TMI Blog1987 (7) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, comprising of four partners, namely, (1) Smt. Kamala Bai, (2) Smt. Geeta Bai, (3) Smt. Indravati Bai, and (4) Sri Ramsharan Agarwal. The first two partners were having 30% share each and the latter two 20% each. The accounting year was the financial year. On April 1, 1975, there was a change in the constitution of the firm. Two major partners, Smt. Kamalesh Gupta and Smt. Parameswari, were taken in as partners, and two minors, Sanjay and Sandeep, sons of one Sundarlal, were admitted to the benefits of the partnership. This arrangement was recorded in the partnership deed dated July 24, 1975. According to this, each of the six major partners was entitled to a 1/7th share. The two minors were entitled to a 1/14th share each. Of course, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter was carried in further appeal to the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal dismissed the appeal mainly on two grounds. We may set out the basis of dismissal in the words of the Tribunal itself. In other words, for the most part of the first half of the year of account in question, if not for the entire half year, the deed of July 24, 1975, was operative but that deed was not acted upon since the profits for the first half of the year were shared among the six partners to the exclusion of the minors as provided in the deed of October 1, 1975. Thus there are two factors which militate against the assessee's claim for registration. First, the deed of July 24, 1975, was not acted upon in the matter of sharing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready stated, the partnership deed recites that the profits for the period April 1, 1975, to September 30, 1975, shall be divided only among the six major partners. It is the assessee's case that the capital, if any, contributed by the minors was to be treated as deposit with the firm, bearing interest. Be that as it may, the limited question now before us is, whether there were legitimate grounds for refusing registration under section 185 of the Income-tax Act to the partnership evidenced by the deed of partnership dated October 1, 1975. We are unable to say that the partnership deed dated October 1, 1975, violates any of the provisions of either the Contract Act or the Partnership Act. It was open to the partners to arrive at any arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tingency which, by the operation of law or under a covenant of the partnership deed, gives rise to that right, has arisen. This principle has been affirmed by this court in Modern Stores v. CIT [1986] 157 ITR 589. Now, in this case, it must be remembered that according to the deed of partnership dated October 1, 1975, the accounts have to be made up only at the end of the year. If so, it is not possible to say whether the firm would have made profits or would have incurred losses as on September 30, 1975. Be that as it may, the alleged ignoring of the rights, if any, of the minors to ask either for accounts or for their share in the profits, if any, cannot be a ground for refusing registration to the partnership evidenced by the deed dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property or profits of the firm. Firstly, they have not chosen to enforce it; evidently, they were satisfied with the arrangement, because in their place, their mother became a partner. Even otherwise, it may be that it was open to them to establish their rights by a proper proceeding at law. But that possibility cannot be a ground for refusing registration, nor can it be said that the partnership deed violates subsection (4) of section 30. Sub-section (4) of section 30 merely declares the rights of minors whose connection with the partnership is severed. It has no relevance or bearing upon the validity of the partnership deed concerned herein. We are, therefore, of the opinion that both the grounds upon which the Tribunal refused registr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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