TMI Blog1987 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership was not opposed to any of the provisions of the Excise Act or the rules thereunder and was not violative of any of the conditions of the licence granted under the said Act and was, therefore, not illegal ?" RC No. 285 of 1980 pertains to the assessment year 1972-73, while RC No. 237 of 1980 relates to the assessment year 1973-74. Two persons, Bishanlal and Jagatram, constituted a partnership called Three Aces which was running a restaurant and bar at Abid Road, Hyderabad. On November 21, 1971, Jagatram retired from the partnership, with the result that the partnership firm came to an end. Bishanlal took over the business. On January 4, 1972, a deed of partnership was executed between Bishanlal and his four daughters. The fourth and youngest daughter attained majority only on the previous day, i.e., on January 3, 1972. The partnership deed stated that after Jagatram retired, the business of Three Aces was taken over by Bishanlal along with its assets and liabilities as a going concern and that he has admitted his four daughters into the partnership with them with effect from November 22, 1971. The accounting year followed by the assessee happens to be the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer and remanded the matter to him to examine the genuineness of the new firm and also to examine whether it was a case where the licence under the excise law was obtained by one party and was actually used by the other party. It is evident that the reasons given by the Commissioner for setting aside the order of the Income-tax Officer and the order of remand apply equally to both the assessment years. The assessee appealed against the order of the Commissioner. Two appeals were filed for the two assessment years. The Tribunal considered both the appeals together and allowed them. The Tribunal was of the opinion that (i) it was not a case of reconstitution of the firm, but succession of one firm by another firm in the middle of the relevant accounting year, and hence a single assessment for the assessment year 1972-73 was unsustainable in law ; (ii) though the formation of an oral partnership on November 22, 1971, between Bishanlal and his four daughters (whereunder the minor, Sashi Rani, was admitted to the benefits of the partnership) is not established, yet in view of the fact that Sashi Rani, after attaining majority, entered into a partnership with others on January 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, when she was a minor. It, however, held, on the basis of the recital in the partnership deed dated January 4, 1972, that the partnership was indeed formed only on January 4, 1972, but with retrospective effect from November 22, 1971. The Tribunal further observed that the law permits an erstwhile minor to elect to become a full-fledged partner on attaining majority, and also to undertake to bear the losses relating to the period prior to his/her becoming a major, and if so, there is nothing wrong in law in a major entering into a contractual relationship with others retrospectively from a point of time when he/she was a minor. It may be noticed that this finding of the Tribunal is at variance with the case put forward by both the parties, viz., the assessee and the Revenue. We are of the opinion, on a consideration of the material placed before us, including the recital contained in the partnership deed dated January 4, 1972, that the assessee's case ought to be and ought to have been accepted. The relevant clause in the partnership deed reads thus : "AND WHEREAS the first party (Bishanlal) agreed to admit the second, third, fourth and fifth parties into partnership and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this view of the matter, it is unnecessary to refer to the decisions cited by learned standing counsel for the Revenue to the effect that a minor cannot become a partner and cannot be made liable for the losses. Now, coming to the third question, the factual position is this : The licence under the Excise Act, i.e., FL- 17 Licence, governed by the provisions of the A. P. Foreign Liquor and Indian Liquor Rules, 1970, was granted to the firm, Three Aces, consisting of Bishanlal and Jagatram. This partnership came to an end on November 22, 1971, with the retirement of Jagatram, inasmuch as there can be no partnership with one single person. It must, however, be noted that the business which was being run by the partnership, Three Aces, until November 22, 1971, was not confined to the business under the excise licence. The said partnership was running restaurant and bar, the main business being the running of restaurant wherein the bar was located. After the dissolution of the firm on November 22, 1971, the business of the restaurant along with the bar was taken over by Bishanlal, who constituted an oral partnership along with his daughters on the very same day, to run the said b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be, for doing business under the licence, without the prior approval of the authorities. If it is a partnership firm, it cannot induct another partner or partners, without such prior approval ; it is equally disentitled to exclude an existing partner and that only the person or the partnership firm to which the licence is granted should alone do the business, and that there should not be a change in the individual or in the composition/constitution of the partnership. But, the question is whether, on account of this infraction, the partnership is thereby disentitled to registration under sections 184 and 185 of the Income-tax Act? A number of cases have been cited before us on the question of the power of the Income-tax Officer under the said provisions to go into the question of validity or otherwise of the business carried on by the partnership, where the formation of the partnership itself is not hit by any provision of law. We do not, however, think it necessary to go into this controversy, on which the decisions also do not appear to be uniform. We will confine ourselves to the facts of this case. The partnership deed in this case does not even speak of, or refer to, exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent sets of rules. In the said Bench decision, it was held that even though there is a violation of rule 19(2) and a partnership is formed contrary to the said rule, still such partnership would be entitled to registration, provided it fulfils the other conditions stipulated in section 185 of the Income-tax Act. It was also held that such partnership agreement does not violate any public policy, nor does it offend section 23 of the Indian Contract Act. It was observed that may be such a partnership would not be cognized and would not be valid under the Excise Act ; but, that was said to be not a relevant or adequate ground for refusing registration under the Income-tax Act. Learned standing counsel for the Revenue sought to contend that the said Bench decision is not correct and requires reconsideration. We are, however, not inclined to go into the said question. In the facts and circumstances of this case, we do not say that there is no force in what learned standing counsel contends. What all we say is that there is a Bench decision which, in the normal course, is binding upon us and, in the facts and circumstances of this case, we are not inclined to go into the question of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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