TaxTMI 
TaxTMI 
1986 (7) TMI 190
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....artners, which included the minor Shri Thanikachalam, in equal shares. He also observed that as per the return filed by the assessee, the share of loss has been allocated to Shri Thanikachalam along with others which was not permissible under the Indian Partnership Act, 1932. It was further made out by the Commissioner that though the income computed by the ITO in his assessment order dated 22-6-1983 was nil, still the granting of registration is not proper as the minor was liable to share the loss of the firm and, therefore, be proposed to cancel the registration accorded by the ITO as being erroneous and prejudicial to the interests of the revenue and invited the objections of the assessee. 3. The assessee in its reply dated 28-1-1985 submitted that the Commissioner had not understood the deed in the proper perspective and informed the Commissioner that Shri Thanikachalam (partner No. 9) is the father of Shri Dhanasekharan who is the minor. Shri Thanikachalam as a major is a partner in the firm. The assessee finally stated that 'having erroneously understood that Shri Thanikachalam is a minor, the present show-cause notice seems to have been given to us' and requested the Commis....
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....representing his minor son. Qua the partnership, it is only Thanikachalam who is a partner and none else. He also explained the circumstances under which corrections happened to be made in the partnership deed. Originally, it was contemplated to admit Shri Dhanasekharan the minor and in fact the deed was drafted with that in view. The other partners objected to the minor being made a partner and wanted Shri Thanikachalam to be the partner and, therefore, the corrections were carried out in the instrument of partnership itself. One of the conditions to become a partner is to enlist 200 members to the chit fund. He referred to the materials collected by the department long after the passing of the order under section 263, which are placed before the Tribunal on behalf of the department, and submitted that it is true that in the hand bills that were printed prior to the execution of the partnership deed, Shri Dhanasekharan, minor son of Shri Thanikachalam, was described as a partner. But, that was before the execution of the partnership deed and was in keeping with the idea of making Shri Dhanasekharan a partner. Upon objections from other partners, the idea was given up and Shri Than....
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....rtner liable to the share of profits and losses and such admission was against the provisions of section 39 of the Indian Partnership Act. The hand bills circulated among the public contained the name of Shri Dhanasekharan as a partner and Shri Dhanasekharan being a minor, and yet made liable to share losses, the firm is not entitled to registration. Even the copies of the deed that were submitted to the bankers contained Shri Dhanasekharan's name as a partner. In the face of such adverse evidence, it does not lie in the mouth of the assessee to take the plea that it was Shri Thanikachalam who was the partner and not Shri Dhanasekharan. Even though there was no taxable income for the firm in the relevant assessment year, if registration is granted to the firm, continuation of registration will have to be granted in the future when the firm might be earning large incomes. Therefore, the prejudice envisaged in section 263 is not a prejudice confined to the year of assessment alone, but can also be one taking in the repercussions that might follow in the subsequent years in terms of loss of revenue. The mere registration of the firm under the Indian Partnership Act would not automatic....
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....had not gone on appeal against the assessment. When the income is nil, there could be no prejudice to the revenue even if the order is erroneous. Shri Santhanam contends that the prejudice is not confined to one particular year and as a result of an erroneous order prejudice might be caused in the subsequent years. 9. Though prejudice to the interests of the revenue may either be an immediate one or in future, it has not been shown how the interests of the revenue have suffered in the year of assessment when the income was determined at nil. To decide whether there is justification for the apprehension that prejudice might be caused in future years, one has to go into the merits of the case, to which we shall revert later. Even if it is assumed, without admitting in the facts and circumstances of this case, that prejudice might be caused in future, the department is not without remedy : In the case of CIT v. Voleti Veerabhadra Rao [1972] 84 ITR 764, it was laid down by their Lordships of the Andhra Pradesh High Court that where the original registration has been granted under section 185(1) or the certificate of continuation of registration under sub-section (7) of section 184, re....
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.... is precluded from proceeding further and that too by shifting grounds. In this view of the matter also, the order of the Commissioner is liable to be set aside. 12. We have already held that for a proper appreciation of the fact whether prejudice would be caused in future also, a discussion of the merits of the case is called for. The learned Commissioner is of the view that the corrections carried out in the original deed of partnership were not specifically attested by the partners and witnessed by witnesses and, therefore, the unattested corrections in the deed cause a doubt as regards what the other eight partners agreed to. However, the firm had filed its application under section 58 of the Indian Partnership Act for registration of the firm on 30-3-1981 under rule 5 in Form A in the file of the Registrar of Firms and according to it, against serial No. 9, Shri Thanikachalam is described as a partner having joined the partnership on 3-8-1979. True copy of the same is in the assessee's paper book at page 11. In addition, we notice that the assessee-firm had furnished to the Income-tax Department Form No. 11 under rule 22(2) and rule 22(4)(i) of the Income-tax Rules, 1962 as e....
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....asapu Suryaprakasa Rao, Vizianagaram. (3) Yekula Paidilingam, Vizianagaram. (4) Smt. V. Jagadamba, wife of Chandrasekhararao, Vizianagaram. (5) T. Dhanasekharan, care of R. Thanikachalam, Vizianagaram. (6) Kapuganti Prakash, Vizianagaram. (7) Y. Sangayya, Vizianagaram. (8) R.K. Ramachandran, Vizianagaram. (9) Smt. Jayashree Bhag, wife of Bhag Mirpuri, Vizianagaram. Is it correct? Answer : Yes, it is correct, as per pamphlet." From the above questions and answers, it is evident that Shri Ramachandran was shown two partnership deeds other than the one that was presented to the income-tax authorities along with Form No. 11 in which Shri Thanikachalam is described as a partner with of course the corrections carried out in the original deed of partnership. The last-mentioned partnership deed was never put to Shri Ramachandran and there was not even a question put by the department to the concerned person as to how and why a different document describing Shri Thanikachalam as partner came to be presented to the ITO. Therefore, nothing turns out of this sworn statement in favour of the department. 14. Shri Swamy, the assessee's. counsel, filed sworn statements obtained by the d....
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....anagaram? Answer : No. There are no minors admitted in the above firm. Question : In the balance sheets filed before the ITO for the assessment years 1982-83, 1983-84 and 1984-85 you have shown capitals of Rs. 4,662.04 for assessment year 1982-83 at L.F. No. 17, Rs. 15,787.88 for the assessment year 1983-84 and Rs. 24,218.90 at L.F. No. 11 in the name of Shri T. Dhanasekharan. As per this, I conclude that Dhanasekharan is a partner in Shri Mahalaxmi Finance Corporation, Vizianagaram. What is your reply? Answer : Shri Dhanasekharan is not a partner in the firm of Shri Mahalaxmi Finance Corporation, Vizianagaram. Thanikachalam is the partner. I think it is Accountant's mistake. Question :... You have already stated that there are no minors in the business. Then where is the need to mention at clause 12 of the partnership deed dated 3-8-1979 filed before the ITO 'any one of the partners excluding the minors'? Where is the need to mention minors in the partnership deed when you say that there are no minors in the partnership? Answer : There is no need to mention in the above partnership deed 'any one of the partners excluding the minors.' I do not know how it occurred. In reply t....
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....nership deed dated 3-8-1979? Answer : There are no minors admitted in the partnership firm as per the partnership deed dated 3-8-1979." 14.5 In the sworn statement of Shri Yelchuri Sangayya (pages 47 to 49 of the paper book), the following question and answer are noticed among others : "Question : Your firm, i.e., Sri Mahalaxmi Finance Corporation, Vizianagaram, filed original partnership deed dated 3-8-1979 before the ITO. Vizianagaram, on 4-2-1980. There are some corrections on the 1st page of the partnership deed at ninth partner. Do you know anything about it? Answer : No. 1 do not remember." 15. From a perusal of the answers elicited from the partners in the sworn statements, one fact stands out very clear, viz., that Shri Thanikachalam was admitted as a partner and before the addition, a number of draft or 'rough' partnership deeds were in circulation. The first draft in which Shri Dhanasekharan was shown as partner No. 4 was not acted upon. The second draft in which Shri Dhanasekharan was shown as the ninth partner was typed on stamp paper and on second thoughts the corrections would appear to have been carried out in the stamp paper itself and it was this partnership d....
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....n either of these deeds. In the deed filed before the income-tax authorities, it is Thanikachalam's name representing Dhanasekharan that appears against serial No. 9 and the name of Kapuganti Prakash is not found therein. These circumstances would reinforce the plea of Shri Swamy that the initial drafts presented to the bankers and the hand bills were all drafted long before the emergence of the final deed of partnership on the basis of which registration was granted. 17. Now, we turn to the partnership deed on the basis of which registrar was initially granted which was subsequently cancelled by the Commissioner under section 263. In the preamble, partner No. 9 is described as follows : "R. Thanikachalam, resident of Vizianagaram, hereinafter called the ninth partner representing as father and natural guardian Dhanasekharan, minor, aged 15 years." Clause 12 of the partnership deed is as follows : "During the course of the existence of the partnership, the partners shall convene monthly meeting of partners where all issues relevant to the partnership can be discussed and such discussions shall be reduced to writing. In such meeting, if any particular job is assigned to any one ....
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....f of her minor sons. It was held on facts that it was the widow who became partner representing her minor sons and the deed of partnership was in conformity with section 26(a) of the Indian partnership Act and did not suffer from any defect which would entail non-registration of the partnership. It was further held that in law it is quite possible for a guardian to become a partner and to be liable for profits and losses although the question as to how far his wards are bound by any losses incurred by the guardian may be entirely a different question. The assessee's facts are on a stronger footing since Shri Thanikachalam had signed the partnership deed and other documents as a partner and never as guardian or representative of his minor son. In CIT v. Kedarmall Keshardeo [1969] 73 ITR 150 (Assam & Nagaland), the facts of the case are that on the death of a partner, his widow joined the firm as partner. In the deed of partnership, the widow was described as representing herself and her minor son and she also signed the deed accordingly. The deed did not provide for the individual shares of the widow and the minor son and they were made liable for losses also. On the question whethe....