1. The question of law that has been referred for decision is :
'Whether the firm, being genuine, is entitled to registration for the assessment years 1953-54 and/or 1954-55 on the basis of the deed dated April 14, 195 ?'
2. On 11th September, 1950, three persons named below entered into a document of partnership. They were :
1. Devidutt Bhurmal Bajaj.
2. Nanibhai (mother of No. 1 above).
3. Mahavirprasad Latta.
3. They carried on the business under the name and style of Messrs. Dhurmal Bajaj at Bombay. On 14th April, 1953, they entered into a document of partnership which gives rise to the present reference. The preamble of that document recites that the erstwhile partners have 'agreed by mutual consent to admit Ramnivas Dhurmal, a minor, to the benefits of this partnership on the under-mentioned share and whereas it is now desired to place on record the terms of their said partnership, now this indenture witnesseth the as under...'
4. Clause 5 is as follows :
'By mutual consent of all the parties hereto, Ramnivas Dhurmal, a minor, has been admitted to the benefits of this partnership on the under mentioned share, but his liability shall not be personal.'
5. Clause 7 is as follows :
'The net profit of the partnership shall be distributed amongst the partners in the following proportion :
Rs. As. Ps.1. Devidutt Dhurmal 0 8 02. Nanibhai, widow of Dhurmal Shivnarayan 0 3 03. Mahavirprasad Latta 0 2 04. Ramnivas Dhurmal, a minor 0 3 0-----------Total 1 0 0----------- and the loss, if any, shall also be distributed in like proportions.'
6. Now, we are concerned in this reference with two assessment year, viz., assessment year 1953-54, corresponding to the accounting years. S. Y. 2008 (October 30, 1951, to October 18, 1952), and assessment year 1954-55, corresponding to the accounting year S. Y. 2009 (October 19, 1952, to November 6, 1953). No question arises with regard to the earlier year 1953-54, because the document of partnership was not then in existence during the accounting period. For the assessment year 1954-55 the document was in existence, since it was executed on 14th April, 1953. On behalf of the department it is not now disputed that, though it was in force for only a part of the year, that cannot bar the registration of the partnership.
7. The real ground upon which registration was refused was that the document included in the partnership a minor, which was contrary to the provisions of the Partnership Act, and, therefore, a partnership which is contrary to law cannot be recognised under section 26A of the Indian Income-tax Act. It was also doubted if the partnership was genuine. Appellate Assistant Commissioner, in appeal, allowed registration for both the years holding that the firm was a genuine firm and in so far as the inclusion of the minor in the partnership in concerned, the case is governed by the decision of this court in Dwarkadas Khetan & Co. v. Commissioner of Income-tax. The department appealed to the Tribunal but the Tribunal upheld the Appellate Assistant Commissioner's decision stating that 'the main reason for filing these appeals appears to be that the department is not accepting the decision of the Bombay High Court in the case of Dwarkadas Khetan & Co. v. Commissioner of Income-tax. The Tribunal, however, held that they were bound by that decision.
8. Prior to the making of the reference, however, the decision of this court in Dwarkadas Khetan & Co. v. Commissioner of Income-tax, was in an appeal from that very decision, reversed by the Supreme Court. The decision of the Supreme Court is Commissioner of Income-tax v. Dwarkadas Khetan & Co. It is precisely upon that ground that, on behalf of the department, Mr. Joshi has urged that the decision of the Appellate Assistant Commissioner and of the Tribunal was incorrect because they followed an incorrect view of law as laid down in : 29ITR903(Bom) .
9. Dwarkadas Khetan's case was case where the facts were as follows :
There was a prior partnership between Dwarkadas Khetan and others, which ceased to exist, because the other persons had previously withdrawn and Dwarkadas Khetan was left as the sole proprietor. On 12th February, 1946, he obtained the selling agency of Seksaria Cotton Mills Ltd. On March 27, 1946, he entered into a partnership with three others. They were Vishwanath Purumal, Govindram Khetan and Kantilal Kesherdeo. The shares in the partnership were as follows : Rs. As. Ps.1. Dwarkadas Khetan 0 8 0 in the rupee.2. Vishwanath Purumal 0 3 0 do.3. Govindram Khetan 0 2 0 do.4. Kantilal Kesherdeo 0 3 0 do.
10. There was no distinction made so far as the right of the partners inter se was concerned between the minor partner, Kantilal Kesherdeo, and the other major partners, Mr. Justice Hidayatullah has set forth the following facts which can be gathered from the document in that case : (1) that though Kantilal Kesherdeo was a minor, he was admitted as a full partner and not merely to the benefits of the partnership, as required by section 30 of the Indian Partnership Act; (2) that Kantilal Kesherdeo was signatory to the document of partnership, though below his signature was appended the signature of his natural guardian; (3) that Kantilal Kesherdeo was described as a full partner entitled not only to a share in the profits, but also liable to bear all the losses including loss of capital; (4) that all the four partners were to attend to the business on equal terms and, if consent was needed, all the partners including the minor had to give their consent in writing; (5) that the minor was much entitled to manage the affairs of the firm, including inspection of the account books, and was given the right to vote, if a decision on votes had to be taken, as an adult partner. 'In short', the learned judge said 'no distinction was made between the adult partners and the minor, and to all intents and purposes, the minor was a full partner, even though under the partnership law he could only be admitted to the benefits of the partnership and not as a partner.'
11. It was under these circumstances which were special to the case of Dwarkadas Khetan that the Supreme Court held that the terms of the partnership in that case conflicted with the provisions of the Partnership Act, specially section 30 thereof, and that 'Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it. If the income-tax authorities register the partnership as between the adults only contrary to the terms of the document, in substance a new contract is made out.' Therefore, the Supreme Court held in that case that the partnership could not have been registered. It may be noted that, on these facts, the earlier view of a Division Bench of this court taken in Dwarkadas Khetan & Co. v. Commissioner of Income-tax was that 'if the partnership deed was void it could create no rights and no right would flow from it. In other words, even as between the major partners, according to the Tribunal, no rights were created and no liabilities imposed. It is impossible to accept that contention. The proper view and the only legal view was that, on a proper construction of this partnership deed, the three major signatories became the partners and the major signatory was admitted to the benefits of the partnership.' In other words, in spite of the peculiar provisions of the deed in that case, the Division Bench had held that effect should be given to the partnership deed to the extent that it is capable of being brought into effect ignoring such of the provisions of the deed as conflict with law.
12. It was precisely this reasoning that the Supreme Court did not adopt and the reason why the Supreme Court did not adopt it is clearly stated in the judgment of Mr. Justice Hidayatullah that in that case the document was in its terms so couched that there was absolutely no distinction made between the major partners and the minor partner. In fact, the entire discussion in the judgment was prefaced by the remark of the learned judge, 'In short, no distinction was made between the adult partners and the minor, and to all intents and purposes, the minor was a full partner, even though under the partnership law he could only be admitted to the benefits of the partnership and not as a partner.' It was this special feature of that case upon which the Supreme Court based its decision. In the subsequent discussion at page 532, after quoting the definition of 'partner' in section 2(6B) of the Income-tax Act and referring to the provisions of section 30 of the Partnership Act, the Supreme Court referred to two decisions with approval, namely, the decisions of the Calcutta High Court in Hardutt Ray Gajadhar Ram v. Commissioner of Income-tax and Banka Mal Lajja Ram & Co. v. Commissioner of Income-tax. In approving those decisions the Supreme Court stressed the ratio of Hardutt's case : '.... where a minor is admitted as a full partner with equal rights and obligation with adults, the deed is invalid'. Similarly, in approving Banka Mal's case, the Supreme Court pointed out that 'it is held that a minor cannot be a partner, and that the partnership which admits a minor as full partner cannot be registered'. Then, at page 533, the Supreme Court stated its view as to the definition of partnership under the Income-tax Act, 'What the definition does is to apply to a minor admitted to the benefits of partnership all the provisions of the Income-tax Act applicable to partners. The definition cannot be read to mean that in every case where a minor has, contrary to law, been admitted as a full partner, the deed is to be regarded as valid, because, under the law, a minor can be admitted to the benefits of partnership'. It is a cardinal rule in the reading of a precedent that a precedent is authority only for what it decides, and not for what may seem to follow from it. It was this one feature of that case which the Supreme Court was impressed with and upon which it decided that case, namely, that in that case the minor was admitted as a full partner with the adult partners; no distinction was made between the adult partners and the minor and to all intents and purposes the minor was a full partner. It is in the light of this decision that we turn to consider the circumstances before us.
13. Now the first and the foremost fact which distinguishes the present case from Dwarkadas Khetan's case is the fact that the minor in the present case has not been made a party to the partnership at all nor, secondly, has he, as in Dwarkadas Khetan's case, executed the partnership deed. Thirdly, unlike Dwarkadas Khetan's case, also a clear distinction has been made in the present document between the rights of the minor and the rights of the adult partners. Fourthly, in terms the document before us purports to comply with the provisions of section 30 when it says in clause 5 that 'Ramnivas Dhurmal, a minor, has been admitted to the benefits of this partnership.' It is also recited that his liability shall not be personal. Therefore, it is clear that the minor in the present case was not admitted as a full partner.
14. On behalf the department great reliance was placed upon the provisions of clause 7, which we have reproduced above, especially on the term that in indicating the share of the partners in the net profits, the minor's share is mentioned as Rs. 0-3-0 and then it is added at the foot of clause 7 that 'the loss, if any, shall also be distributed in like proportions'. What Mr. Joshi has urged is that the fact that the minor was to share the loss is clearly contrary to the provisions of section 30 of the Partnership Act and to that extent, therefore, the entire document is vitiated and cannot be recognised for the purpose of registration under section 26A. We have shown that in clause 5 there was already made a declaration that the minor was admitted only to the benefits of the partnership and his liability was not to be personal. The mere fact, therefore, that the partners erroneously provided in clause 7 that the loss shall also be distributed in like proportion, would not, in our opinion, without anything more, have the result of completely vitiating the document especially when they have provided that the minor is only admitted to the benefits of the partnership. Rather we would say that that provision would be inoperative and the minor who has been admitted to the benefits of the partnership would continue to enjoy those benefits. Effect could still be given to the provisions of clause 7, even though the minor's share is eliminated from the computation of the share of loss by dividing the loss between the adult partners only in the same proportion in which they share the net profits inter se. That would, in our opinion, give true effect to the real intention of the parties.
15. At any rate, it is clear to us beyond any doubt that the facts and circumstances of this case cannot invite the application of the principal laid down by the Supreme Court in Dwarkadas Khetan's case. In Dwarkadas Khetan's case no part of the document could be said to be valid so far as the minor was concerned, whereas in the present case it is only because of one single term, namely, the provision as to losses, that the invalidating effect is sought to beat attributed to the document. We do not think that it was the intention of the Supreme Court to say that any and every error in a document giving rise to some illegality would vitiate the entire document and preclude its registration under section 26A. That would be an extremely technical view to take and, in our opinion, the Supreme Court has not taken any such view.
16. For these reasons, we answer the question as follows :
Q : 'Whether the firm, being genuine, is entitled to registration for the assessment years 1953-54 and/or 1954-55 on the basis of the deed dated April 14, 195 ?'
A : For the assessment year 1953-54... in the negative.
17. For the assessment year 1954-55.... in the affirmative.
18. There shall be no order as to costs.