1. These are departmental appeals relating to assessment years 1982-83, 1983-84 and 1984-85 respectively. The assessee is one and the same. The question of granting continuation of registration is involved in all these appeals. Hence they can be taken up together and disposed of by a combined order for the sake of convenience.
2. The assessee-firm was constituted under the terms of a partnership deed dated 18-10-1979. Five major partners were there in the partnership firm. However they have admitted five minors to the benefits of the partnership firm. Both the minor as well as the major partners brought in share capital as can be found from para-6 of the partnership deed, a copy of which was filed before us. The profits as well as the losses are to be shared by the partners in the proportion stated in para-7 of the partnership deed which is as under :--11. Master L. Suman, Minor 10 paise in a rupee 1-00 (one rupee)5. Party of the Fifth Part 25 paise in a rupee 1-00 (one rupee) The assessee-firm carried on business in finance and also runs a chit fund company under the name Sandhya Finances. For assessment year 1981-82, initial registration was granted to the assessee-firm by the Income-tax Officer's order dated 23-1-1982 passed under Section 185(1)(a). While passing the order for initial registration, the Income-tax Officer found that the firm was a genuine firm. Financial year is the accounting year adopted by the assessee-firm and for assessment year 1982-83, the accounting year ends by 31-3-1982 and for 1983-84 and 1984-85 accounting year ended by 31-3-1983 and 31-3-1984 respectively. M. Sudershan was one of the minors who became major in the accounting year relevant to assessment year 1982-83. Shri Ch.
Parthasarathy, learned advocate for the assessee submitted that Shri Sudershan attained majority on 19-9-1981. The Income-tax Officer refused the grant continuation of registration to the firm for assessment year 1982-83 inter alia on the ground that the partnership deed dated 18-10-1979 did not contain any clause to the effect that if any particular partner who was a minor attained majority and if elects to become a full-fledged partner on attaining majority there is no provision as to how the profits and losses are to be divided between the partners. Except the fact that Shri Sudershan signed Form No. 12 for assessment year 1982-83, there is no other correspondence between Shri Sudershan and the other major partners to show that he was admitted to be a full-fledged partner on attaining his majority and the erstwhile major partners gave their consent for his becoming a full-fledged partner on attaining majority. The Income-tax Officer further held that in the original partnership deed dated 18-10-1979, there was no stipulation specifying the share of losses that could be distributed amongst the partners and the minor becoming major and elects to continue as a full-fledged partner. He further held that mere filing of Form No. 12 will not entitle the assessee for continuation of registration. The ITO further felt that the partnership deed dated 18-10-1979 did not envisage contingency of a minor becoming a major and electing to be a full-fledged partner. There should be a fresh partnership deed duly signed by the partners after the minor attains majority, before the firm can claim registration. As against the order dated 26-3-1986 passed by the ITO the assessee-firm went in appeal before the learned Commissioner of Income-tax (Appeals) II, Hyderabad.
It was contended before her that refusal to grant continuation of registration was quite unwarranted. Execution of a new partnership-deed was not required when the minor who was admitted to the benefits of the partnership attains majority, the assessee-firm had only profit from assessment year 1983-84 and therefore the finding of the ITO that the partnership deed dated 18-10-1979 did not contain the loss sharing ratio was irrelevant. The learned CIT(A) had accepted the contention of the assessee as correct and ordered continuation of registration to the firm, listing out the following reasons : 2. The ITO has accepted that the execution of a new partnership deed was not required.
3. Even though the original partnership deed dated 18-10-1979 did not include loss sharing ratio of its partners, when minor M. Sudershan attained majority, that is irrelevant, as the appellant had only income in 1982-83And 1983-84 assessment years.
She directed the ITO to grant continuation of registration to the assessee-firm under Section 184(7) by her impugned orders dated 27-1-1989.
3. Having been aggrieved against those orders, the revenue is in second appeal before this Tribunal for assessment year 1982-83.
4. We have heard Shri B. Shyamsundar, learned DR for the department and Shri Ch. Parthasarathy for the assessee. It is the contention of the learned DR that after Shri M. Sudershan, the erstwhile minor was admitted to the benefits of the partnership firm attained majority on 19-9-1981, there is bound to be change in profit and loss sharing ratio among the partners. From the recitals of para-7 of the partnership-deed it is clear that prior to any minors becoming major, the five major partners of the assessee-firm only undertook to bear the losses of the firm, in the proportion which is already shown in para-7 of the partnership-deed. Now after Shri M. Sudershan had become a major and elects to continue as a full-fledged partner, what is his share of loss in case the assessee-firm sustains loss? No answer to it can be found to this question from a reading of the provisions contained in the partnership deed dated 18-10-1979. Therefore, the contention of the learned DR was that there was no legally constituted firm for assessment year 1982-83 which is entitled for registration much less to continuation of registration. He relied upon the following Allahabad High Court decisions : Countering the arguments of the learned DR Shri Ch. Parlhasarathy, learned counsel for the assessee contended that in the event of the minor becoming major and in the absence of a new partnership deed, the provisions of Section 30(7) of the Indian Partnership Act apply. Shri Parthasarathy relied upon that the clause of Form No. 12 clearly shows that there is no change in the profit and loss sharing ratio of the partners of the firm. Form No. 12 contains, inter alia , the signature of Shri M. Sudershan also. In view of the contents of Form No. 12, the learned DR is not correct in arguing that there is bound to be a change in the loss sharing ratio of the partners and that such a change is not evidenced or contemplated by the provisions of the Partnership deed dated 18-10-1979. In view of the clear contents of Form No. 12 it should be taken that there is no change in the profit or loss sharing ratio among the partners. That means, the five major partners excluding Shri Sudershan only should be taken to have agreed to bear the losses of the firm, if any, incurred for assessment year 1982-83. Further, it was submitted that in assessment year 1982-83, the assessee-firm did not sustain any loss whatsoever and in fact it had declared an income of Rs. 1,37,017 as per its return dated 12-8-1985. When there is no change either in the profit or loss sharing ratio among the partners, there was no need for any fresh deed at all. The learned counsel for the assessee relied upon the ratio of the Bombay High Court decision in Dattatraya Gopal Shette v. CIT  150 ITR 460 and the Full Bench decision of the Kerala High Court in CIT v. Phair Laboratories  154 ITR 141. Shri Parthasarathy brought to my notice the following legal proposition found at page 3502 of Chaturvedi and Pithisaria Income-tax 3rd Edition, 4th Volume under the authority cited thereunder.
Where a minor who had been admitted to the benefit of a partnership attained majority within six months before the end of the relevant previous year of the firm there is involved no change in the constitution of the firm because during the option period of six months as given under Section 30(5) of the Partnership Act, 1932, the minor in the absence of a public notice continues to enjoy the same status in the firm which he had earlier before attaining his majority. In such a case, initial registration or continuation of registration must be granted on fulfilment of conditions even though a fresh deed of partnership was not executed during the option period.
[CIT v. National Medical Stores 1974 Tax LR 590 (All.), CIT v. Mathura Prasad Annoolal  115 ITR 372 (All.), Mobarak Ali Khan & Sons v.ITO  124 ITR 239 (All.), P.N. Sarmah v. CIT  125 ITR 553 (Gauhati), etc.] Shri Parihasaralhy contended that on 19-9-1981, Shri Sudershan attained majority. Six months would be over by 19-3-1982. Shri Sudershan had time to determine whether he should become a full-fledged partner or not till 19-3-1982 under the provisions of Section 30(5) of the Indian Partnership Act, 1932 and therefore since 19-3-1982 falls within six months to 31-3-1982 Shri Sudershan should be deemed to have enjoyed the same status in the firm which he had enjoyed earlier. That means he is entitled to the benefits of the partnership firm. We feel it very hard to accept this contention of Shri Parthasarathy, learned counsel for the assessee. Under the provisions of Section 30(5) of the Indian Partnership Act, 1932, a minor can elect to become a full-fledged partner on attaining majority within six months of the date on which he attains the majority or of his obtaining knowledge that he was admitted to the benefits of partnership, whichever date is later. It was not the case of the assessee that Shri Sudershan got knowledge of his being admitted to the benefits of partnership only later to the date of his attaining majority (19-9-1981). In our opinion within 19-3-1982 he should elect to become a full-fledged partner or not. No further time would be granted beyond 19-3-1982 for exercising his option. The accounting year relevant to assessment year 1982-83 ended by 31-3-1982 which is not less than 12 days after the date on which the option is closed to the erstwhile minor. In view of this understanding we hold that the legal position at page 3502 in Chaturvedi and Pithisaria, cited supra, does not come to the aid of the assessee. However, we are of the opinion that the contents of Form No. 12 should be taken to be fully efficacious and should be given full effect to since Form No. 12 is to be signed by all the major partners of a firm, when once it is mentioned therein that there is no change in the profit and loss sharing ratio of the partners of the firm, there is no reason why the said declaration should not be taken to be true and we do not see any tenable objection for the said recital being taken as having been the settled term among the partners. Therefore, for the purposes of continuation of registration, we take it, as having been settled, between the partners, that the five original major partners only agreed to bear the losses, whereas, the profit sharing ratio among the major and minor partners remained unchanged. Thus, when neither the profit sharing ratio nor loss sharing ratio was altered or agreed to be altered among the partners, was there any necessity for entering into a fresh deed of partnership simply because one of the minor partners becomes major. A similar situation seemed to have been considered by the Full Bench of the Kerala High Court in Phair Laboratories' case (supra). In that case the partnership deed was drawn up in December 1963. At that time one of the parties 'C was a minor. For assessment years 1965-66 and 1966-67, the partners of the firm filed application for registration. The application for registration had been signed by all the partners including 'C who attained majority in the year previous to assessment year 1965-66. Registration as well as continuation of registration was granted. However, the ITO cancelled the registration under Section 186 on the ground that 'C was a minor at the time of executing the instrument of partnership and therefore there was no genuine firm in existence. The Kerala High Court held on a reference as follows, as per head-note of the decision at page-142, as follows :-- The instrument was accompanied by an application in Form No. 11, signed by all the partners, including C, thereby indicating that C accepted all the terms of the instrument and signified his consent to be a full partner. The mere fact that C was not a major on the date of execution of the original partnership deed could not prevent it from being registered. The ITO was, therefore, not justified in cancelling the registration for the assessment year in question.
From the above it is clear that the contents of Form No. 12 can be considered as part of the agreement, equal to the terms of the agreement between the partners of the firm. On the same analogy, we feel that we are right if we consider the terms of Form No. 12 as evidencing the agreed terms between the partners of the assessee-firm.
Form No. 12 was undoubtedly signed by the major partners, as well as Shri Sudershan who became major in that year. By the narration that the profits and losses under the original partnership did remain unchanged for assessment year 1982-83, it can justifiably be construed that term to be an admission on the part of the original five major partners to share the losses of the firm, if any incurred, according to Clause 7 of the Partnership deed which is already extracted above. If so, the learned DR would not be correct to argue that the loss sharing ratio is bound to be disturbed and in fact it is disturbed on Shri Sudershan becoming major and determining to continue as a full-fledged partner.
So, the argument of the learned DR that in the absence of loss sharing ratio having not been witnessed by any document, the assessee-firm is not entitled either to registration or continuation of registration, in the absence of a fresh deed, cannot be accepted. On the other hand we feel we are right in proceeding on the premise that the profit and loss sharing ratio under the partnership deed dated 18-10-1979 remains as it is, even for assessment year 1982-83. Therefore, when they remain unchanged there is no need for any fresh partnership deed to be executed before continuation of registration can be granted. In this connection our attention is drawn by Shri Parthasarathy, learned counsel for the assessee to the following CBDT Circulars: 1. F.No. 26/35/61-IT(A-I), dated 3-1-1962 from CBP which is as follows : Please refer to CIT, Lucknow's letter No. Rev. C.No. 15-33B/61-62/DDUN dated the September 1961, on the above subject, to the Board for deciding that where there is no doubt about the genuineness of the partnership, registration need not be denied simply because the minor hitherto admitted to the benefits of partnership become a full-fledged partner on attaining majority.
Reference is invited in Board's Circular No. 26/35/61-IT(AI) dated 3-1-1962 to the effect that where there is no doubt about the genuineness of the partnership, registration need not be refused simply because a minor previously admitted to the benefits of the partnership has been made a full-fledged partner on attaining majority and no new partnership deed has been drawn up to give effect to this change.
The Allahabad High Court has recently held in the case of Ganesh Lal Laxmi Narain v. CIT that when a minor admitted to the benefits of partnership attains majority, the old deed of partnership cannot serve as an instrument under which the firm consisting, inter alia, of the minor who has since attained majority, can seek registration or renewal of registration and that in such cases, the partners must draw up a fresh deed.
The Board feel that the above decision of the High Court is based on a somewhat narrow view of the law. Therefore, it has been decided that while the Allahabad High Court's decision has to be followed so far as the UP State is concerned, the decision should not be followed in the other States. In other words, in States other than UP Board's instructions dated 3-1-1962 will continue to be followed as before.
3. Board's Circular F.No. 279/80/77-IT(J) dated 4-4-1978, which is as follows :-- The Board have advised that there is no presumption under any provisions of the Partnership Act under which a minor electing to a full-fledged partner on attaining majority would ipso facto become liable to share in losses also. In case losses arc borne in entirely by only some of the partners the partnership deed would still be a valid one. Further Section 30(7)(b) of the Indian Partnership Act lays down that where a minor elects to continue as a partner, his share in the property and profits of the firm shall be the share to which he was entitled as a minor. As per Section 4 of the same Act, the partners must agree to share profit and hence agreement to share losses is not essential. Thus, Section 30(7)(6) read with Section 4 of the Act makes it clear that when a minor elects to continue as a partner, he shares in profits only. However, if it is decided among the partners that the minor on attaining majority should share in losses also, then and only then afresh deed of partnership effecting the change would be necessary.
The Board Circular is unequivocal in its terms and it hardly needs any elucidation. So long as the minor who attained majority does not undertake to bear any part of the losses as per the agreement between the partners, no fresh deed of partnership is necessary, if only he is entitled to any agreed proportion of profits. Here in this case, we have already held on the construction of Form No. 12, that the minor in this case from the facts and circumstances, did not undertake to bear any losses. So also the major partners did not fasten any part of the liability on the minor to share in losses. The profit sharing ratio of Shri Sudershan remained the same both when he was a minor, as well as, when he became a major. In such circumstances, as per the above said Board Circular we hold that no fresh partnership deed is necessary. On somewhat similar facts which are obtaining in this case, this Tribunal had already decided the matter in favour of the assessee in Veerraju & Co. v. ITO  5 Taxman 17(Hyd.). In that case it was held that it is entirely up to the partners to decide that any or some of them will not have the share of losses and that any sort of agreement in that regard would not offend any provision of the Indian Partnership Act, 1932. In that case also, the Tribunal had followed the Board Circular dated 4-4-1978 cited supra and held that no fresh partnership deed is necessary. In that case, there were four partners and minor admitted to the benefits of partnership. The profits were agreed to be shared both between the major partners as well as the minor partner in stated proportion whereas the losses were agreed to be borne only by the major partners. For 1973-74 assessment year the ITO originally allowed continuation of registration but he subsequently cancelled the continuation on the ground that no fresh partnership deed was executed within the six months of the minor attaining the majority and his share of loss in the firm was not known. The AAC confirmed the order of the ITO cancelling continuation of registration. After having considered the Supreme Court decision in Mandyula Govinda & Co. v. CIT  102 ITR 3, the Allahabad High Court's decision in Ganesh Lal Laxmi Narain v. CIT  68 ITR 696, Allahabad High Court decision in Badri Narain Kashi Prasad v. Addl. CIT  115 ITR 858 (FB) and having due regard to the Circular of the CBDT dated 4-4-1978 cited supra, the Tribunal held taking into due regard Clause No. '8' of the Partnership deed as follows at page 20 of the reported decision : In the present case, the partners did not decide any change in the profit sharing or loss sharing ratio and therefore the position continues to be same as was under the partnership deed. The losses were to be distributed only among several partners on the basis of the share indicated in the deed itself but taking total losses at 89 whereas the profit was indicated on the basis of profit being 100.
The Circular of the Board clearly states that in such a situation no fresh partnership deed was necessary and in case losses were borne entirely by some of the partners the partnership could still be a valid one.... Apart from the Circular of the Board, the legal position is that the partners can always decide that any of them or some of them will not have a share in losses and that situation is not against the provisions of the Partnership Act. In view of the above decision, we hold that the lower authorities were not justified in refusing the claim of registration, we therefore (declare) that the continuation of registration granted to the firm had wrongly been cancelled.
Similarly, a later decision of the Tribunal in Jaya Steel Palace v. ITO  13 TTJ 265 (Hyd.) in a similar situation held the following as per the head-note : A minor became major during the accounting year. The minor was admitted to the benefits of the partnership firm. After attaining majority she did not make any declaration about to terminate her connection with firm. No new partnership deed was executed by the firm. The ITO refused continuation of registration to the firm on various grounds including the ground that the profit, sharing ratio of the partners had undergone a change when minor became a full-fledged partner on attaining majority and a new partnership deed ought to have been executed. The Tribunal observed that under Section 30(7)(6) of the Partnership Act, 1932, the share of a minor who become major and elects to continue as partner of the firm has the same share in profits of the firm to which he was entitled as a minor. Tribunal, therefore, laid down that execution of a new partnership was not obligatory on attaining majority by the minor when no alteration in the share of profits was intended. The Tribunal held that registration could not be refused to the firm on this ground. Tribunal also observed that there was a circular of the Board dated 4-4-1978, according to which it was not necessary to have a fresh instrument of partnership when minor attains majority and continue as parincr unless a change in profit sharing ratio was intended. The Tribunal allowed the registration to the firm on the ground of this Circular of the Board also.
The learned DR contended that the CBDT cannot issue a Circular which is found to be against the decided case-law on the subject. Inasmuch as the decision of the Allahabad High Court in Badri Narain Kashi Prasad's case (supra) and Setha Ram Dhanvir Singh's case (supra) were directly against the CBDT Circulars sought to be relied upon by the assessee, the circulars cannot come to the aid of the assessee and the Allahabad High Court decisions should be preferred over the Circulars of the CBDT. Shri Ch. Parthasarathy, learned counsel for the assessee contended that if a beneficial circular is given by the CBDT even though it is found to be against the provisions of the Statute the benefits of the Circular should not be denied to the assessee. In support of this contention, he relied upon the Full Bench decision in Dattatraya Gopat Shette's case (supra). The Bombay High Court held regarding the binding nature of the CBDT Circular against the Income-tax authorities as follows as per the head-note of the decision at page 460 : It is now well-settled that even if the contents of a circular may amount to a deviation of a point of law, a circular of the Central Board of Revenue which confers some benefit on the assessee is binding on all officers concerned with the execution of the Income-tax Act, and they must carry out their duties in the light of the Circular.
Having regard to all the. above, we hold that refusing continuation of registration to the assessee-firm by the ITO is against law and therefore it is correctly set aside by the order of the CIT(A). We direct the ITO to grant registration to the assessee-firm for assessment year 1982-83. Appeal for assessment year 1982-83 is hereby dismissed.
5. As regards assessment year 1983-84, continuation of registration for this year was not granted on the ground that such continuation of registration was refused for assessment year 1982-83 by the ITO and hence the question of granting continuation of registration for this assessment year does not arise. While disposing of the appeal for assessment year 1982-83, we already directed the ITO to grant continuation of registration to the assessee-firm. In view of our orders for assessment year 1982-83, since the same holds good even for this assessment year, we set aside the orders of the CIT(A) and direct the ITO to grant continuation of registration. Appeal for this assessment year therefore stands dismissed.
6. As regards assessment year 1984-85, the accounting year of the assessee-firm ended by 31-3-1984. It is the case of the assessee that it had sent Form No. 12 duly filled up and signed by all the partners to the ITO's Office, on 31-7-1984. In support of the said allegation, the assessee had a Certificate of Posting bearing postal stamp dated 31-7-1984 with it. The ITO while refusing continuation of registration for assessment year 1984-85 held that the primary onus lies upon the assessee to prove that the assessee submitted Form No. 12 in the ITO's office on 31-7-1984. He held that Certificate of Posting would only reveal that a cover was sent to the ITO but does not establish positively that Form No. 12 for assessment year 1984-85 was filed before the ITO. Further, for assessment year 1984-85, the assessee is expected to file Form No. 12 within the close of the accounting year, viz., 31-3-1984 and in the absence for any request for condonation of delay in filing Form No. 12, the application sent on 31-7-1984 should be held belated and on that ground continuation of registration was refused. The CIT(A) by her orders, dated 8-2-1988 directed the ITO to give the assessee opportunity to file Form No. 12, to condone the delay in tiling it and to grant to the assessee continuation of registration for assessment year 1984-85. This impugned order of the CIT(A) is assailed by the revenue as incorrect both on facts and in law. With regard to this issue we need cite only the CBDT Circular issued in F.26/3/65-IT(A-I), dated 26-6-1965. The CBDT indicating as to how application in Form No. 12, found to be defective, on technical grounds, should be dealt with, held in the Circular as follows :-- 1. A declaration under Section 184(7) for continuation of registration has to be furnished by a firm along with the return of total income. If the return of income is delayed and no ex parte assessment is made by the ITO under Section 144, the declaration filed along with the belated return would constitute sufficient compliance with the provisions of Section 184(7).
2. Section 185(2) already provides that the ITO shall not reject an application for registration merely on the ground that the application is not in order but shall intimate the defects within a period of one month from the date of such intimation. Although a specific proviso to this effect has not been made in Sub-section (7) of Section 184 in regard to declarations filed for continuation of registration, the Board are of the view that in consonance with the spirit of the provisions in Section 185(2) a declaration under Section 184(7) should not be rejected merely on the ground that it is technically defective. The ITO may therefore be instructed that the procedure under Section 185(2) should also be followed with regard to defective declarations under Section 184(7).
The Bombay High Court decision in Dattatraya Gopal Shette's case (supra) equally applies with regard to this CBDT circular. Therefore it is clear that whenever the ITO finds that Form No. 12 is defective, inasmuch as it is filed out of time, he should not outright reject the application for continuation of registration; instead he is obliged to return the said form to the assessee giving 30 days time for rectification of the defects found out. If this procedure had been adopted in this case, then the assessee-firm would have come with a petition for condonation if necessary and the ITO would have decided whether there is condonable delay or not. Since the Form No. 12 was not returned there was no scope for the assessee to file any delay excuse petition in filing Form No. 12. In any view of the matter the order of the ITO rejecting continuation of registration on the ground that Form No. 12 was filed late cannot be supported in view of the categorical CBDT Circular quoted above. Hence the cancellation of the ITO's order by the learned CIT(A) is quite justified and the direction given to the ITO by the learned CIT(A) is also fully justified. Hence there is no substance in the departmental appeal for assessment year 1984-85 and it is dismissed.