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Commissioner of Income-tax Vs. R. Dwarkadas and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 22 of 1963
Judge
Reported in[1971]80ITR283(Bom)
ActsIncome Tax Act, 1922 - Sections 26A; Partnership Act - Sections 30(5)
AppellantCommissioner of Income-tax
RespondentR. Dwarkadas and Co.
Appellant AdvocateG.N. Joshi and ;R.J. Joshi, Advs.
Respondent AdvocateS.P. Mehta, ;V.H. Patil and ;V.P. Mehta, Advs.
Excerpt:
.....as full-fledged partner - power of attorney of father of minor signed on behalf of minor - extension of partnership after expiry of initial period - application for registration under section 26a filed by all partners - registration cannot be denied on ground that power of attorney of minor's father has got no authority to sign deed as minor has become major - no necessity for signing partnership deed by all partners - assent to deed by all suffice - acceptance of partnership by minor after obtaining majority did not affect right to be partner subsequent to such acceptance -minor entitled to be partner at time of application for registration of firm - denial of registration not maintainable. - .....will on the same terms as contained in the original partnership deed. it may be mentioned that the minor partner, jaisingh narandas, has attained majority on 20th june, 1953, that the endorsement made on the partnership deed continuing the partnership at will was signed not by jaisingh himself, but by his father's constituted power-of-attorney holder as in the original partnership deed. subsequently, on 24th february, 1955, another document was executed whereby jaisingh accepted and confirmed all the terms and conditions of the partnership deed and all the rights and obligations thereunder together with the benefits and liabilities thereof with effect from the date thereof. the firm asked for its registration for the assessment years 1954 55 and 1955-56, but it was again refused on the.....
Judgment:

V.S. Desai, J.

1. The question raised on this reference under Section 66(1) at the instance of the Commissioner relates to the assessment orders for the assessment years 1955-56 and 1956-57, for which the relevant previous years were S. Y. 2010 and 2011 extending from November 7, 1953, to October 27, 1954, and October 27, 1954, to November 14, 1955, respectively, and is in the following terms:

'Whether, on the facts and in the circumstances of the case, and on the basis of annexures 'A' and 'B' the respondent-firm is eligible for registration under Section 26A of the Income-tax Act, 1922?'

2. Up to the 6th of July, 1951, a business was carried on in partnership by three persons named Premji, Kamalben and Ramankant. On the 7th of July, 1951, a new firm was constituted having three persons named, Ramankant Dwarkadas, Mulraj Jethabhai and Jaisingh Narandas as partners. A deed of partnership relating to this partnership was executed on the 21st August, 1951. One of the three partners, Jaisingh Narandas, was a minor and had been shown as a full-fledged partner in the partnership and the deed of partnership was signed on his behalf by the power-of-attorney holder of his father. For the assessment years 1953-54 and 1944-55, registration was refused to the firm mainly on the ground that, since a minor had been made a full-fledged partner of the firm, the partnership was invalid. The partnership constituted on 7th July, 1951g and evidenced by the deed of 21st August, 1951, was for a period of two years, i.e., until the end of S. Y. 2009 and, therefore, was to expire on the 6th of November, 1953. The partners, however, decided to continue the partnership after the expiry of the original term of two years and, consequently, on the 7th of November, 1953, made an endorsement on the partnership deed that the partnership was to be continued at will on the same terms as contained in the original partnership deed. It may be mentioned that the minor partner, Jaisingh Narandas, has attained majority on 20th June, 1953, that the endorsement made on the partnership deed continuing the partnership at will was signed not by Jaisingh himself, but by his father's constituted power-of-attorney holder as in the original partnership deed. Subsequently, on 24th February, 1955, another document was executed whereby Jaisingh accepted and confirmed all the terms and conditions of the partnership deed and all the rights and obligations thereunder together with the benefits and liabilities thereof with effect from the date thereof. The firm asked for its registration for the assessment years 1954 55 and 1955-56, but it was again refused on the grounds that the original partnership was invalid because of Jaistngh's minority ; that the endorsement made on 7th November, 1953, on the original partnership deed had not been signed by Jaisingh himself although he had become a major and, therefore, there was not a firm constituted under a valid instrument of partnership during the relevant account year. For the subsequent year 1956-57, registration was again refused on the ground that the original partnership deed and the further document executed by Jaisingh on 24th February, 1955, did not constitute a valid partnership in as much as in the original partnership deed the minor was shown to be a full-fledged partner and, consequently, the said partnership was illegal and the latter document, being a document of ratification, the minor was not competent to ratify what was illegal at its inception. Against the refusal of registration for the years 1955-56 and 1956-57, the assessee appealed to the Appellate Assistant Commissioner, who relied on the decision of this court in Dwarkadas Khetan & Co. v. Commissioner of Income-tax, : [1956]29ITR903(Bom) and allowed the appeals. It was held in that case, that even if a partnership deed purported to make a minor, a partner in law, the minor did not become a partner or become liable for losses. He was only entitled to the profits according to his share and the proper legal construction of such a partition deed would be that the major signatories became the partners and the minor signatories were only admitted to the benefits of the partnership. Such a partnership deed, according to the said decision, therefore, would be a valid partnership deed and the Income-tax Officer will not be entitled to refuse registration to the partnership merely on the ground that in the partnership deed the minor was shown to be a full-fledged partner. Against the decision of the Appellate Assistant Commissioner the department went in appeal to the Income-tax Appellate Tribunal. The Tribunal relied on the Bombay High Court decision and the decision of the Madras High Court in Jakka Devayya & Sons v. Commissioner of Income-tax, : [1952]22ITR264(Mad) and of the Patna High Court in Sahai Brothers v. Commissioner of Income-tax, : [1958]33ITR40(Patna) , which took the same view and dismissed the appeal.

3. Now, what is contended before us by Mr. Joshi, learned counsel who appears for the department, is that the decisions of the Bombay, Madras and Patna High Courts, on which the Tribunal has relied, have been overruled by the Supreme Court in Commissioner of Income-tax v. Dwarkadas Khetan & Co., : [1961]41ITR528(SC) , which was an appeal from the decision of the Bombay High Court. It was held in that case that a partnership deed, in which a minor was admitted as a full-fledged partner, was not valid and could not be registered under Section 26A of the Indian Income-tax Act. It is, therefore, contended on behalf of the department that the basis of the decision of the Appellate Assistant Commissioner and the Tribunal having been found to be wrong, their decisions must be set aside and the view taken by the Income-tax Officer must be upheld.

4. Now, if the registration was asked of the firm as was constituted under the original partnership deed, the contention of Mr. Joshi would undoubtedly have to be accepted in view of the Supreme Court decision already referred to. What has got to be considered, however, is that the instrument of partnership, on the basis of which registration was asked for the year 1956-57, is the original partnership deed supplemented by the endorsement made thereon on 7th November, 1953, and for the later years the instrument of partnership, on the basis of which registration has been asked for, is the original deed of partnership and the subsequent document executed on 24th February, 1955, viz., exhibits A and B to the statement of the case together. It is no doubt true that until the end of S. Y. 2009 the partnership, which existed, was constituted under the original partnership deed of 21st August, 1951. That partnership agreement, however, had a run for two years and came to an end on the 6th November, 1953, The partnership was originally constituted of three persons, two of whom were majors and the third was minor. At the end of the period of the said partnership, the said three partners decided to continue the partnership, which had existed in the prior two years. By that time the third person, who was so far a minor, had become a major. It may be pointed out that the business, which was carried on by the partnership, had been in existence even prior to the formation of the first partnership evidenced by the partnership deed of 21st August, 1951. The business which existed on that date was taken over by the said partnership and continued for two years under the new partnership. From 7th November, 1953, the said business was continued further in partnership of the same persons, who had been the partners thereof in the earlier two years, and that partnership business was to be carried on at will of these three persons. For the partnership business, therefore, which was carried on and continued from and after 7th November, 1953, the three persons, who had agreed, were all three major and adult persons, who could competently agree to do so. For the assessment year 1955-56, therefore, which corresponded to the S. Y. 2010 extending from November 7, 1953, to October 26, 1954, a partnership of three adult persons, who had agreed to carry on business, had continued to be in existence. The document constituting this partnership was the document of the old partnership with the addition of an endorsement thereon stating that it was continued on the same terms as contained in the original document. Now, in the partnership evidenced by the original document, one of the partners was a minor, but in the continued partnership there was no minor partner since the erstwhile minor had become a major by that time. As to the other terms on which the old partnership was carried on, there was nothing to make it an invalid partnership. Whatever defect may have been In the old partnership, it lasted till the end of S. Y. 2009 and in the subsequent partnership which continued in the S. Y. 2010 and the subsequent years there was no such defect since all the three persons, who had agreed to be the partners thereof were all major persons and there was, therefore, nothing illegal or improper in the formation or constitution of the said partnership. What has been urged by the learned counsel appearing on behalf of the department is that the endorsement, not having been signed by Jaisingh, who had attained majority by that time, but having purported to be signed on his behalf by the constituted attorney of his father, who had no authority to sign on his behalf, there was not an effective execution of the endorsement by Jaisingh and, consequently, did not have the effect of Jaisingh himself agreeing to be a partner of the continued partnership for the year of account, viz., for the assessment year 1956-57. Now, if it was necessary for Jaisingh to have actually signed the endorsement himself in order to make himself a partner of the continued partnership or his signing of the endorsement was necessary and essential for the purpose of treating him as partner or that his signing the endorsement by himself was necessary to constitute the endorsement together with the original partnership a valid and legal instrument of partnership for the purpose of Section 26A, Mr. Joshi would have been undoubtedly right. It has, however, been held that it is not necessary for every partner to sign the instrument of partnership and that, even though the instrument of partnership has been signed by only some of them, but if it had been assented to by the others, who had not signed it and they had joined in putting it forward along with other partners for registration, it was admissible for registration under the Indian Income-tax Act (see Ramlal Murlidhar v. Commissioner of Income-tax, [1930] 5 I.T.C. 150. There is no dispute here that the partnership of which the erstwhile minor was a partner, had continued in the year of account. The Income-tax Officer had accepted that the partnership had continued with the three persons including the erstwhile minor as a partner thereof in the year of account. There was no doubt whatsoever that the erstwhile minor, who had not himself signed the endorsement, had assented to the partnership inasmuch as in the application for registration, which had been made, he along with the others had joined and signed the same.

5. In our opinion, therefore, the instrument presented before the Income-tax Officer complied with the requirements of law and the Income-tax Officer was not entitled to refuse registration on the ground that the instrument of partnership was invalid.

6. As to the second year, viz., 1956-57, the position is still stronger for the assessee. The documents, which were presented before the Income-tax Officer as constituting the instruments of partnership, were the original partnership deed and the subsequent document executed on 24th February, 1955. By this document Jaisingh, the erstwhile minor partner shown in the first partnership deed, had in terms confirmed and accepted all the terms and conditions of the said partnership deed and all rights and obligations thereunder together with the benefits and liabilities thereof with effect from the date of the original partnership as if he had been a lull and effective partner all along. Whatever might have been the defect in the original partnership as formed and whatever might have been the ' consequences of the said defect until the date of attaining majority by the minor or until the date of the latter document dated 24th February, 1955, there can be no doubt whatsoever that as and from the date of this document, viz., 24th February, 1955, Jaisingh had accepted all responsibilities of a full-fledged partner of the partnership firm and the firm which -continued thereafter had accepted Jaisingh as a full-fledged partner thereof. For the account year corresponding to the assessment year 1956-57, therefore, the effective partnership, which existed and which was. constituted under the two documents was a legal and valid partnership consisting of the three partners. Mr. Joshi has sought to argue that the document of 24th February, 1955, purported to be a ratification by the minor of the earlier partnership deed of 21st August, 1951, on the basis that the said partnership agreement had admitted the minor to the benefits of the partnership and was a legal and a valid partnership. Mr. Joshi's argument is that since that was not correct and the said partnership ip as constituted on 21st August, 1951, having shown the minor, Jaisingh, as a full-fledged partner, was an invalid and defective partnership and ratification thereof was not available to the minor on attaining majority and, consequently, the document of 24th February, 1955, could not have the effect of bringing into existence a legal and valid partnership by ratification.

7. In our opinion, there is nothing in the document of 24th February, 1955, to show that the minor was only purporting to exercise the right of ratification under Section 30(5) of the Partnership Act. At the date when he executed the document he was an adult person entitled to assume responsibility even afresh. There was nothing in law to prevent him even from undertaking the responsibilities as a partner of a firm of which he had not been a partner until the date of such acceptance. On the date on which he was accepting the responsibility and declaring himself as a full-fledged partner, he was a major. In the document executed by him on 24th February, 1955, he had declared himself as a full-fledged partner of the firm and had agreed to be treated as such a full-fledged partner for the entire earlier period. At any rate, for the period subsequent to his execution of this document, his position as a full-fledged partner of the firm did not suffer from any defect whatsoever. For the year of account, therefore,, there was a validly constituted firm in operation and the documents presented before the Income-tax Officer could be regarded as an instrument under which the firm was validly constituted. In our opinion, therefore, although the basis on which the Appellate Assistant Commissioner and the Tribunal had decided in favour of the assessee no longer survived, in view of the decision of the Supreme Court in Commissioner of Income-tax v. Dwarkadas Khetan & Co., for the reasons, which we have already discussed, their decision that the firm was entitled to registration was correct.

8. In the result, therefore, the question referred to us must be answered in the affirmative. We answer it accordingly. The Commissioner will pay the costs of the assessee.


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