TaxTMI 
TaxTMI 
1948 (8) TMI 19
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....n P.A. Raju Chettiar and his two minor nephews represented by their mother, Ranganayaki Ammal, presumably as their de facto guardian. This partnership was to come into effect as from 14th April, 1939. It appears to have been realised that this document was of a doubtful validity. It was not put forward for registration. Thereafter, on the 14th August, 1941, P.A. Raju Chettiar and Ranganayaki Ammal executed a deed of partnership upon the terms and conditions set out therein. In course of assessment for 1941-42 an application was made under Section 26A of the Act to register the firm. Registration was refused by the Income-tax Officer. Successive appeals to the Appellate Assistant Commissioner and to the Tribunal were dismissed. 2. The finding of the Tribunal is that Ranganayaki Ammal is not herself a partner at all, but that she is really a benamidar for and on behalf of her minor sons. In the deed of partition the capital of the family was agreed to be Rs. 1,20,000, which was divided amongst the male members of the family. Raju Chettiar was credited with Rs. 60,000 and each of the minor sons of Ramaswamy Chettiar with Rs. 30,000. But on the same day the credit entries in the nam....
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....e deed of partnership dated 14th August, 1941, can in law be registered under Section 26A of the Indian Income-tax Act ? " The proved facts are these. Raju Chettiar and Ramaswamy Chettiar who were brothers constituted a joint Hindu family and carried on business as jewellers. Ramaswamy died in 1934 (that date is now mentioned by the applicant's advocate while the Tribunal said that the date was not ascertainable). The widow Ranganayaki Ammal and two minor sons Viswanathan and Ranganathan survived Ramaswamy. The family was being assessed in the status of a Hindu undivided family up to the assessment year 1940-41. On 19th August, 1940, there was a partition of the undivided family and that partition was recognised by the Income-tax department under Section 25A. On the same date a deed of partnership was entered into between Raju Chettiar and the two minor sons of Ramaswamy Chettiar constituting themselves into a partnership, the minors being represented by their mother Ranganayaki Ammal and the partnership was to come into effect from the 14th April, 1939. In 1940-41 assessment a claim was made on the strength of this deed of partnership dated 19th August, 1940, that, as the s....
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....but that of the two minors. It was further found that the deed made express provision that the profits were to be credited to the minors in equal shares as per the desire of their mother and on these facts the conclusion was reached that Ranganayaki Ammal was not a partner in her own right, but was only a nominee on behalf of her two minor sons. Appearing for the assessee at whose instance this reference was made by the Tribunal, the learned Advocate-General advanced the following propositions :- (1) It is open to the guardian of a minor whose father was a member of the partnership to continue an ancestral business after the father's death if the continuance of the same is for the benefit of the minor. (2) When in such circumstances the business is continued, the guardian alone can be a partner and not the minor, the only manner in which the business can be lawfully carried on by the guardian being by the guardian becoming a partner in his or her own name and utilising the minor's assets, if necessary, for furnishing the required capital for the continuance of the business. In such a case if profits are received, the guardian will duly transfer them to the minor. T....
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....the share that the deed purports to assign to her and this was indicated in that order as one of the reasons supporting the conclusion that she could not be a member of the partnership in her own name. That statement appears to have been adopted from an observation of Beaumont, C.J., in Central Talkies Circuit, Matunga, In re which is to the following effect:- "If the Assistant Commissioner had any evidence before him to lead to the conclusion that the mother in this case was not really entitled to a beneficial interest of 4 annas share, I think he was justified in refusing to register the deed." With great respect we are of opinion that the correct legal position has been stated rather widely in that passage. There can conceivably be cases where a person who has no beneficial interest, such as a trustee appointed under a testament, will have to continue a partnership in which the deceased was a partner and being the legal owner, the trustee, despite the fact that he has no beneficial interest, will have to join the new partnership as a member in his own name. Such illustrat....
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....al partner's name is the true income of that partner, or stands in his name as a nominee of another partner or another person." To the same effect are observations in the Hotz Trust case which was followed by this Court in Commissioner of Income-tax, Madras v. Mrs. Saldanha. That was the case of a mother acting on behalf of her minor children and it was held that Section 40 and the following sections of the Income-tax Act are enabling sections under which the Income-tax Officer can take steps to assess the trustees or guardians as representing their separate beneficiaries or wards, as the case may be, if he so chooses. But the sections do not compel the Crown to resort to them. All the cases cited in support of the third proposition can, in our view, be distinguished on a short ground. Those are cases where registration had been, under a wrong or a different impression, granted of a partnership constituted in a particular manner, but in the course of the individual assessment made on the partners it was found that different persons had received the profits and the assessment of the income in the hands of those persons at the rates applicable to each of them was necessary in ....
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....o be the only way in which a lawful partnership could be brought into existence. In view of the transfer of capital belonging to the minors which was effected in her name and the provision in the partnership deed dated 14th August, 1941, that the amount of profits due to her shall be credited, half in the name of Viswanathan and the other half in the name of Ranganathan, and the circumstance that the entire management was to be in the hands of Raju Chettiar who should have full power to operate on the bank accounts, it was considered that Ranganayaki Ammal was not a real partner and the half share shown in the partnership deed as belonging to her was really not her share but the real shares were one-fourth belonging to each of the minors. On these grounds it was held by both the Appellate Assistant Commissioner and the Tribunal that there was no genuine firm in existence. In coming to this conclusion they were also guided by the previous history of the matter, namely the first deed of partnership of 19th August, 1940, purporting to be between Raju Chettiar and the two minors. It may in this connection be profitable to make a brief reference to the section itself and the relevant....
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....assessment to be done on registered firms in the manner provided under sub- section (5) (a) of Section 23. It is for this purpose of the utmost importance that the real partner should be disclosed and the precise shares of each of the partners should be mentioned and these particulars should represent the real state of affairs. The purpose of the entire scheme of the assessment of registered firms will be defeated if it is found that either the firm is not genuine or that the shares mentioned therein are not true. A strict and rigid compliance with the requirements of Section 26A and the rules is, in our opinion, essential and there is no scope for any of the equitable considerations put forward by the learned Advocate-General. It may be that in the peculiar circumstances of the case the only manner in which the interests of the minor could be served was by the guardian acting in the partnership deed as the partner, while as a matter of fact she was not the partner, and a share of eight annas being shown as belonging to her, while as a matter of fact the real shares were of four annas to each of the minors. The profits which were represented to be the property of Ranganayaki Ammal ....