TMI Blog1961 (5) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... ourth party, Shambhulal Khetan, in the deed of partnership is described as a minor son of Ghasiram Khetan and represented by his natural guardian and father, Ghasiram. When this deed of partnership was presented to the Income-tax Officer, the Income-tax Officer refused registration of the firm under section 26A of the Income-tax Act on the ground that appropriate interest in terms of the partnership deed was not charged and apportioned and, therefore, it was not properly acted upon and, secondly, that one of the partners, Rameshwardas, did not appear to be a genuine one.The assessee appealed to the Appellate Assistant Commissioner who expressed the opinion that clause 5 of the partnership deed required the partners to share the losses and as one of the partners was a minor and under the law the minor could not be made liable to share the loss, the partnership was void ab initio. On this question of law there followed difference between the members of the Calcutta Bench of the Appellate Tribunal. The Accountant Member of the Appellate Tribunal expressed the opinion that the deed of partnership expressly stated that the minor was admitted to the benefits of partnership and expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee so far as this point is concerned lies elsewhere. That is in the question already framed and sent to this court for decision. The question itself, quoted above, will show that it is not confined to any particular clause of the partnership deed but has been widely framed to depend on the construction of the whole deed of partnership. Therefore, the ambit of the question of law asked in this case will no justify us to limit ourselves to clause 5 of the partnership deed only but to have an entire view and conspectus of the whole deed of partnership in this case. The assessee's argument on this point also suffers from a wrong approach of law under section 66(1) of the Income-tax Act. To indicate the fallacy of the assessee's argument it will be enough to refer to the latest Supreme Court decision in Kusumben D. Mahadevia v. Commissioner of Income-tax [1960] 39 I.T.R. 540 (S.C.), where it is expressly laid down that while section 66 only confers jurisdiction on the High Court to permit a reference on a question of law arising out of the order of a Tribunal and does not confer jurisdiction on the High Court to decide a different question of law not arising from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing in English law comparable to section 30 of the Indian Partnership Act. Before dealing with the provisions of section 30 of the Indian Partnership Act it will be necessary to dispose of shortly the argument about minor's capacity to enter into a contract of partnership under the Indian law. Section 10 of the Contract Act provides that all agreements contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. It is followed by section 11 of the Contract Act which lays down that every person is competent to contract who is of the age of majority. It follows that a person who is not of the age of majority is not a person competent to contract and make a lawful contract within the meaning of section 10 of the Contract Act. The position formerly taken by certain Indian decisions was that because under the English law a minor's contract was only voidable at his opinion a minor's contract even under the Indian Contract Act was also to be regarded as such. Under the common law of England a minor's contract is not generally void but voidable at h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act of partnership. This section itself does not speak of the minority of any partner expressly. But rules made under section 59 of the Income- tax Act refer to minors. Before dealing with the rules it may be mentioned in passing that rules made under section 59 when published in the Official Gazette are expressly laid upon such publication to have an effect as if enacted in this Act by reason of sub-section (5) of section 59 of the Income-tax Act. The result, therefore, is that rules have the same effect now as if enacted in this Act. Rule 2 of the Indian Income- tax Rules expressly provides that an application for registration shall be signed by all the partners (not being minors) personally. Rule 3 similarly provides that if the Income-tax Officer is satisfied that for some sufficient reason the original instrument of partnership cannot conveniently be produced he may accept a copy of it certified in writing by all the partners (not being minors). Rule 3 also provides that the application for registration mentioned in rule 2 shall be made in the form annexed to this rule . Form I is such a form that is annexed to the rule. There is a note attached to that form which expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a partner. This conclusion is confirmed by section 30 of the Partnership Act which expressly says that a person who is a minor may not be a partner in a firm. It begins, therefore, with the enunciation of the principle of the inability of a minor to be a partner in a firm. Then it goes on to provide the manner in which a minor may be recognised in a partnership. The crucial words in sub-section (1) of section 30 of the Partnership Act on this point are with the consent of all the partners for the time being he may be admitted to the benefits of the partnership. That means the adult partners may consent and agree between themselves and confer upon the minor the benefits of partnership. Having first postulated the incapacity of a minor to be a partner in a firm this provision which follows to admit him to the benefits of partnership must, therefore, be read subject to that disqualification. Admission to the benefits of partnership cannot therefore make a minor an actual partner in a firm. He does not by admission to the benefits of a partnership acquire the status of a partner. It is something less. The reason for making such provision is that the minor cannot enter and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a suit brought by the minor. In that event, it is provided that the court shall proceed with the suit as one for dissolution and for settling accounts between the partners and the amount of the share of the minor shall be determined along with the shares of the partners. The difference between the minor and the partners is, therefore, maintained even in sub-section (4). Sub-section (5) of the Indian Partnership Act gives to the minor on attaining majority a right to elect to become or not to become a partner in the firm by a public notice in default of which the minor becomes a partner in the firm on the expire of six months. If a minor were in fact a partner, then there would be no need for making an express provision in sub-section (5) of the section 30 of the Partnership Act giving him a right to elect to become or not to become a partner. In other words, it means that during his minority he is clearly not and cannot be a partner. Sub-section (6) of section 30 of the Partnership Act proceeds to provide as to who shall have the burden of proving the fact that the minor had not knowledge of admission into partnership, a consideration which is not relevant for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case with very great ability, realised the difficulty of his position. He, therefore, took a very bold and ingenious step in the argument by contending that in this case while the minor could not enter into a contract, the natural guardian who was representing the minor, could do so and that there is nothing either in the Contract Act or in the Partnership Act which prevents a natural guardian to enter into a contract of partnership for and on behalf of the minor. For this purpose he relied on two decisions,--one of the Privy Council and the other of a division bench of this court. He relied first on the Privy Council decision in Sri Kakulam Subrahmanyam v. Kurra Subba Rao [1948] 52 C.W.N. 706; A.I.R. 1948 P.C. 95. Lord Morton delivering the judgment of the Privy Council in that case observes that the position of a guardian under the Hindu law was considered by the Privy Council in the case of Hunoomanpersaud Panday v. Mussumat Babooee Munraj Koonweree [1856] 6 M.I.A. 393. His Lordship there points out that the act of the mother and guardian in entering into the contract of sale was an act done on behalf of the minor appellant. His Lordship, then quotes Mulla's Indian Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partner of a firm which the law expressly prohibits because his guardian did it for him. Such a contract will be hit by section 23 of the Contract Act on the ground that it is forbidden by law. Therefore in such a case the guardian's contract on behalf of minor resulting in making the minor a partner in a firm will be void ab initio and not voidable. It is not a question then whether the guardian acts within the scope of his authority and for the benefit of the minor. It is then a question that the guardian was trying to do from the beginning something which was illegal and forbidden by the law. This is exactly what has happened in this case, as we shall see when we analyse the different clauses in this partnership deed. There are authorities which also indicate the fallacy of this argument. In A. Khorasany v. C. Acha* a division bench decision of the Rangoon High Court of Carr and Cunliffe JJ., the question of a Mahomedan widow acting on behalf of her minor son was raised. There after the death of one of the two partners the widow of the deceased partner entered into an agreement on behalf of her minor sons to carry on the partnership, the widow and her minor sons being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it or loss as may accrue from year to year including loss of capital shall be divided between and borne by the partners hereto in the following shares: Rs. A. P. First party ... 0 5 0 Second party ... 0 5 0 Third party ... 0 5 0 Fourth party ... 0 1 0 1 0 0 quot; This plainly indicates that the fourth party who is the minor is expressly and clearly described as a partner. Now a minor cannot be a partner in a firm under section 30 of the Indian Partnership Act. The clause also says that the loss is to be borne by the minor partner. There is no limitation that such liability should be confined to his share and will not touch him personally. If it is read subject to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issive in that very clause. Then again clauses 8 and 9 of the partnership deed, although not particularly material, speak of necessary and proper books of accounts and making then accessible to all partners. Now if Mr. Sen's argument is right that this clause is to be read subject to section 30 in the sense that the minor is not a party, then it obvious that even the minor's right of inspection and access to the accounts of the firm are being denied in violation of section 30 of the Partnership Act by express provision in the deed of partnership. That would make it illegal. Clause 9 of the partnership deed may be passed over as not decisive for this question but clause 10 of the partnership deed again creates difficulties. It keeps the control and management of the partnership business on all the partners and directs that all partners shall diligently attend to the business and devote their best attention to the same. If the minor here again is a partner under clauses 5 and 6 of the deed, then a minor is being made to accept obligations which he could not be made to do under section 30 of the Partnership Act beyond the limits mentioned there. The whole difficulty with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of the Income-tax Act. There, again, the Supreme Court in the case of Commissioner of Income-tax v. Dwarkadas Khetan Co. [1961] 41 I.T.R. 528 (S.C.), already cited, points out at page 533 of that report: 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. This observation completely answers this particular ground urged before us. In this view of the matter it is no longer necessary for us to consider the Federal Court decision in Kondamudi Sriramulu v. Myneni Punderikakshayya A.I.R. 1949 F.C. 218 on the question of minor's contract. On these reasons it will follow that the income-tax authorities would be justified in refusing registration of this deed of partnership framed as it is with its present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugnant to the character of such a right to add to the terms of section 26A by reference to other laws. There the point arose whether the signature under a power of attorney was enough compliance with rules 2 and 6 and it was held it could not be because the rules enjoined that the partners must personally sign. If the purpose of registration of a firm is kept in view, then there is little scope for misunderstanding these conditions and requirements of section 26A of the Income-tax Act. The registration of a firm with the income-tax authorities has a very clear objective for the purposes of the Income-tax Act. That objective or purpose is to enable the individual partners of a registered firm to get the benefit of lower rates of assessment on the dividend income in the hands of each partner wherever such rates are lower than the rate applicable to the larger total income of the firm computed as a whole. As I said before, if the object of registration under section 26A of the Income-tax Act is kept in view, then the reason and utility of all this stringent law would be clear. These conditions and rules for registration should be read along with section 23(5) of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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