TMI Blog1948 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... nayaki Ammal, presumably as their de facto guardian. This partnership was to come into effect as from 14th April, 1939. It appears to have been realised that this document was of a doubtful validity. It was not put forward for registration. Thereafter, on the 14th August, 1941, P.A. Raju Chettiar and Ranganayaki Ammal executed a deed of partnership upon the terms and conditions set out therein. In course of assessment for 1941-42 an application was made under Section 26A of the Act to register the firm. Registration was refused by the Income-tax Officer. Successive appeals to the Appellate Assistant Commissioner and to the Tribunal were dismissed. 2. The finding of the Tribunal is that Ranganayaki Ammal is not herself a partner at all, but that she is really a benamidar for and on behalf of her minor sons. In the deed of partition the capital of the family was agreed to be ₹ 1,20,000, which was divided amongst the male members of the family. Raju Chettiar was credited with ₹ 60,000 and each of the minor sons of Ramaswamy Chettiar with ₹ 30,000. But on the same day the credit entries in the name of the minors were reversed and the sum of ₹ 60,000 was credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal said that the date was not ascertainable). The widow Ranganayaki Ammal and two minor sons Viswanathan and Ranganathan survived Ramaswamy. The family was being assessed in the status of a Hindu undivided family up to the assessment year 1940-41. On 19th August, 1940, there was a partition of the undivided family and that partition was recognised by the Income-tax department under Section 25A. On the same date a deed of partnership was entered into between Raju Chettiar and the two minor sons of Ramaswamy Chettiar constituting themselves into a partnership, the minors being represented by their mother Ranganayaki Ammal and the partnership was to come into effect from the 14th April, 1939. In 1940-41 assessment a claim was made on the strength of this deed of partnership dated 19th August, 1940, that, as the separated members were carrying on the business, the firm should be registered under Section 26A as from 14th April, 1939. This contention was repelled on the ground that the partition took place only on 19th August, 1940, and consequently the question of registering the firm for the assessment for 1940-41 did not arise. Subsequently it appears to have been realised tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appearing for the assessee at whose instance this reference was made by the Tribunal, the learned Advocate-General advanced the following propositions :- (1) It is open to the guardian of a minor whose father was a member of the partnership to continue an ancestral business after the father's death if the continuance of the same is for the benefit of the minor. (2) When in such circumstances the business is continued, the guardian alone can be a partner and not the minor, the only manner in which the business can be lawfully carried on by the guardian being by the guardian becoming a partner in his or her own name and utilising the minor's assets, if necessary, for furnishing the required capital for the continuance of the business. In such a case if profits are received, the guardian will duly transfer them to the minor. This is the only lawful method by which the guardian can discharge the duty of conserving and protecting the interests of the minor in the business left by the minor's father. It is argued in this connection that there is nothing in Section 26A of the Income tax Act to militate against the right of the guardian either to enter into a partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng effect:- If the Assistant Commissioner had any evidence before him to lead to the conclusion that the mother in this case was not really entitled to a beneficial interest of 4 annas share, I think he was justified in refusing to register the deed. With great respect we are of opinion that the correct legal position has been stated rather widely in that passage. There can conceivably be cases where a person who has no beneficial interest, such as a trustee appointed under a testament, will have to continue a partnership in which the deceased was a partner and being the legal owner, the trustee, despite the fact that he has no beneficial interest, will have to join the new partnership as a member in his own name. Such illustrations can be easily multiplied, viz., Fry v. Shiel's Trustees(1) where Lord Skerrington held that where a business is carried on by testamentary trustees on behalf of the minors who are beneficiaries under a will the business is not the property of the beneficiaries but of the trustees. The present case, however, as we shall show presently, stands on an entirely different footing, having regard in particular to the language of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enabling sections under which the Income-tax Officer can take steps to assess the trustees or guardians as representing their separate beneficiaries or wards, as the case may be, if he so chooses. But the sections do not compel the Crown to resort to them. All the cases cited in support of the third proposition can, in our view, be distinguished on a short ground. Those are cases where registration had been, under a wrong or a different impression, granted of a partnership constituted in a particular manner, but in the course of the individual assessment made on the partners it was found that different persons had received the profits and the assessment of the income in the hands of those persons at the rates applicable to each of them was necessary in the interests of revenue. In such circumstances, option is given to the Income-tax Officer either to act according to the distributive shares recorded in the deed of partnership which has been registered or to make the assessment upon persons who are found upon enquiry to have actually received those profits. Because there are such enabling provisions in existence, it does not seem to us to be a valid argument that knowing even at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of Raju Chettiar who should have full power to operate on the bank accounts, it was considered that Ranganayaki Ammal was not a real partner and the half share shown in the partnership deed as belonging to her was really not her share but the real shares were one-fourth belonging to each of the minors. On these grounds it was held by both the Appellate Assistant Commissioner and the Tribunal that there was no genuine firm in existence. In coming to this conclusion they were also guided by the previous history of the matter, namely the first deed of partnership of 19th August, 1940, purporting to be between Raju Chettiar and the two minors. It may in this connection be profitable to make a brief reference to the section itself and the relevant rules. Section 26A provides for an application being made to the Income-tax Officer on behalf of any firm constituted under an instrument of partnership specifying the individual shares of the partners. The remaining details as to who should make the application and what particulars they should contain are relegated to rules. Under rule 2 any firm constituted under an instrument of partnership specifying the individual shares of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t either the firm is not genuine or that the shares mentioned therein are not true. A strict and rigid compliance with the requirements of Section 26A and the rules is, in our opinion, essential and there is no scope for any of the equitable considerations put forward by the learned Advocate-General. It may be that in the peculiar circumstances of the case the only manner in which the interests of the minor could be served was by the guardian acting in the partnership deed as the partner, while as a matter of fact she was not the partner, and a share of eight annas being shown as belonging to her, while as a matter of fact the real shares were of four annas to each of the minors. The profits which were represented to be the property of Ranganayaki Ammal were in fact and in truth the profits belonging to the minors. In view of the consideration that all the facts have been fully set out in the partnership deed, and there is no attempt at concealment, any suggestion of fraud or mala fides may be eliminated. But it has been held by high authority that even a simulate arrangement is one which cannot be recognised. In Ayrshire Pullman Motor Services and D. M. Ritchie v. Commissioners of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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