TMI Blog1997 (11) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, on the facts and in the circumstances of the case in view of the Allahabad High Court decision in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858, the Tribunal was legally correct in modifying the order of the Commissioner of Income-tax dated September 7, 1978, under section 263 and in directing the Income-tax Officer to make enquiry whether there was a change in the shares of the partners as evidenced by the partnership deed dated February 20, 1973, on the lines indicated in the Board's instructions and to decide the issue of continuance of registration afresh?" The undisputed facts are that for the assessment year 1973-74, the assessee-firm was granted registration, vide order dated October 30, 1973. The assessment on the assessee-firm for the assessment year 1976-77 came to be completed on September 14, 1976, and on the basis of a declaration filed under section 184(7) of the Act, the continuation of registration was allowed. In the said declaration one Munavvar Hussain, a minor, who was admitted to the benefits of the partnership, was declared as a partner. During the scrutiny of the case for the assessment year 1977-78, the Income-tax Officer noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Tribunal relying on the Full Bench decision in the case of Badri Narain Kashi Prasad [1978] 115 ITR 858 (All) held that when the minor admitted to the benefits of the partnership, attained majority and elected to continue as a partner of the firm that did not amount to a change in the constitution of the firm and, therefore, the assessee-firm was entitled to the grant of continuation of registration on the basis of the declaration, provided the Assessing Officer was satisfied in view of Instruction No. 1082 dated August 4, 1977, issued by the Central Board of Direct Taxes that the minor upon attaining majority did not agree to share the losses and the major partners of the assessee-firm continued to share the losses the same way, as they agreed to share the losses before the minor attained majority. The Appellate Tribunal, in view of the aforesaid instruction, was of the view that it was the duty of the Assessing Officer to make inquiry into the fact whether the minor upon attaining majority agreed to share the losses and if so, whether the shares in losses as agreed upon in the original partnership deed, have undergone a change and that if upon such inquiry the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been defined by the Income-tax Act. In the context, the phrase 'constitution of the firm' refers to the identity of the partners of the firm. Thus, the identity of the partners as well as their shares ought to be such as is evidenced by the instrument of partnership. If for any subsequent year there is a change either in the constitution of the firm or the shares of the partners and such change is not evidenced by the instrument, the original registration shall not have effect. But if it is found that the constitution of the firm or the shares of the partners continues to be evidenced by the instrument, then it will be a case where the conclusion will be that there has been no change. A change in the constitution, that is, in the identity of the partners, may take place when a person is introduced as a partner, or a partner retires, or is expelled, or ceases to be a partner on his becoming insolvent, or dies or a minor becomes major... Under section 30(1) and (2) of the Indian Partnership Act, a minor cannot be a partner. He can be admitted to the benefits of the partnership. On attaining majority, if he so elects, he, under section 30(5), becomes a partner. His share is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Board of Direct Taxes, modified the order of the Commissioner of Income-tax and directed the Income-tax Officer to make inquiry into the fact whether the minor upon attaining majority agreed to share the losses and whether for that reason, the share ratio in losses as evidenced by the original partnership deed, stood altered, and, if so, whether that was evidenced by a fresh partnership deed. The law requires that when there is a change in the constitution of the firm or in the share ratio of the profit and loss then that change should be evidenced by a fresh partnership deed. But if there is no change in either of the two, no fresh deed is required to be executed and the continuation of registration will be granted merely on the basis of the declaration, furnished by an assessee that there was neither a change in the constitution of the firm nor in the share ratio of the profit/loss. There are two stages in a case in which a minor is admitted to the benefits of the partnership. The first stage is pre-attaining majority and the second stage is post-attaining majority. In the instant case, we are not concerned with the pre-attaining majority stage, because at tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, because the view taken by the Commissioner of income-tax is that there was a change in the constitution of the firm when the minor attained majority. The question before the Appellate Tribunal was whether the assessee was entitled to continuation of registration on the basis of the declaration after the minor attained majority and it is in this context the Appellate Tribunal following Instruction No. 1082 dated August 4, 1977, directed the Assessing Officer to satisfy himself and record a clear finding whether the minor upon attaining majority agreed to share the losses. If a fresh agreement is made upon attaining majority, then that would disturb the share ratio of losses, as evidenced by the original partnership deed. It is in that backdrop, the Appellate Tribunal following the instruction issued by the Central Board of Direct Taxes observed as under : "The Partnership Act, 1932, nowhere lays down that a minor on attaining majority must share in losses. It depends on the terms agreed between the partners at the time the minor attains majority and becomes a full-fledged partner. There is no bar to the partners agreeing amongst themselves to share the losses amongst the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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