1994 (11) TMI 73 - HC - Income Tax

High Court upholds cancellation of registration due to minor partner inclusion. Partnership deed's invalidity led to refusal.

The High Court upheld the cancellation of registration for the assessment year 1973-74 and the refusal of registration for the assessment years 1974-75 ... Partnership Deed Issues Involved:1. Justification of cancellation of registration under section 186(1) for the assessment year 1973-74.2. Entitlement to registration for the assessment years 1974-75 and 1975-76 due to the invalidity of the partnership deed and the cancellation of registration for the assessment year 1973-74.Detailed Analysis:1. Justification of Cancellation of Registration under Section 186(1) for the Assessment Year 1973-74:The primary issue was whether the Tribunal was correct in holding that the cancellation of registration under section 186(1) for the assessment year 1973-74 was justified. The facts revealed that the assessee-firm was initially granted registration based on a partnership deed dated November 9, 1971. However, it was later discovered that one of the partners, Shri M. J. Shah, was a minor at the time of signing the deed, which rendered the partnership deed invalid. The Income-tax Officer, upon this discovery, issued a notice and subsequently canceled the registration on December 30, 1975, arguing that there was no genuine firm in existence as registered due to the minor's involvement.The Tribunal upheld this cancellation, and the High Court agreed, emphasizing that the registration could be annulled if the firm was not genuine 'as registered.' The court noted that the existence of a genuine firm must align with the constitution specified in the partnership instrument. Since the partnership deed was invalid due to the minor's inclusion, the firm could not be considered genuine as registered. The court referenced sections 184, 185, and 186 of the Income-tax Act to support this interpretation, concluding that the Income-tax Officer was justified in canceling the registration for the assessment year 1973-74.2. Entitlement to Registration for the Assessment Years 1974-75 and 1975-76:The second issue addressed whether the assessee-firm was entitled to registration for the assessment years 1974-75 and 1975-76. The assessee argued that even if the partnership deed was initially invalid, the partner in question had become a major during these subsequent years, thereby rectifying any irregularity. However, the Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, maintaining that the partnership deed's initial invalidity due to the minor's involvement rendered the firm ineligible for registration.The Tribunal supported this view, stating that the invalid partnership deed from the assessment year 1973-74 continued to affect the firm's status in the subsequent years. The High Court agreed, noting that the firm could not be granted registration based on an invalid deed. The court referenced the decisions of the Gauhati High Court in Mahabir Prasad Kishanlal and Co. v. CIT and CIT v. United Brothers, which supported the view that a firm based on an invalid partnership deed could not be considered genuine for registration purposes.The court concluded that the Income-tax Officer was justified in refusing the continuance of registration for the assessment years 1974-75 and 1975-76, as the partnership deed's initial invalidity persisted, affecting the firm's legal standing.Conclusion:The High Court answered both questions in the affirmative, ruling against the assessee and in favor of the Revenue. The court upheld the cancellation of registration for the assessment year 1973-74 and the refusal of registration for the assessment years 1974-75 and 1975-76, based on the invalidity of the partnership deed due to the inclusion of a minor as a full-fledged partner. No order as to costs was made.