1965 (4) TMI 22 - SC - Income Tax

Supreme Court affirms partnership registration with minor as party under Income-tax Act

The Supreme Court upheld the registration of a firm under section 26A of the Indian Income-tax Act based on a partnership deed involving a minor as a ... Whether the assessee, Messrs. Shah Jethaji Phulchand, can be granted registration under section 26A of the Indian Income-tax Act on the basis of the deed made on November 20, 1950, for the assessment year 1953-54 and/or 1954-55 ? Held that:- As no fatal defect has been pointed out by the learned counsel for the appellant. Accordingly we hold that the assessee-firm is entitled to be registered, and agreeing with the High Court, we answer the question in the affirmative. Appeal dismissed. Issues:1. Registration of a firm under section 26A of the Indian Income-tax Act based on a partnership deed.2. Validity of the partnership deed involving a minor as a party.3. Interpretation of clauses in the partnership deed regarding the status of the minor partner.4. Authority of a guardian to enter into a partnership agreement on behalf of a minor.Analysis:The case involved appeals against the High Court's judgment on granting registration to a firm under section 26A of the Indian Income-tax Act based on a partnership deed. The partnership deed in question was entered into by five parties, including a minor, seeking registration for the assessment years 1953-54 and 1954-55. The Income-tax Officer initially rejected the registration applications for these years due to alleged defects in the partnership deed.The Appellate Assistant Commissioner held that the partnership deed was defective as it included a minor as a party through the natural father, who was not the real guardian. He deemed the contract of partnership void in law, leading to the denial of registration for the firm. However, the Appellate Tribunal, citing precedent, considered the minor as having been admitted to the benefits of partnership.Upon review, the Supreme Court analyzed the clauses of the partnership deed to determine the status of the minor partner. The Court noted that the deed explicitly stated that the minor partner would not bear any losses, which were to be borne by another party. Additionally, the deed did not designate the minor as a working partner, limiting this role to specific individuals. The Court emphasized that the minor seemed to have been granted only the benefits of partnership, not full partnership status.Regarding the authority of the guardian to enter into the partnership agreement on behalf of the minor, the Court deliberated on clauses specifying the starting of the business and constitution of the firm. Ultimately, the Court found no fatal defect in the partnership deed and upheld the registration of the firm, concurring with the High Court's decision. The appeals were dismissed, affirming the registration of the firm under section 26A of the Income-tax Act.