1987 (2) TMI 117

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....e in the same firm. Before the Commissioner of Income-tax (Appeals), confirmatory letters from the erstwhile minors that they have opted to remain as partners and also a confirmatory letter from a major partner were produced by the assessee and this evidence was accepted by the Commissioner of Income-tax (Appeals) as representing the factual position. The department has not challenged the acceptance of the above evidence at the first appeal stage. 3. In the first appeal, the Commissioner of Income-tax (Appeals) accepted the plea of the assessee that the mere fact that the assessment was completed under section 144 of the Act would be no ground for refusing to continue the registration already granted under section 184(7) of the Income-tax Act so long as there was no change in the constitution of the firm and the declaration was filed in Form No. 12. The CIT (Appeals) held that there was no change in the constitution of the firm or in the profit sharing ratio of the partners and the minors had opted to continue in the firm with the same profit sharing ratio. He applied the ratio of the decision of the Allahabad High Court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 8....

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....en an opportunity to rectify the defect. In this connection, he referred to the terms of section 184(3) of the Income-tax Act. As for ground No. 2, he submitted that the department has raised a new plea which should not be admitted at this stage. As regards ground Nos. 3 and 4, he submitted that the partnership deed should be construed as a whole and not piecemeal. Clause 9 of the partnership deed should be read with clause (vii) of the preamble to the said deed. Merely because the assessment was completed under section 144, it does not result in automatic refusal of continuation of registration. 6. We have heard rival submissions and perused the records. Once reason for the refusal of continuation of registration is that the assessment was made under section 144. In our view, this is not correct. Section 185(5) starts with a non obstinate clause. It would refer to only matters contained in section 185. Thus this sub-section overrides other provisions of section 185. Section 184 makes a distinction between initial registration and mere continuation of registration for subsequent years. The provisions of section 185(5) are not attracted where a declaration for continuation of reg....

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....tration granted to the firm shall not have effect for the relevant assessment year." The reference to sub-section (7) of section 184 in this sub-section is to the continuation of registration originally granted. In the case before us, no such opportunity would appear to have been afforded to the assessee and, therefore, we uphold the contention of the assessee that the defect in the application in Form No. 12 is not fatal but is curable. Thus ground No. 2 is rejected. 8. Ground Nos. 3 and 4 are as follows: "3. The CIT (A) failed to appreciate that the terms of partnership do not take into account the eventuality of any minor admitted to the benefits of partnership becoming major and the consequential re-distribution of losses. 4. The terms of partnership do not deal with the position as to in what proportion the loss would be distributed, i.e., to say whether the loss would also be borne by a major immediately on attaining majority in any year." Ground No. 1 is a corollary of the above grounds. The partnership consists of 15 partners some of whom were minors. There is a preamble to the partnership deed. Clause (vii) thereof is as follows: "Whereas the Party of the....

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.... :              2 Paise   (xi) R. K. Subash          : Party of the Eleventh Part :           2 Paise  (xii) R. K. Srinivas        : Party of the Twelfth Part :            2 Paise (xiii) R. K. Vijayakumar     : Party of the Thirteenth Part :         2 Paise  (xiv) R. K. Vinodkumar      : Party of the Fourteenth Part :         2 Paise   (xv) K. M. Khaleemurrahman : Party of the Fifteenth Part :          8 Paise                                                      ....

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....consisting of two major partners to which a minor is admitted consists of three partners in the eye of the I. T. Act. When a minor attains majority and opts to remain in, he becomes a full-fledged partner under the Indian Partnership Act, but since he was already a partner within the meaning of I. T. Act, there is no change in the number of partners or in their identity. The principle that a minor lacks contractual capacity is neither material nor relevant. The guardian of the minor acts on his behalf, and the action of the guardian is valid in law, unless the minor on attaining majority repudiates it on some good grounds. The fact that the minor could not bind himself during his minority to become a partner on attaining majority is equally irrelevant. No one says that the minor on attaining majority becomes a partner only because that was the agreement in the original deed. The agreement in the original deed evidenced the consent of the other major partners to accept the minor as a partner. When he becomes a major, the minor is free to exercise his option. The crux of the matter is whether there is any change in his position under the I. T. Act when he opts to remain in, on attain....