1. In this case, the Commissioner in exercise of his powers cancelled the order of the ITO granting registration of the firm with a direction to enquire into the genuineness and validity of the firm and pass a fresh order in accordance with law. During the accounting period Samvat Year 2034, i.e., 12-11-1977 to 30-8-1978, a minor, Shri Gopalbhai Shah, attained majority on 9-8-1978 and a new partnership deed was executed on 14-8-1978 admitting the said Shri Gopalbhai to partnership. This partnership was given effect from 12-11-1977. The Commissioner took the view that a valid partnership deed under the Indian Partnership Act, 1932, could not be said to have been in existence from 12-11-1977 onwards and, hence, no registration could have been granted. He has relied upon the decision of the Supreme Court in the case of R.C.Mitter & Sons v. CIT  36 ITR 194 which, according to him, covers the cases where a partnership had been brought into existence by an oral agreement between the parties which may subsequently be reduced to writing and the instrument would naturally record all terms and conditions of contract between the parties at the initial stages which had not been reduced to writing. According to him, in the present case, it could not be said that the deed of 14-8-1978 reduced to writing all the terms and conditions of contract between the parties from 12-11-1977 since one of the parties was a minor up to 8-8-1978 and he could not have legally entered into a partnership or agreed to share losses. He has further stated that in the present case, had the firm incurred any loss during the accounting year, the proportionate loss up to 8-8-1978, on which Shri Gopalbhai became a major, could not have been allocated to him under Section 30(7) of the Indian Partnership Act whereas a strict application of the present partnership deed would have made that possible. His view is that the fact that actually there was no loss during the year, was not relevant for deciding the legal issue.
2. Before us the learned counsel for the assessee, Shri Talati, has argued that deed of partnership was actually executed when said Shri Gopalbhai had already become major and was having full capacity to execute the partnership deed. It did not, therefore, matter that Shri Gopalbhai was executing deed with effect from an earlier date when he was a minor. The partnership accounts were made when Shri Gopalbhai was a major. He has relied in this connection on the decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai  56 ITR 42. Secondly, he has pointed out that in this case there were no losses in the accounting period and so Shri Gopalbhai was not taking on any liability. He also argued that if the new partnership was invalid then the whole partnership would continue and so there was no loss of the revenue and that, therefore, Section 263 of the Income-tax Act, 1961 ('the Act') was not applicable. He has relied upon the decision of the Gauhati High Court in the case of P.N. Sarmah v. CIT  125 ITR 553 where it was held as follows : ... On a perusal of Sections 30(5) and (7) it becomes clear that if during the subsistence of the partnership a person who was admitted, at the time when he was a minor, to the benefits of partnership does not elect to become a partner within six months of his attaining majority would become a partner after the expiry of the said period (six months) and there after his rights and liabilities would be the same as those of the other partners as from the date of his admission to the benefits of the partnership. (p. 562) From this he argued that the effect of the deed in this case was the same as that of the statute. He pointed out the assessment orders in the cases of all the partners in respect of their share in the assessee-firm for the same assessment year 1979-80 and relied upon the decision of the Gujarat High Court in the case of Laxmichand Hirjibhai v. CIT  128 ITR 747 to argue alternatively that because of these assessments the firm has to be granted registration.
3. The learned departmental representative, on the other hand, replied that the case of Laxmichand Hirjibhai (supra) was not applicable here because in this case the partnership deed itself was not valid which was not so in the case of Laxmichand Hirjibhai (supra). He also replied that in this case there was change in the profit-sharing ratio and, therefore, the old partnership deed could not continue. He further pointed out that the application was only on the basis of the new deed and there was no application in Form No. 12 for the continued registration of the old deed. He pointed out the terms in the new partnership deed whereunder Shri Gopalbhai would be liable for the losses also and argued that the agreemment of partnership had to be seen as such and its validity could not be made to depend on the facts which showed that there were no losses.
4. So far as the argument based on the Gujarat High Court decision in the case of Laxmichand Hirjibhai (supra) is concerned, we are in agreement with the submissions of the learned departmental representative because in that case the question of validity of partnership deed which goes to the root of the matter, was not involved.
5. In this case Shri Gopalbhai, when he became a major, entered into partnership and the effect there of was that he would take on liabilities, if any, during the period of his minority. A major is capable of taking on liabilities and, therefore, we do not see any reason why Shri Gopalbhai could not have taken upon himself his own liabilities, if any. The liabilities or profits would be known at the end of the accounting period when Shri Gopalbhai was a major and so the question of his taking on liabilities of the period when he was a minor, did not arise because, in fact, there were no liabilities to be taken up. The whole purpose of not allowing a minor to be made a partner is to prevent liabilities from being imposed upon him.
Therefore, when there were no liabilities, there would be no objection to the validity of the partnership deed.
6. The legal proposition that a partnership deed which makes a minor a partner is invalid would apply only to a case where other persons, who are majors, are making a minor a partner and not to a case where a minor himself on attaining majority becomes a partner with effect from a date when he was a minor. Further, applying the aforesaid decision of the Gauhati High Court in the case of P.N. Sarmah (supra), we are of the view that the partnership deed in this case did no more than conform to the statutory legal position as explained in that decision and quoted above.
7. The Supreme Court decision in the case of R.C. Mitter and Sons (supra), cited by the Commissioner, is not applicable because here there is an actual partnership deed and not a record of an oral partnership entered into earlier.
We are, therefore, of the view that the registration in this case should have been granted to the firm. Accordingly, we set aside the order of the Commissioner and restore that of the ITO.