TMI Blog1984 (1) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... a minor represented by his mother. For the assessment year 1966-67, the assessee filed an application for registration of the firm before the Income-tax Officer. But the Income-tax Officer rejected the application and refused to register the firm under the Income-tax Act on the ground that the partnership deed dated July 5, 1962, was an invalid instrument. Under section 30 of the Partnership Act, a minor can only be admitted to the benefits of a partnership and cannot be made a partner. The partnership deed on the basis of which registration was sought had one minor by name Sushilchand Choudary as a full partner. The Income-tax Officer, therefore, sought to make an assessment as association of persons. The assessee carried the matter in appeal before the Appellate Assistant Commissioner who confirmed the order of the Income-tax Officer. The assessee made a further appeal to the Income-tax Appellate Tribunal. Before the Income-tax Appellate Tribunal, it was urged that the above mentioned Sushilchand Choudary had on attaining majority elected to continue as a partner and had intimated that fact to the Registrar of Firms on March 25, 1964, and that for the assessment year 1966-67, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership Act declares that a person who is a minor may not be a full partner of the firm. In the partnership deed dated July 5, 1962, it is admitted that the above mentioned Sushilchand Choudary is a minor. The partnership deed dated July 5, 1962, is, therefore, incapable of constituting a relationship of a partnership among the persons mentioned in that deed. And that deed is void. Now, for the purpose of earning the benefit of tax under the Income-tax Act, a firm has to be registered under section 184 of the Income-tax Act. For that purpose, an application has to be made to the Income-tax Officer accompanied by the instrument evidencing partnership. If a partnership is legally recognised, the Income-tax Officer cannot decline registration of the firm under section 184 of the Income-tax Act. On the other hand, if the partnership is void, no registration can be granted. Prima facie no registration can be granted in this case. But the learned counsel for the assessee argues that by the time Sushilchand Choudary had come to file Form No. 12, he had become a major and elected to be a partner of the firm. It appears to us that his election to be a partner alone is not sufficient to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The assessee argues that on the facts and circumstances of the case, the assessee cannot be assessed in the status of association of persons and that the assessment should take place only as an individual person. The argument of the assessee goes directly contrary to our answers which we have already given to questions Nos. (2) and (3). Our answers in favour of the Revenue on questions Nos. (2) and (3) are based on the finding of a fact that no firm was constituted by the partnership deed dated July 5, 1962, nor could any firm be so constituted by that deed. The partnership constituted either by word of mouth or a written document brings into existence a particular relationship between the persons called partners. Such a relationship called partnership cannot be brought into existence contrary to the applicable legal provisions of the Partnership Act. Section 30 of the Partnership Act forbids the constitution of a partnership with a minor as a full member. Admittance of Sushilchand Choudary who was a minor on July 5, 1962, as a full member of partnership renders it legally impossible to constitute an association of four persons into partnership. The result is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the year 1966, and the other of Delhi in 1967, had already assessed two of the members of the association of persons on the basis of share of income from the firm and that thereafter it would not be open to the taxing authority to tax their income as that of the association of persons. In support of this argument, the assessee placed reliance upon the following decisions : CIT v. Murlidhar Jhawar Purna Ginning and Pressing Factory [1966] 60 ITR 95 (SC), Ch. Atchaiah v. ITO [1979] 116 ITR 675 (AP), Deccan Bharat Khandsari Sugar Factory v. CIT [1980] 123 ITR 802 (AP), Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747 (Guj), CIT v. R. Dhandayutham [1978] 113 ITR 602 (.Mad), Bhola Nath Kesari v. Director of State Lotteries, U.P. [1974] 95 ITR 171 (All) (sic) and Universal Commercial Company v. CIT [1981] 130 ITR 775 (Mad). A close reading of these judgments would show that a large number of them are inapplicable to the facts of the present case and that the argument of the assessee largely suffers from a failure to make a distinction between the scope and meaning of section 3 of the Indian Income-tax Act of 1922 and section 4 of the Income-tax Act of 1961. Section 3 of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hitherto enjoying under section 3 of the 1922 Act was withdrawn by the Income-tax Act, 1961. It would, therefore, not be permissible today for the Income-tax Officer under the Income-tax Act, 1961, to assess the income of the association of persons individually in the hands of that association any more than it would have been permissible for the Income-tax Officer to assess the income-tax of the Hindu undivided family in the hands of its individual members. In ITO v. Bachu Lal Kapoor [1966] 60 ITR 74, at page 80, the Supreme Court observed: " That apart, under section 3 of the Act, in the matter of assessment, there is no question of any election between a Hindu undivided family and a member thereof in respect of the income of the family. If a Hindu undivided family exists, under section 3 of the Act, the Income-tax Officer has to assess it in respect of its income... While section 3 confers an option on the Income-tax Officer to assess either the association of persons or the members of the association individually, no such option is conferred on him thereunder in the case of a Hindu undivided family. " In Mahendra Kumar Agrawalla v. ITO [1976] 103 ITR 688, a Division Beach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1922 Act, no tax could be levied on the first entity, cannot prevail under the 1961 Act. " In CIT v. Murlidhar Jhawar Purna Ginning and Pressing Factory [1966] 60 ITR 95, the Supreme Court held that where the Income-tax Officer had exercised his option, that would be final and binding. Similarly, CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), is also a case dealing with the option of the Income-tax Officer falling under the old section 3. The judgment of the Gujarat High Court in Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747, and the judgment of the Madras High Court in Universal Commercial Company v. CIT [1981] 130 ITR 775 would not support the argument of the assessee, because in both the cases the question which was considered was one which fell under section 183(b) of the Income-tax Act. Under that section, a regulated option has been given to the Income-tax Officer to assess the income of an unregistered firm either in the hands of the individual members or in the hands of the unregistered firm. These cases held that once that option has been exercised, it is final and binding on the Revenue, of course, subject to alteration and variation in the regular procedure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are enumerated. In our view, this change in the wording of the section does not affect the legal position." We are unable to agree with this reasoning of the learned Judges which is previously based upon the fact that it had not noticed the significant changes the charging section 3 had undergone by the omission of the words " or the members of the association individually We, therefore, consider the judgment in Ch. Atchaiah v. ITO [1979] 116 ITR 675 (AP), as one made per incurium and would not be a binding precedent. The judgment in Deccan Bharat Khandsari Sugar Factory v. CIT [1980] 123 ITR 802 (AP), dealt with a case where the income of an unregistered firm would be assessed in the hands of the firm after first having assessed provisionally on protective basis in the hands of the individual partners. Section 183, as we have already noted above, grants the assessing authority a regulated discretion to choose to assess either the unregistered firm or its partners depending upon his assessment as which course of action would best promote the interests of the Revenue. Earlier, the option of the Income-tax Officer to assess the individuals was not based on a full view of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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