Case: Commissioner Of Income-Tax, Bangalore Vs. Shah Mohandas Sadhuram

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 benefit of the partnership and not as a partner."9. 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-s. (2) of S. 30 of the Partnership Act that a minor cannot be made liable for losses. Secondly S. 30, sub-section (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 S. 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-section (4) 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 minors 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.10. It follows from the above discussion that as along 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.11. 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.12. 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.13. 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.14. Accordingly, agreeing with the High Court, we hold that the firm is entitled to be registered under S. 26-A of the Income Tax Act, and the answer to the question referred is in the affirmative.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]10. It follows from the above discussion that as along 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.11. 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.12. 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.13. 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.14. Accordingly, agreeing with the High Court, we hold that the firm is entitled to be registered under S. 26-A of the Income Tax Act, and the answer to the question referred is in the affirmative.