IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 123 of 1988 For Approval and Signature: Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus UNITED CHEMIC -------------------------------------------------------------- Appearance: 1. INCOME TAX REFERENCE No. 123 of 1988 MR BB NAIK with MR MANISH R BHATT for Petitioner No. 1 NOTICE SERVED for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE D.A.MEHTA Date of decision: 18/09/2001 ORAL JUDGEMENT (Per : MR.JUSTICE M.S.SHAH) In this reference at the instance of the revenue, the following question is referred for the opinion of this Court in respect of assessment year 1979-80 :- "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in confirming the order of the CIT(A) directing the ITO to allow the registration to the firm ?" 2. The assessee is a partnership firm. During the year under consideration, there was a change in the constitution of the firm. Three partners retired with effect from 31.3.1978. A new partner joined the firm with effect from 1.4.1978 with 25% share in its profits and losses. The new partner viz. Smt Vijay Goenka was the Managing Trustee of a specific trust known as Srikant Benefit Trust. The sole beneficiary of the trust was a minor named Mr Srikant Goenka. The ITO did not grant registration to the firm on the ground that by the device of admitting the trustee of a trust whose sole beneficiary was a minor, the minor in fact has been made a full fledged partner so as to share the losses of the firm as well. The ITO, therefore, refused to grant registration. On appeal, the CIT(A) allowed the appeal and directed the ITO to allow registration to the assessee-firm. The Tribunal confirmed the decision of the CIT(A) on the ground that in so far as the character of the firm as a genuine entity is concerned, that does not stand disturbed by the responsibility and accountability of a partner to the members whom he may be representing in his fiduciary relationship or other capacity. After giving such a partner his due whether of the profits or of the losses, the firm is not concerned as to where does he take the same. The genuineness of the firm is not affected by his act or conduct done or exhibited beyond or outside the scope of partnership deed. Whether he brings profits or losses for the persons to whom he is responsible or accountable is a matter between him and such other persons and not a matter between him and the firm. 3. We have heard Mr BB Naik, learned counsel for the revenue. Though served, none appears for the respondent-assessee. 4. Having heard the learned counsel for the revenue and having gone through the decision of the Apex Court in CIT vs. Bhagyalakshmi & Co., (1965) 55 ITR 660, we are of the view that the Tribunal applied the correct principle that the contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. In a case like the present one, a partner who is a trustee of the trust of which the minor is the sole beneficiary, the trustee functions in dual capacity. Qua the partnership, the person functions in his personal capacity; qua the beneficiary of the trust, in his representative capacity. The Tribunal thus having applied the correct principles, the Tribunal was right in confirming the order of the CIT(A) directing the ITO to allow the registration to the firm. Accordingly we answer the question in the affirmative i.e. in favour of the assessee and against the revenue. The reference accordingly stands disposed of with no order as to costs. (M.S. Shah, J.) (D.A. Mehta, J.) sundar/-