H.N. Seth, J.
1. At the instance of the assessee, M/s. Vaish Pharmacy, Farrukhabad, this court, vide its order dated 3rd of September, 1974, called upon, the Income-tax Appellate Tribunal, Allahabad, to state the case and refer the following question of law for its opinions in respect of the assessee's assessment for the assessment year 1968-69 :
'(1) Whether, there is a change in constitution of the firm within meaning of Section 184(7) and Section 184(2) of the Income-tax Act, 1961, when the minor, who had been admitted to the benefits of the partnership, attains majority and does not opt out ?
(2) Whether the cancellations of the assessment order was in law valid and justified in the absence of any order cancelling the firm's renewal of registration ?'
2. The Income-tax Appellate Tribunal has accordingly drawn up a statement of the case and has made the present reference to this court.
3. Briefly stated, the facts, as appear from the statement of the case, are that the assessee-firm came into existence with effect from 1st of April, 1964, under a partnership deed executed on the same date. The firm consisted of Sarvashri Deshrath Lal Agarwal, Surendra Kumar Agarwal and Narendra Kumar Agarwal having 25% share each and one minor, Shri Mahendra Kumar, who had been admitted to the benefits of the partnership and his share was also 25% in the profits. Registration was allowed to the firm for the assessment years 1965-66 and 1966-67. For the assessment years 1967-68 and 1968-69 the assessee filed declarations under Section 184(7) of the I.T. Act and was granted continuation of registration. The assessee was accordingly assessed by the ITO for these assessment years in its capacity as a registered firm. However, as during the course of the previous year relevant to the assessment year 1967-68, Shri Mahendra Kumar had attained majority on 1st July, 1966, and no fresh deed of partnership had been executed by the partners, the ITO, relying upon the decision of the High Court in the case of Ganesh Lal Laxmi Narain v. CIT : 68ITR696(All) , wherein it had been held that in such cases it was, after a minor, admitted to the benefits of a partnership, had attained majority, necessary to draw up a fresh partnership deed before the firm could claim a continuation of its registration, made a reference to the Commissioner recommending that the assessment of the firm for the year 1968-69 in its capacity as a registered firm be cancelled. In revision, the Addl. Commissioner of Income-tax, relying upon the decision of this court in the case of Ganesh Lal Laxmi Narain : 68ITR696(All) , held that the firm with Shri Mahendra Kumar as a full-fledged partner was not the same firm in which he had been admitted to the benefits of the partnership at the time of execution of that partnership deed. According to him the firm should be reconstituted with effect from 1st of July, 1966, and that it was not entitled to the continuation of its registration. In the result he, vide his order dated 29th of December, 1970, cancelled the assessment made in the case of the assessee in its capacity as a registered firm and directed the ITO to make a fresh assessment treating the assessee as an unregistered firm. It may, at this stage, also be mentioned that the proceedings of cancellation of continuation of registration already granted to the assessee-firm for the year 1968-69 had not been initiated before the Addl. Commissioner passed the order dated 29th December, 1970.
4. The assessee then took the matter up before the Income-tax Appellate Tribunal, which affirmed the decision of the Addl. Commissioner and held that the assessee was not entitled to a continuance of its registration and was further not entitled to be assessed in the capacity of a registered firm. In the result it dismissed the appeal filed by the assessee.
5. Eventually the assessee moved this court under Section 256(2) of the I.T. Act and obtained an order requiring the Tribunal to state the case and to refer the aforementioned question for the opinion of this court.
6. So far as the first question in concerned, it now stands concluded by the Full Bench decision of this court in the case of Badri Narain Kashi Prasad v. Addl. CIT : 115ITR858(All) , wherein the decision of this court in the case of Ganesh Lal Laxmi Narain : 68ITR696(All) , has been overruled and it has been held that under Section 184(7) of the I.T. Act, registration granted to the firm shall have effect for every subsequent assessment year if there is no change in the constitution of the firm or in the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted. The phrases ' constitution of the firm ' and the ' shares of the partners ' have not been defined by the I.T. Act. In the context, the phrase 'constitution of the firm ' refers to the identity of the partners of the firm. Thus, the identity of the partners as well as their shares ought to be such as is evidenced by the instrument of the partnership. For purposes of the I.T. Act, a minor admitted to the benefits of the partnership is to be deemed to be a partner, entitled to all the benefits conferred on a partner by the Act. Thus, when an instrument of partnership evidences a constitution indicating that apart from the partners, a minor has been admitted to its benefits, the instrument of partnership will be deemed to evidence, for purposes of the I.T. Act, that the constitution of the firm was as if the minor was also a partner. There can, therefore, be no change in the constitution of the firm by the mere fact of a minor admitted to the benefits of a partnership becoming a major and electing to remain a partner. He was already a partner and he continues as a partner. The second part of the enquiry is whether there has been a change in the shares of the partners as evidenced by the instrument of partnership. A minor is not liable to share in the losses of a firm though he is entitled to share in the profits. The share of the loss relatable to the share of the minor has hence to be provided for. The redistribution of the shares in losses, on the minor attaining majority, has also to be ascertained. If, on a reasonable construction of the instrument of partnership, these matters cannot be ascertained, it will be a case where the instrument of partnership does not evidence the change in the shares. In case the original instrument of partnership envisages this change, the firm will be entitled to continuance of registration under Section 184(7). A copy of the partnership deed is on the paper book of this reference which clearly indicates that the share of the losses of each of the partners including that of Mahendra Kumar if he chooses to continue as a partner in the firm after attaining majority is to the extent of 25%. It, therefore, follows that there was no change in the constitution of the firm within the meaning of Section 184(7) and Section 184(2) of the I.T. Act, 1961, when the minor, Mahendra Kumar, who had been admitted to the benefits of the partnership, attained majority and did not opt out. In this view of the matter the first question referred to us for opinion has to be answered in the negative and in favour of the assessee.
7. Learned counsel appearing for both the parties are agreed that in case the first question is answered in the negative and in favour of the assessee, the answer to the second question would also be deemed to be answered in the negative and it would not be necessary for this court to answer the same. In the result we return the second question unanswered.
8. As the assessee has substantially succeeded, we direct the Commissioner to pay the costs of this reference to the assessee which are assessed at Rs. 250.