9911796707
TMI Blog2002 (6) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (for short "the CIT"), the assessee-firm consisted of 23 partners (20 adults + 3 minors) during each of the above three assessment years and that since the total number of partners exceeded 20, the Commissioner of Income-tax thought that the firm was not validly constituted and the Income-tax Officer had committed a serious illegality in granting registration. So opining, the Commissioner of Income-tax issued notice to the assessee-firm to show cause why the orders passed by the Income-tax Officer under section 185(1)(a) and assessment orders passed under section 143(3) of the Act for the relevant assessment years should not be cancelled under section 263 of the Act and why the Income-tax Officer be directed to redo the assessment for the aforementioned three years. The assessee-firm responded to the above notice and in its reply it raised a number of contentions including the contention that the Commissioner of Income-tax has no jurisdiction to cancel registration granted by the Income-tax Officer. The main question that arose for consideration before the Commissioner of Income-tax was whether the minors admitted to the firm as partners should be taken into consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of partners including minors exceeds 20, the Income-tax Officer cannot register the partnership. In that view of the matter, the Revenue contended that the partnership of the assessee contravened section 11(2) of the Companies act. The Tribunal, on consideration of the rival contentions advanced on behalf of the Department and the assessee held: "The genuineness of the appellant-firm has never been doubted by the Income-tax Department. It has never been the contention of the Department in the course of this litigation that the prescribed conditions have not been fulfilled. Hence, the partnership must be held to have been validly formed as the law did not at the relevant time prohibit any one, otherwise competent to contract, from entering into a contract of partnership. The application made for registration complies with the requirements of section 185 of the Income-tax Act and the rules framed thereunder." In view of the above opinion, the Tribunal concluded that the Income-tax Officer was bound to register the partnership for the relevant assessment years. In that view of the matter, the Tribunal quashed the orders of the Commissioner of Income-tax for the three assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership. In CIT v. Bhawani Prasad Girdhari Lal and Co. [1990] 186 ITR 518 (All), the assessee-firm consisting of 17 major partners and four minors who were admitted to the benefits of partnership, filed returns for the assessment years 1966-67 and 1967-68 claiming the status of a registered firm. The Income-tax Officer, however, cancelled the registration on the ground that the assesseefirm consisted or more than 20 partners in contravention of section 11(2) of the Companies Act and the partnership deed was not signed by the guardian of the minors. On appeal by the assessee-firm, the Commissioner of Income-tax (Appeals)-II, Kanpur, upheld the cancellation of the registration by the Income-tax Officer and dismissed the appeals. The assessee-firm took the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal allowed the appeals holding that a minor cannot become a partner although, with the consent of the adult partners, he can be admitted to the benefits of the partnership, and as such minors cannot be taken into consideration for finding out whether there has been contravention of section 11(2) of the Companies Act. On a reference, the Allahabad High Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for finding out whether a partnership consists of more than 20 persons, and minors, not being partners, cannot be taken into account for the purpose of section 11(2) of the Companies Act. In the instant case, as the assessee-firm consisted of 20 adult members and three minor members as partners during the assessment years 1975-76, 1976-77 and 1977-78, it was legally entitled to be regis tered under the Act. In CIT v. Chandrika Enterprises [1992] 198 ITR 548 (Ker), the assessee-firm consisted of 14 partners and seven minors who were admitted to the benefits of partnership. The Income-tax Officer took the view that the minors admitted to the benefits of the partnership, in view of the definition of "partner" in section 2(23) of the Income-tax Act, 1961, were also full-fledged partners and so the partnership must be held to consist of more than 20 persons as partners and since section 11(2) of the Companies Act prohibited the formation of a partnership consisting of more than 20 persons, the application filed by the firm for registration under section 184 of the Income-tax Act, 1961, was not maintainable. The Commissioner of Income-tax (Appeals) reversed the order of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Partnership Act. The Tribunal affirmed the order of the Appellate Assistant Commissioner. On a reference, the Karnataka High Court held: "Under the provisions of the Indian Partnership Act, a minor cannot be a partner because a minor is not competent to enter into any contract. A minor can only be admitted to the benefits of the partnership. Therefore, the law which enables the formation of a partnership, that is, the Partnership Act, does not recognise a minor as a partner at all when a minor is admitted only to the benefits of the said partnership. Consequently, while computing the number of partners, the number of minors who have been admitted to the benefits of the partnership will have to be excluded..." In Dwarkadas Khetan and Co.'s case [1961] 41 ITR 528 (SC), on March 27, 1946, as instrument of partnership was executed by four persons, one of them being a minor, the minor was admitted as a full partner and he was a signatory to the instrument though his natural guardian also signed it. Not only was he entitled to a share in the profits, he was also liable to bear all the losses including the loss of capital. All the four persons were to attend to the business and if co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inor 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. 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." Further, it needs to be emphasised that section 184(3) of the Act provides, inter alia, that the application for registration should be signed by all the partners (not being minors) personally. This provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
