Case: The Commissioner Of Income-Tax, Bombay Vs. M/S. Dwarkadas Khetan &amp; Co

2. Prior to 1st January 1945, there was a firm called Dwarkadas Khetan and Co. on that date, the firm ceased to exist, because the other partners had previously withdrawn and it came to be the sole proprietary concern of Dwarkadas Khetan. On 12th February 1946. Dwarkadas Khetan obtained the selling agency of Seksaria Cotton Mills, Ltd. On 27th March 1946, he entered into a partnership with three others by an instrument of partnership executed that day. Those three others were Viswanath Purumul, Govindram Khetan and Kantilal Kasherdeo. Dwarkadas Kehtans share in the partnership was 7 annas in the rupee, while the remaining 9 annas in the rupee, while the remaining 9 annas share was divided equally among the three others. Though Kantilal Kasherdeo was a minor, he was admitted as a full partner and not merely to the benefits of the partnership, as required by S. 30 of the Indian Partnership Act. To the instrument of partnership, Kantilal Kasherdeo was also a signatory, though immediately after his signature there was the signature of one Kasherdeo Rungta, the natural guardian of the minor. In the instrument, Kantilal Kasherdeo was described as a full partner entitled not only to a share in the profits but also liable to bear all the losses including loss of capital. It was also provided that all the four partners were to attend to the business, and if consent was needed, all the partners including the minor had to give their 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. In short, no distinction was made between the adult partners 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.The deed of partnership was produced before the Registrar of Firms showing the names of the four partners. The Registrar of Firms granted a registration certificate, and in the certificate Kantilal Kasherdeo was shown as a full partner and not as one entitled merely to the benefits of the partnership. Banks were also informed about the four partners, and it does not appear that to them intimation was sent that one of the named partners was a minor. Though the partnership came into existence on 27th March 1946, the firm was stated to have started retrospectively from 1st January 1946. It may be pointed out that the firm has the Calendar year as its account year, and the matter before us refers to the account year, 1946 corresponding to the assessment year, 1947-48.4. For purposes of that year registration of the firm was sought under S. 26A of the Indian Income-tax Act. The Income-tax Officer refused to accord registration on the ground that a minor had been admitted as a partner contrary to law, and that the deed could not, therefore, be registered. The appeal to the Appellate Assistant Commissioner also failed, the Commissioner holding that registration could only be of a legal or valid document and not of a document which was invalid in law. An appeal was then taken to the Tribunal, and it was contended that the document must be construed as showing only that the minor was admitted not as a full partner but to the benefits of the partnership.The Accountant Member held that the order of the Appellate Assistant Commissioner was correct, giving two reasons. The first was that the construction sought to be placed upon the document was not open, and the second, that since retrospective operation given to the firm even though no firm existed from 1st January 1946, registration could not be granted. The Judicial Member differed from the Accountant Member, holding as was contended, that the document must be construed as showing merely that the minor had been admitted to the benefits of the partnership. The appeal was then placed before the President, who agreed with the conclusion of the Accountant Member with the result that the refusal to register the firm under S. 26A by the authorities was upheld.

Court's reasoning:
In so far as the second question is concerned, the matter is now settled by the decision of this Court in R. C. Mitter and Sons v. Commr. of Income-tax, (1959) 39 ITR 194: (AIR 1959 S C 868). But, in our opinion, the decision of the High Court on the first question was not leave the second question open at all.6. There is a distinct cleavage of opinion among the High Courts on this point. The Bombay, Madras and Patna High Courts have held that where a minor is admitted as a full partner by adult partners the document can be registered after interpreting it to mean that the minor has been admitted to the benefits of partnership and not as a full partner. The Calcutta, Allahabad and Punjab High courts have taken a contrary view. The Bombay case is the one which is under appeal, and the Patna High Court followed that decision and the two earlier decisions of the Madras High Court. The Madras High Court decisions are of the same Divisional Bench and were pronounced on the same day.In our opinion, the Calcutta view is preferable to the view taken by the Madras High Court. The error in the Madras view is in using the definition to show that a deed including a minor as a competent partner is valid. What the definition does is to apply to a minor admitted to the benefits of partnership all the provisions of the Income-tax Act applicable to partners. The definition cannot be read to mean that in every case where a minor has, contrary to law, been admitted as a full partner, the deed is to be regarded as valid, because, under the law, a minor can be admitted to the benefits of partnership. The Rules which have been framed under S. 26-A quite clearly show that a minor who is admitted to the benefits of partnership need not sign the application for registration. The law requires all partners to sign the application, and if the definition were to be carried to the extreme, even a minor who is admitted to the benefits a partnership would be competent to sign such an application.The definition is designed to confer equal benefits upon the minor by treating him as a partner; but it does not render a minor a competent and full partner. For that purpose, the law of Partnership must be considered, apart from the definition in the Income-tax Act.10. Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner, though with the consent of the adult partners, he may be admitted to the benefits of partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it. If the Income-tax Authorities register the partnership as between the adults only contrary to the terms of the document, in substance a new contract is made out. It is not open to the Income-tax authorities to register a document which is different from the one actually executed and asked to be registered. In our opinion, the Madras view cannot be accepted.11. The judgment under appeal has followed the Madras view, and, in our opinion, it falls into the same error in which the Madras High Court has fallen earlier. The answer to the first question should, therefore, have been in favour of the Department. The answer given by the High Court is vacated, ad the question will now be answered in the negative. As already stated, there is no need to answer the second question, which does not arise.