ground that a guardian has purported to contract on behalf of a minor if the contract is for the purposes mentioned above
776 Let us then examine the partnership deed in the light of these principles
It need hardly be stated that the partnership deed must be construed reasonably
The recital set out above expressly states that it is the major members who had decided  to constitute the partnership and admit the minors to the benefits of the said partnership The rest of the clauses must be construed in the light of this recital
Clause 4 only states the business to be carried on and the name of the business
It seems to us that the expression it has been agreed between us  has reference to the agreement mentioned in the recital
Regarding clause 7 which deals with capital contribution it is urged that a guardian is not entitled to agree to contribute capital
We are unable to agree
If it is one of the terms on which benefits of partnership are being conferred either the guardian must refuse to accept the benefits or he must accept this term
In some cases such an agreement by a guardian may be avoided by the minor if it was not entered into for his benefit but the agreement will remain valid as long as it is not avoided by the minor
Regarding clause 10 Mr Karkhanis submits that this embodies a clear agreement enabling the minor to continue the said partnership even thereafter under these terms or on terms to be determined then and therefore this clause is void
We can find no defect in this clause
The duration of a partnership has to be fixed between the major members and the guardian on behalf of a minor may agree to accept the benefits of the partnership only if the duration is to the benefit of the minor
Clause 10 enables the guardian to accept the benefits of partnership under these terms or under such other terms as may be determined
If the terms determined in future are similar no objection can be taken if on the other hand the terms determined later are in contravention of law the partnership deed will be held to be bad
Clause 11 has reference to the manner of keeping accounts and a guardian is entitled to assent to the mode of keeping accounts
In our opinion the partnership deed reasonably construed only confers benefits of partnership on the two minors and does not make them full partners
The guardian has agreed to certain clauses in order to effectuate the decision of the major members to confer the benefits of the said partnership to the minors
Accordingly we hold that the Income Tax authorities should not have declined to register the firm
We may mention that the supplementary deed dated April 1 1953 has not been included in the statement of the case but it is common ground that nothing turns on any of the clauses in the supplementary deed
Accordingly agreeing with the High Court we hold that the firm is entitled to be registered under section 26 A of the Income Tax Act and the answer to the question referred is in the affirmative
The appeals are dismissed with costs one set of hearing fees
Appeals dismissed


Summary:
The assessee firm claimed registration under section 26A of the Indian Income Tax Act on the strength of a partnership deed executed between four partners of which two were minors
The Income Tax Officer refused registration on the ground that the minors were made parties to a contract by the eldest brother acting on their behalf and the minor had actually been debited with a share of loss
This was upheld by the Appellate Assistant Commissioner but the Appellate Tribunal on a further appeal
construed the deed as having admitted the minors only to the benefits of the partnership and accordingly held that the assessee was entitled to be registered
In reference the High Court answered the question in favour of the assessee
In appeal by certificate to this Court the Revenue contended that i a guardian is not entitled to contract on behalf of a minor and the deed was consequently void and ii the partnership deed made the minors as full partners
HELD The assessee firm was entitled to be registered under the Income tax Act
776 H i As long as a partnership deed does not make a minor full partner a partnership deed cannot be regarded as invalid on the ground that a guardian has purported to contract on behalf of a minor
A guardian can do all that is necessary to effect the conferment and receipt of the benefits of partnership
So he must have the power to scrutinse the terms on which such benefits are received by the minor
He must also have the power to accept the conditions on which the benefits of partnership are being conferred
775 G H ii The Partnership deed reasonably construed
only conferred benefits of partnership on the two minors and did not make them full partners
Case law referred to