This is a reference under section 66 (1) of the Income-tax Act is to decide the following question : "Whether the firm constituted under the partnership deed dated January 20, 1949, was a firm which could be registered under the provisions of section 26A of the Income-tax Act Two brothers, Mataprasad and Dwarka Prasad, were carrying on business as a Hindu undivided family and were assessed as such for assessment year 1947-48 for the previous year ending Daserah of 1946. On October 4, 1946, there was a partition between these two brothers. On October 10, 1946, they formed a partnership in the wine business carried on in the name and style "Cursetji and Co." and in the cloth business carried on in the name and style "Seth Brothers." By an order under section 25A of the Act passed on September 8, 1949, the Income-tax Officer recognized the partition of the family properties with effect from October 4, 1946. On June 20, 1948, Mataprasad died leaving behind a widow and three minor sons. On January 20, 1949, Dwarkaprasad and Sethani Saraswatibai, widow of Mataprasad, executed a partnership deed.
It was there stated that the firm having been dissolved by the death of Mataprasad on June 20, 1948, the parties agreed to run the business as before with effect from the date of the death of Mataprasad. The shares of the two executants as expressed in the instrument of partnership were equal. The profits and losses were to be shared in the same proportion. It was also agreed that each partner was entitled to carry on business acting for all and had been actually so acting.
On January 20, 1949, an application was made under Section 26A of the Act to claim registration on the basis of the partnership agreement dated October 10, 1946. The application was signed by Dwarkaprasad and Sethani Saraswatibai as heir of Mataprasad. As the Income-tax Officer would not accept registration of the firm on this application a second application was made by Dwarkaprasad and Saraswatibai, supported by the instrument of partnership dated January 20, 1949, and they pressed for a decision on the second application.
At the hearing it was admitted that Sethani Saraswatibai had entered into partnership with a view to protect the interests of her minor sons. This application was rejected by the Income-tax authorities.
The Accountant Member of the Tribunal took the view that it was a partnership between one major partner and three minors represented by their guardian and that the minors cannot be admitted to the benefits of the partnership unless there is a partnership of at least two major partners. The partnership to which the minors are said to have been admitted was dissolved by the death of Mataprasad on June 20, 1948 and consequently the minors could not be admitted to a partnership consisting of only one person Dwarkaprasad.
It was also said that a widow could not be a partner in her individual capacity because she was not an heir but only a karta of the family and that the widow signed the deed as karta and not as an heir. There is no warrant for these observations. The deed is signed by the lady as a partner of the firm and not as guardian of her minor sons.
The minors do not figure as partners. The question of their admission to the benefits of a single man partnership cannot therefore arise. The lady was an heir of her husband and a karta of the family of herself and her minor sons.
According to the Judicial Member, no real firm was brought into existence which could be registered under the Act because "in the terms of the deed Bai Saraswatidevi has joined the partnership as successor and heir to the late Mataprasad in order to run the business as before." Reliance was placed on Raju Chettiar and Brothers v. Commissioner of Income-tax. The argument advances that the widow could be a karta of the joint family of herself and her three minor sons and as such could enter into the partnership was repelled on the authority of Radha Ammal v. Commissioner of Income-tax, Madras, which did not agree with the view of this Court in Commissioner of Income-tax v. laxmi Narayan.
Sub-section (1) of section 26A provides for an application for registration being made to the Income-tax Officer on behalf of any firm constituted under an instrument of partnership, specifying the individual shares of partners. Under sub-section (2) the application has to be made by such person or persons and at such time and shall contain such particulars and shall be in such form and be verified in such manner as may be prescribed.
It is not disputed that the requirements of this section have been fully complied with. The instrument of partnership specifies the individual shares of the partners. Prima facie, therefore, the Income-tax Officer was bound to register the firm.
It cannot be disputed that a firm consisting of two adult partners came into existence on the death of Mataprasad. It is futile to contend that such a partnership is not genuine. Whether the widow, who was an heir of Mataprasad, agreed to continue the business as a partner on her own behalf or as karta of the joint Hindu family consisting of herself and her minor sons, or in denial of the rights of the minors is really immaterial for the purpose of section 26A. The rights of the minors vis-a-vis their mother, are not the concern of the Income-tax Department.
Dwarkaprasad was not bound to agree to continue the business by admitting the minors to the benefit of the partnership because in the event of loss he and the widow would be solely liable for losses. He may agree to take in the adult person as partner who would be liable for loss. The minors had interest in the assets of the dissolved firm and may be entitled to receive from the surviving partner profits or interest under section 37 of the Partnership Act; but that does not make them partners.
There is no evidence that the minors had any property to their share which was used by Dwarkaprasad and Saraswatibai in the partnership business. Anyway their remedy for settlement of the account of the partnership and to recover profits or interest and their share of assets, if any, is not extinguished by the mother agreeing to carry on the business in partnership with Dwarkaprasad. The view of the Appellate Tribunal that the partnership cannot be a genuine partnership unless the minors are admitted to the benefit of the partnership is not according to law.
In Raju Chettiar and Brothers v. commissioner of Income-tax, Madras, on which reliance was placed by the Appellate Tribunal, it was held that the partnership was not genuine as one of the two partners mentioned in the instrument of partnership had no interest whatsoever in the firm.
Their Lordships observed : "In the present case it has been found as a fact that Ranganayaki Ammal is not a real partner but she has given her name as a partner on behalf of her minor sons because that was considered to be the only way in which a lawful partnership could be brought into existence." In Commissioner of Income-tax v. laxminarayan the widow described herself as the karta of the joint family of herself and her minor sons.
In Radha Ammal v. Commissioner of Income-tax, Madras, the widow did not describe herself as karta but as guardian of her minor sons. She was thus not a partner. Having realized that the lady could not enter into a partnership as guardian of her minor sons, the learned counsel for the assessee in that case pressed the view that she should be treated as a partner in her capacity of the karta of the family. This could not be accepted unless the lady figured as a partner. Since reliance was placed by the assessee on the decision of this Court, their Lordships considered the correctness of that view and dissented from it.
It is not necessary for the purpose of this case to resolve the conflict between these two decisions. As regards the Madras case the following observations in Halsburys Laws of England, Ed. 2, Vol. 19, pp. 251-252 are apposite : "It may be laid down as a general rule that part alone of a decision of a court of law is binding upon courts of co-ordinate jurisdiction and inferior courts which consists of the enunciation of the reason or principle upon which the question before the court has really been determined. This underlying principle which forms the only authoritative element of a precedent is often termed the ratio decidendi.
Statement which are not necessary to the decision, which go beyond the occasion and lay down a rule that is unnecessary for the purpose in hand (usually termed dicta) have no binding authority on another Court, though they may have some merely persuasive efficacy." The decision of this Court was thus binding on the Appellate Tribunal which is subordinate to this Court in appeals of assessee from this State. The Madras view had only a persuasive efficacy.
The answer to the question of law referred to this Court is that the firm in respect of which the partnership deed dated january 20, 1949, was executed of which ought to have been registered under the provisions of section 26A of the Income-tax Act.
A copy of this judgment be forwarded under section 66(5) of the Act to the Appellate Tribunal for necessary action.