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TMI Blog1980 (9) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... lone in equal shares. Clause 8 repeated the same provisions in respect of the minors and it further specifically exempted the minors from liability for the losses. That clause also provided that " on attaining majority, each one of the minors is entitled to elect whether he or she would be partner and in case he or she elects to be a partner, shall be a partner bound by the terms and conditions hereof ". Clause 10 which is a residuary clause provided that " In the other respects, not hereunder expressly provided for, the rights and liabilities of the firm as well as among the partners inter se, shall be governed by the Indian Partnership Act ". The minors attained majority on December 26, 1963, August 28, 1966, August 14, 1967, and February 23, 1969, respectively, during the relative assessment years 1965-66, 1967-68, 1968-69 and 1969-70. On the attainment of majority by each minor a resolution was passed by the old partners and the erstwhile minor reciting that he or she having elected to become a partner of the firm by notice given to that effect was admitted as a full partner in the partnership and would be liable to share the losses of the firm equally along with the other adul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issued a notice to the assessee dated July 19, 1977, to show cause why the grant of renewal of registration and the assessment on that basis should not be set aside. To this the assessee filed a detailed objection asserting its right to registration and justifying the orders of the ITO. The Commissioner, however, adhered to his initial view and by his order dated May 4, 1978, cancelled the registration granted to the firm and modified the status of the firm as an unregistered firm. As a corollary he directed the ITO to revise the assessments in the light of the revisional order and issue fresh assessment orders within three months. Thereupon the assessee filed an application before the Commissioner under s. 60(2) of the Act to refer five questions with a statement of the case to this court as arising out of the order. The Commissioner was of the view that all the questions did not so arise but only the following three questions. He reframed these questions and made the reference. The questions are: " (1) Whether, on the facts and in the circumstances of the case, was the Commissioner of Agricultural Income-tax justified in holding that when the minors become majors a fresh ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion " partner " shall also include any person who being a minor has been admitted to the benefits of the partnership. Section 18(5)(a) provides that when the total income of a registered firm has been assessed, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed, and the sum payable by him on the basis of such assessment shall be determined. The advantage, to the partners, of registration of the firm is self-evident. Section 27(1) provides that an application may be made to the Agrl. ITO on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of the Act. Sub-section (2) enacts that the application should be made and dealt with in the manner prescribed (by the Rules). Rules 2 and 3 lay down the manner in which registration of a firm has to be sought and they prescribe a form in which it has to be done. The application has to be signed by all the partners (not being minors) and it must contain, inter alia, the dates on which the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be a partner shall be a partner bound by the terms and conditions hereof " as the expression " terms and conditions hereof " takes in profits and losses. Although cl. 8 exempts the minors from liability for loss the provision in cl. 9 that " the loss, if any, shall be borne by the partners equally " must operate once they elect to become partners on attaining majority. If these clauses are imprecise and admit of any vagueness, that is not fatal, for, s. 13(b) of the Partnership Act provides : " The partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm. " This, of course, is subject to contract between the partners but then there is no contrary contract in the instant case. The resolutions adopted by the partners expressly proceed on the above basis and provide for continuance of the firm in accordance with the terms and conditions of the partnership deed of April 1, 1955, as modified by the resolutions. The question can be viewed from another angle as well. For the purpose of the Act a minor admitted to the benefits of the partnership is a partner by virtue of s. 2(k). This means that in the instant case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e constitution of the firm was as if the minor was also a partner. There can, therefore, be no change in the constitution of the firm by the mere fact of a minor admitted to the benefits of a partnership becoming a major and electing to remain a partner. He was already a partner and he continues as a partner. The second part of the enquiry is whether there has been a change in the shares of the partners as evidenced by the instrument of partnership. A minor is not liable to share in the losses of a firm though he is entitled to share in the profits. The share of the loss relatable to the share of the minor has hence to be provided for. The redistribution of the shares in losses on the minor attaining majority has also to be ascertained. If, on a reasonable construction of the instrument of partnership, these matters cannot be ascertained, it will be a case where the instrument of partnership does not evidence the change in the shares. In case the original instrument of partnership envisages this change, the firm will be entitled to continuance of registration under s. 184(7). " This decision has been followed by the same High Court in Makhbu Lal Ayodhya Prasad v. CIT [1979] 120 I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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