S.N. Phukan, J.
1. This reference is under Section 256(1) of the Income-tax Act, 1961, for short the 'Act', on the prayer of the assessee for the opinion of this court on the following question :
'Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration for the assessment year 1983-84 ?'
2. It may be mentioned that the assessee wanted three questions to be referred to this court; however, the Tribunal referred only the above question. The present reference relates to the assessment year 1983-84.
3. The assessee-firm was constituted with two partners, namely, Shri Basantlal Jain and Mrs. Chhagani Devi Jain. Shri Jivraj Jain, a minor was admitted to the benefits of partnership. The firm was granted registration up to the assessment year 1982-83. The firm was carrying on business under the name and style, M/s. Basantlal Jain and Co. The minor, Sri Jivraj Jain, attained majority and was admitted as a full-fledged partner to the newly constituted firm with effect from April 1, 1982. This was done by another deed of partnership dated January 29, 1983. The said deed is available at annexure 'D' to the paper book and it was recorded in the deed that the said Jivraj Jain having attained majority on April 12, 1982, decided to join the partnership as a full-fledged partner with effect from April 1, 1982. It may be stated that the name of the firm was not
changed by the said deed and that it was agreed between the parties that the partnership shall be deemed to have come into force with effect from April 1, 1982. Clause 13 of the deed of partnership runs as follows ;
'The accounts of the partnership shall be adjusted once a year, at present on March 31, when the assets and liabilities will be ascertained and profit and loss account and balance-sheet drawn up and prepared.'
4. According to Clause 14, the respective share of the parties in the profit or loss will be credited or debited, as the case may be, to the respective personal accounts of the partners in the books of the partnership.
5. The Income-tax Officer, by an order dated June 5, 1984, took the view that, under the provisions of the Partnership Act, 1932, a minor cannot be made a full fledged partner, The above deed of partnership is void in law and, accordingly, he refused registration to the firm for the assessment year in question, i.e., 1983-84. There is no dispute that, from April 1, 1982, i.e., the date on which the new deed of partnership came into force till April 12, 1982, the said Jivraj Jain was a minor and that, on the date the new deed of partnership was executed, i.e., January 29, 1983, he attained majority.
6. The Appellate Assistant Commissioner was of the view that income or loss of a firm accrues not from day to day but at the end of the accounting year and, therefore, as on the date of execution of the deed of partnership, Sri Jivraj Jain was legally competent to share losses ; the order of the Income-tax Officer cannot be sustained. However, the Tribunal heard the matter ex parte as none appeared for the assessee. The Tribunal was of the view that, during the first fortnight of the accounting year, i.e., April 1, 1982, to April 12, 1982, Sri Jivraj Jain was a minor and yet, by the deed of partnership, he was made a full-fledged member, though, under the law, he could not be burdened with sharing of loss during his period of minority and, accordingly, allowed the appeal filed by the Revenue.
7. We have heard Dr. M. K. Sarma, learned counsel for the assessee, and Mr. D. K. Talukdar, learned standing counsel for the Revenue. According to learned counsel for the Revenue, as, by the deed of partnership, retrospective effect was given to the partnership business from April 1, 1982, which also included period of minority, the deed of partnership was illegal on the ground that the minor cannot be saddled with the liability of the partnership business. On the other hand, Dr. Sarma, learned
counsel for the assessee, has urged that, considering Section 30 of the Partnership Act, 1932, and as the account of the partnership business was to be taken at the close of the accounting year, there is no illegality. According to Dr. Sarma, after attaining majority, the person could admit the liability, if any, which accrued during his minority in the partnership business. Further, learned counsel has urged that, as required under Section 185 of the Act, there is no finding whatsoever that the partnership was not genuine and as such the orders of the Income-tax Officer and the Tribunal are bad in law. In support, Dr. Sarma has placed reliance before us on various decisions to which we shall presently refer.
8. Section 184 of the Act has laid down the procedure for application of registration of a firm and Section 185 of the Act has further laid down the procedure to be followed by the Assessing Officer on receipt of such application. We may refer to Sub-section (7) of Section 184, which, inter alia, provides that registration granted to a firm for any assessment year, shall have effect for every subsequent assessment year provided, inter alia, there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted and the firm furnishes, within the time allowed, the return of income for such subsequent assessment year along with the declaration in the prescribed form. Sub-section (8) of said Section 184 of the Act, lays down that, where any such change has taken place in the previous year, -the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of the said section.
9. Section 30 of the Partnership Act, 1932, inter alia, provides that a person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits' of partnership. Under Section 11 of the Contract Act, a contract entered into by a minor is void. The above Section 30, however, permits a minor being admitted to the benefits of partnership. We may quote here Sub-section (5) and Clause (a) of Sub-section (7) of Section 30 of the Partnership Act.
'(5) At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm, and such notice shall determine his position as regards the firm :
Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.'
'(7) Where such person becomes a partner,
(a) his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership.'
10. Thus, it appears that, according to law, within six months of attaining majority, a minor can elect to become a member and, if he does so, he is personally liable for all acts of the firm from the time he was admitted to the benefits of partnership. So, from the language of Section 30 of the Partnership Act, in our opinion, it is clear that, after attaining majority, a person can admit even the liability that might have accrued to him in the partnership while he was a minor if he elects to become a partner.
11. In Jagadhri Electric Supply and Industrial Co. v. CIT , the Punjab and Haryana High Court has held that there is no bar for a minor on attaining majority during the currency of the year to take responsibility for the losses of a partnership firm which may have been suffered prior to the date of his attaining majority. We are in respectful agreement with the ratio laid down. So in the present reference, the deed of partnership cannot be said to be illegal merely because, after attaining majority, the partner accepted the liability during his period of minority and on this count, the reference has to be answered in favour of the assessee.
12. From the facts stated above in the case on hand, we are of the opinion that merely because a fresh deed of partnership was executed on attaining majority of the minor partner, it cannot be held that there was a change in the constitution of the firm. In this connection, we may refer to the decision of the Kerala High Court in CIT v. P. M. Syed Mohammed Kannu and Co. : 149ITR441(Ker) wherein a similar question was considered and, after detailed discussion, it was held that the admission of a dormant partner, viz., a minor, as a full-fledged partner as the result of his election does not, in law, amount to dissolution of one firm and creation of another. We are in respectful agreement with the ratio stated above. We hold that-there was absolutely no change in the constitution of the firm in question merely because the minor partner was admitted as a full-fledged partner by a fresh deed of partnership.
13. We may also refer to the ratio laid down by the Andhra Pradesh High Court in Modern Stores v. CIT : 157ITR589(AP) , wherein it was
held that there is nothing in law to prevent a minor, admitted to the benefits of partnership, after attaining majority, from accepting responsibilities as a partner of a firm of which he had not been a partner until the date of such acceptance. He is competent to enter into an agreement to share losses, assuming that, during the period of his minority, some losses had accrued to the firm.
14. Reliance has also been placed by Dr. Sarma on CIT v. Jain Steel Rolling Mills wherein it was held that a partnership deed can be given retrospective operation as between the parties to serve the limited purpose of dating the accounts of profits and losses. In that case, the minor attained majority during the accounting year and it was further held that the minor could contract to share the profits and losses, even for a small period of 13 days during which he was a minor and the firm was entitled to registration.
15. We have noted the reasoning given by the learned Appellate Assistant Commissioner that the income or loss of a firm accrues not from day to day but at the end of the accounting year. In our opinion, this is a correct view expressed, more particularly, as, in the partnership deed (annexure 'D'), it is clearly stated that the accounting shall be once a year and on March 31, when the assets and liabilities would be ascertained and profit and loss account and balance-sheet drawn up and prepared.
16. For the reasons stated above, we hold that the assessee is entitled to registration for the assessment year in question. Accordingly, the reference is answered in the affirmative and in favour of the assessee and against the Revenue.
Y.I. Singh, J.
17. I agree.