1. The Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, for short 'the Tribunal', has referred the following question of law, as required by the High Court, under Section 256(2) of the I.T. Act, 'the Act' for short:
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that no valid partnership firm was in existence during the accounting year relevant to the assessment year 1967-68 and thereby upholding the order of refusal of registration of the assessee-firm by the Income-tax Officer and the Appellate Assistant Commissioner in spite of the deed of partnership dated January 7, 1967, as rectified by the rectification deed dated December 2, 1969 ?'
2. An apercu of the case leading tip to this reference : M/s. Singh Brothers and Company was constituted by an instrument of partnership dated October 31, 1962, consisting of six partners. The partners had unequal shares in the profit and the loss. The shares of profit and loss belonged to and was borne by Shri Ramnagina Singh @ 40%, Shri Ram Bahadur Singh @ 20% and the rest of the four partners @ 10% each. Subsequently, the leading partner, Shri Ramnagina Singh, died, A fresh deed was executed on January 1, 1967, with retrospective effect from April I, 1966, wherein Shri Girdhar, son of late Ramnagina Singh, was made a partner and the profit and loss to be borne by him was 40% but the shares of the rest of the partners remained as before. It is the common case of the parties that at all relevant period, Girdhar was a minor but he was admitted as a full-fledged partner in 'the firm'. Subsequently, however, a deed was drawn up on December 2, 1969, treating Shri Girdhar as a minor entitled to the benefits of partnership with retrospective effect from April 1, 1966. The instrument was styled as a ' Deed of Rectification ' and it was stated that the partners had introduced Girdhar, son of late Ramnagina Singh, as a full-fledged partner and the same was due to oversight and it was unintentional. It was also stated that Shri Girdhar, being a minor, was legally incompetent to enter into the partnership agreement with the others and to act as a partner in the firm under the Partnership Act, 1932, but he could be admitted to the benefits of the partnership only, under Section 30 of the Partnership Act. The relevant clause which provided for a sharing of the profit and loss of the partnership business was substituted and 40% share in profit was shown in favour of the minor and the other partners undertook to bear the loss in equal shares 'to the exclusion of the said minor' (i.e., Girdhar Singh).
3. For the assessment year 1967-68, the accounting year being 1966-67, an application for registration of the firm was filed under Section 184 of ' the Act'. The ITO refused to grant registration on the score that there was no valid firm existing during the accounting year relevant to the assessment year. The AAC confirmed and the matter was taken to the learned Tribunal which confirmed the orders of the authorities below and dismissed the appeal of the assesses. The learned Tribunal considered the provisions of Section 30, Indian Partnership Act, 1932, and held that the minor could not be 'a partner' though such a minor could be admitted to the benefits of the partnership. As Shri Girdhar was admitted as a full-fledged partner, there was no valid partnership.
4. The learned Tribunal held that the deed dated December 2, 1969, which sought to validate the invalid document with retrospective effect did not validate the original partnership deed. The learned Tribunal held that during the accounting year there was no valid partnership in existence. The learned Tribunal also rejected the prayer of the assessee for a direction to the ITO to dispose of its application under Section 185(2) of the Act on the ground that the defect contemplated under Section 185(2) of the Act pertained to ' the application ' and it had no relevancy to any mistake which might be found in the partnership deed. The learned Tribunal held that the defect could not be rectified by the ITO and there was no purpose in making such a direction.
5. It follows that the question referred to us involves a consideration of two questions. First, whether the existence of a valid partnership firm during the accounting year is a condition precedent to grant registration under Section 184 of 'the Act'. Secondly, whether the learned Tribunal is correct in law in holding that the power of the ITO is limited to a rectification of 'the application' for registration of the firm and he has no jurisdiction to rectify a partnership deed.
6. The registration of a firm under Sections 184 and 185 of the Act confers benefits on the partners. They are not entitled to the benefits but for the provisions of Sections 184 and 185 of the Act. The conferment of the right under Sections 184 and 185 is circumscribed by legal obligations contained in these sections. The right to a registration can be claimed in accordance with the statute which confers it and persons seeking relief under Sections 184 and 185 of the Act must bring themselves strictly within the requisites of the sections. The right is strictly regulated by the terms of the statute. An application for the registration of a firm can be entertained by the ITO if-- (i) the partnership is evidenced by an instrument, (ii) the individual shares of the partners are specified in that instrument, as provided in Section 184(1) of the Act. Section 184(4) of the Act contains a mandatory provision that the application should be made to the ITO be/ore the end of the relevant previous year. The application must be accompanied by the original instrument evidencing the partnership as enjoined in Section 184(5) of the Act. The ITO has power to condone the delay in the event of the firm showing reasons.
7. Now let us proceed to answer the questions involved in the instant case on the facts and in the circumstances of the case. The first question that crops up is as to the invalidity of the instrument dated January 7, 1967. Section 30 of the Indian Partnership Act, 1932, prohibits a minor to be a full-fledged partner. A minor is legally incompetent to enter into a partnership agreement with others and to act as a partner in a firm. He can be admitted to the benefits of a partnership under certain contingencies. Admittedly, in the instant case, Girdhar was a minor but was made a full fledged partner. Section 30 of the said Act prohibits a minor to become a partner. He may be admitted to the benefits of the partnership and no further. Any document which goes beyond Section 30 of the said Act cannot be regarded as valid for the purpose of registration under Section 184 of the Act. Such a partnership deed, where a minor is admitted as a full partner, is invalid and cannot be acted upon by the ITO to register a firm on the basis of the document. Such an instrument which describes a minor as a full partner, entitled not only to share in the profit but also liable to bear all the losses, is violative of Section 30 of the said Act and the I.T. authorities are incompetent to register the partnership because registration can be granted only on a document between persons who are parties to it and on the covenants set forth in it. In the instant case, the parties to the document were the adult partners as well as the minor. Therefore, if the ITO was to register the document as among the adults only, it would have been contrary to the terms of the document. Similarly, the shares of profit and loss of the minor was 40% but there was nothing to show as to whether any of the adult members undertook to bear- the losses of the minor. The shares of the adult partners were unequal and there is nothing to show that they undertook to bear the losses of the minor, and if so, in what proportion. The ITO is only empowered to register a partnership which is specified in the instrument of partnership and of which registration is asked for. It is not open to the ITO to register a partnership different from that which is formed by the instrument. In CIT v. Dwarkadas Khetan & Co. : 41ITR528(SC) , a similar question cropped up and the Supreme Court held that such an instrument of the nature and character like the present one was invalid as violative of Section 30 of the Partnership Act. Although their Lordships observed that there was no need to answer the question as to whether the firm could be registered on the basis of the invalid document, yet their Lordships indicated in clear terms that the I.T. authorities could not register the partnership on the basis of such documents. We are constrained to observe, (1) that the instrument dated January 7, 1967, was invalid, and (2) that it was not open to the I.T. authorities to register a partnership different from that which was formed by the instrument and it was not open to the ITO to register the partnership.
8. Now, the next question is whether the ITO could have registered the firm on the basis of the deed of rectification dated December 2, 1969. There cannot be any doubt that the factual existence of a partnership firm in the accounting year as well as the factual existence of an instrument of partnership specifying the individual shares of the partners in the said instrument, are essential pre-requisites for the registration. In the absence of the requisites, no registration is permissible as the conferment of the right is circumscribed by the legal obligations enumerated in Sections 184 and 185 of the Act. In N. T. Patel & Co. v. CIT : 42ITR224(SC) , the original deed of partnership filed along with the application for registration did not contain any specification of the shares of the partners. The defect was pointed out by the ITO. However, a deed of rectification was executed after the close of the accounting year and a new clause added specifying the respective shares of the partners. The matter went up to the Supreme Court and it was held that the instrument of partnership was in existence but it did not specify the shares of the partners which was one of the prime requisites of registration. Though the condition was fulfilled, it was done beyond the year of account. Therefore, it was held, that there was no requisite instrument of partnership specifying the individual shares of the partners in the year of account and the firm was not entitled to registration. In the instant case an instrument of the purported partnership was in existence during the account year which was admittedly violative of Section 30 of the Partnership Act, 1932. Assuming that an instrument of partnership was in existence it is beyond question that the said instrument did not specify the shares of the profit and loss of the partners (adult members). The rectification was made beyond the year of account. In N. T. Patel : 42ITR224(SC) the deed of rectification clearly indicated the intention of the parties to rectify the defects from the date of execution of the original instrument. But their Lordships held that a deed of rectification after the accounting year could not alter the position of a partnership in the past. It follows, therefore, that the deed of rectification cannot be of any help when it was made after the year of account. In the instant case, admittedly, it was so done. In our opinion, if a valid partnership deed did not, in fact, exist prior to the execution of the deed of rectification the latter cannot bring into life a partnership as at the earlier date, on which, in fact, the partnership was not in existence --the instrument evidencing the partnership should be one which relates to the year of account. If a partnership did not in fact exist prior to the execution of a valid partnership deed, the subsequent (rectification) deed cannot bring to life the instrument whereby no partnership was created, by merely stating that the partnership should be deemed to have come into existence at the earlier date. Such subsequent partnership deed would not create a partnership as from an earlier date, since no deed can alter the past and registration cannot be granted for the period prior to the date of the deed (of rectification). The above view finds support in Ayrshire Pullman Motor Services v. IRC  14 TC 54, Waddington v. O'Callaghan  16 TC 187, Dawjee Dadabhoy and Co. v. CIT : 49ITR698(Cal) . But the principles set forth above may not be applicable where the partnership deed in the relevant accounting year is merely defective in the sense that the defects do not go to the validity of the partnership or the statutory conditions of registration.
9. It is true that there are certain changes and departure in Sections 184 and 185 of the Act from the provisions of Section 26A of the old Act. The old Act required the partnership to be constituted under an instrument whereas, the new section requires it to be evidenced by an instrument. However, Section 184(1) requires the application for registration to be made before the end of the accounting year, accompanied by the original instrument evidencing the partnership. It is crystal clear that the section also contemplates the existence of a valid partnership in the accounting year.
10. In Sri Ramamohan Motor Service v. CIT : 89ITR274(SC) , the Supreme Court considered the provisions of Section 26A of the old Act and the Rules framed thereunder and held that if under the deed of partnership the shares of profit and loss of the business were to be divided or borne between the partners in equal shares where one of such partners was a minor, the instrument violated Section 30 of the Partnership Act and the partnership was invalid. As the document was invalid, the application for registration as well as the renewal for the subsequent years were violative of the provisions of Sections 26A and 59 of the old Act and the corresponding Rules framed thereunder. Their Lordships also held that the partnership deed submitted along with the application for registration disclosed that the partnership so constituted was void being violative of Section 30, Partnership Act, 1932, as one of the 5 partners was minor. It was further held that subsequent alteration of the terms of the partnership deed, even if validly made, could not validate, the application for registration as the alteration in question was made long after the time prescribed for making the application had expired. However, their Lordships did not decide whether the partnership was validated as a result of the letter of the assessee dated December 18, 1955, addressed to the Registrar of Firms intimating him that the minor had been admitted to the benefits of the partnership with the consent of all the partners and the minor had nothing to do with the loss and that the Registrar of Firms registered the firm with effect from January 10, 1956.
11. In Mandyala Govindu & Co. v. CIT : 102ITR1(SC) , the partnership deed of the assessee-firm sought to be registered showed three adults as partners and a minor was admitted to the benefits of the partnership, the ratio of the share of profits being 31, 23, 23 and 23. There was no clause regarding the sharing of loss, if any, by the adult partners. However, Clause 9 of the instrument provided that in addition to the clauses of the instrument, the partners should be bound by the provisions of the Indian Partnership Act, 1932. On a reference the High Court held that unless the instrument of partnership had specified the shares of the partners not only in the profits but also in the losses, the firm would not be entitled to registration and negatived the contention raised by the assessee that Clause 9 indicated how losses were to be apportioned between the partners. On appeal to the Supreme Court, their Lordships have held that Section 26A of the old Act read with the connected Rules and Forms, requires particulars of the apportionment of the losses, if any. The loss, if any, affects the assessment proceeding. As such, the ITO must know what are the respective shares of the partners in the losses before allowing registration ; he must know how the losses are to be apportioned. Section 26A required the instrument to specify the individual shares of the partners in the profits as well as losses of the business. As such, before allowing the application for registration, the ITO must be in a position to ascertain the shares of the partners in the losses to be specified in the instrument of partnership. It was held that even if Section 13(b) of the Partnership Act be held applicable by implication, since the partners had unequal shares in the profits, there could be no presumption that the losses were to be equally shared between them. Their Lordships expressed the rule in the following words (p. 7):
' The other rule that where the shares in the profits are unequal, the losses must be shared in the same proportion as the profits if there is no agreement as to how the losses are to be apportioned, does not also apply to this case. In this case even if the adult partners bear the losses in proportion to their respective shares in the profits, the amount of loss in the minor's share would still remain undistributed. Will the partners between them bear this loss equally, or to the extent of their own individual shares? To this the instrument of partnership does not even suggest an answer. There is, therefore, no means of ascertaining in this case how the losses are to be apportioned. '
12. The appeal by the assessee was dismissed. Now, if we turn to the
instant case we note that in the instrument of partnership filed for registration (i) there is positive agreement that the profits and losses were to be
apportioned by the adult partners as well as the minor ; (ii) even if it be
held that the adult partners were to bear the losses in proportion to their
respective shares in the profits, the amount of loss in the minor's share
will still remain undistributed ; (iii) there is nothing in the instrument of
partnership to show as to how and in what proportion the adult partners
would bear the loss of the minor.
13. For the foregoing reasons, we are constrained to hold that, (i) the instrument of partnership dated January 7, 1967, was invalid as the minor was made a full partner in violation of the express provision of Section 30 of the Partnership Act, 1932, (ii) there was no rectification of the deed in the accounting year. So, the ITO had no jurisdiction to act upon the deed of rectification and allow the registration of the firm; (iii) as the minor could not bear the loss and there is nothing to show that the adult partners agreed to share the loss equally or to the extent of their individual shares during the year of account; therefore, the ITO was not in a position to ascertain how the losses were to be apportioned. There was no means of ascertaining how the losses were to be apportioned for the accounting year. Hence, the ITO had no jurisdiction to allow registration in violation of the provisions of Section 184 of the Act; (iv) that the authorities were justified in holding that the assessee was not entitled to registration for the assessment year 1967-68.
14. The second question which flows from the first need not detain us long. The Tribunal was justified in rejecting the contention of the assessee that the ITO could not have rejected the application for registration without affording an opportunity to rectify the defects in the partnership deed and the matter should be remitted to the ITO before whom the assessee filed an application on December 3, 1969, for a rectification, which was pending for disposal. If we just turn to Section 185(2) of the Act, we find that the power and jurisdiction of the ITO is limited to allow an assessee to rectify a defect in the application for registration. If the application for registration is not in order, the ITO is to intimate the defect to the firm and give an opportunity to rectify the defect in the application. However, the rectification is not in respect of the application for registration but it was a defect in the deed. This apart, it appears clear that the rectification of the deed was made beyond the accounting year and the application for rectification was made on December 2, 1969. For the foregoing reasons, we hold that the learned Tribunal was correct in law in upholding the order of refusal of registration for the assessment year. In the result, the answer is decided against the assessee and in favour of the revenue.
15. Let a copy of the judgment be sent under the seal of the court and the signature of the Registrar to the learned Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.
T.C. Das, J.
16. I agree.