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Krishna and Brothers Vs. Commissioner of Income-tax, KeralA. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 46 of 1965
Reported in[1968]69ITR135(Ker)
AppellantKrishna and Brothers
RespondentCommissioner of Income-tax, KeralA.
Excerpt:
- - there was an appeal before the tribunal by the assessee-firm which failed. ' there is a provision in clause 8 of the document which is very similar to clauses 7 and 11, respectively, of the partnership deeds in this case, annexures 'a' and 'b',which read thus :the losses are agreed to be shared by the members in the like manner......ranganayaki ammal acting for the benefit of minors would represent 3/6th share. there is a further clause, clause 7, which is important, reading as under :'the profits and losses of the firm including loss of capital shall be divided between and borne by the parties in proportion to their share.'the eldest among the minor sons attained majority and there was a further partnership deed, appendix 'b' to the statement of the case, entered into on the 7th december, 1966. it is stated in that deed :'and since then no. 4 has attained majority and he having been admitted to the benefits of the partnership, has elected to become a partner thereof.'by this deed there were four adult partners and the two remaining minor sons continued as minors, and as we understand the document, admitted to the.....
Judgment:

GOVINDAN NAIR J. - The Income-tax Appellate Tribunal, Madras Bench, has made this reference.

The questions referred are :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-firm was not entitled to registration for the assessment years 1960-61 and 1961-62 ?

(2) Whether, on the facts and circumstances of the case, the Tribunal was right in confirming the order of the Commissioner directing the assessment of the assessee as an unregistered firm ?'

The firm applied for renewal of registration under section 26A of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act), for the assessment years 1960-61 and 1961-62 and the Income-tax Officer, by his orders dated 30th November, 1960, and 21st August, 1961, granted renewal of registration for the said two assessment years. The Commissioner of Income-tax, Kerala, felt that the renewal of registration was wrongly granted. He therefore instituted proceedings under section 33B of the Act and came to the conclusion that the firm was not entitled to registration. The registration was therefore cancelled and the Commissioner further directed that the firm will be assessed as an unregistered firm. There was an appeal before the Tribunal by the assessee-firm which failed. They have, however, as indicated earlier, referred the questions extracted above pursuant to applications under section 66(1).

The firm was first constituted by a partnership deed, which is annexure 'A' to the statement of the case and which forms part of the case, on the 13th April, 1954. This was a partnership among one Sri Krishna Iyer and his five sons. The elder two were adults on that date and the others minors. The last three were represented by their mother and it is stated in the partnership deed that the mother, Mrs. Ranganayaki Ammal, was acting for the benefit of the minor sons. Again in paragraph 4 of the partnership deed containing the provision regarding capital of the partnership it is stated that the capital shall belong to the said Krishna Iyer and his two major sons 1/6th each and that the said Mrs. Ranganayaki Ammal acting for the benefit of minors would represent 3/6th share. There is a further clause, clause 7, which is important, reading as under :

'The profits and losses of the firm including loss of capital shall be divided between and borne by the parties in proportion to their share.'

The eldest among the minor sons attained majority and there was a further partnership deed, appendix 'B' to the statement of the case, entered into on the 7th December, 1966. It is stated in that deed :

'And since then No. 4 has attained majority and he having been admitted to the benefits of the partnership, has elected to become a partner thereof.'

By this deed there were four adult partners and the two remaining minor sons continued as minors, and as we understand the document, admitted to the benefits of the partnership. This document also contained a clause about the sharing of profits and losses which is clause 11 and which is in these terms :

'The profits and losses of the firm including loss of capital shall be divided between and borne by the parties in proportion to their share.'

These are the facts which we consider necessary for determining the question as to whether the renewal of registration sought by the assessee-firm for the two years has or has not been rightly refused.

A number of decisions have been relied on by counsel appearing on either side. We do not think that it is necessary to refer to all these decisions in view of the fact that similar, if not identical, cases have been dealt with by the Supreme Court. The range within which the cases of this nature can fall, we think, is indicated in the two decisions of the Supreme Court in Commissioner of Income-tax v. Dwarkadas Khetan and Co. and Commissioner of Income-tax v. Shah Mohandas Sadhuram. In the former case, registration was refused and in the latter case, registration was granted. The point of distinction, as we see it, seems to be the fact that on a construction of the document it was possible to come to the conclusion that the minors were admitted to the benefits of the partnership in the case in Commissioner of Income-tax v. Shah Mohandas Sadhuram and in the other case in Commissioner of Income-tax v. Dwarkadas Khetan and Co. it was held that the minors were also sought to be made full partners by the deed of partnership.

The relevant clauses of the document that were construed by the Supreme Court in the later decision in Commercial of Income-tax v. Shah Mohandas Sadhuram have been extracted in the judgment of the Supreme Court. The distinguishing feature seems to be that contained in the preamble to the document reading :

'... whereof we the first and second members have decided to constitute all the said four members as a partnership admitting the third and fourth members thereof to the benefits of the said partnership but not to the liabilities thereunder.'

There is a provision in clause 8 of the document which is very similar to clauses 7 and 11, respectively, of the partnership deeds in this case, annexures 'A' and 'B', which read thus :

'The losses are agreed to be shared by the members in the like manner.'

The document that was construed by the Supreme Court in the earlier decision in Commissioner of Income-tax v. Dwarkadas Khetan and Co. did not contain any clause which indicated that the minors were only admitted to the benefits of the partnership. The court came to the conclusion that no distinction whatever has been made between the minors who were sought to be made partners and the other adult members. It seems to us that the case before us is one which would fall within the ambit of the rule enunciated by the Supreme Court in Commissioner of Income-tax v. Shah Mohandas Sadhuram. Though clause 8 of the document that was construed by the Supreme Court did contain a provision for sharing the losses, their Lordships came to the conclusion that the document read as a whole indicated that the minors were only admitted to the benefits of the partnership and there is no reason for refusing the registration sought for.

We have taken a similar view in I.T.R. No. 1 of 1965. Dealing with an argument similar to the one advanced before us we stated thus :

'Clause 8 of the deed of partnership provides that the minors who have been admitted to the benefits of partnership shall be credited or debited, as the case may be, with their share of profits or losses as under.

1.

Rameschandra Jayantilal

11nP.

2.

Madusudan Jayantilal

11nP.

3.

Mahendra Kumar Jayantilal

11nP.

The submission of counsel for the department is that this provision violates sub-section (3) of section 30 of the Indian Partnership Act, 1932, which says that the share of a minor admitted to the benefits of partnership is liable for the acts of the firm, but the minor is not personally liable for any such act. The expression act of a firm is defined in section 2(a) of the Indian Partnership Act, 1932, as meaning, any act or omission by all the partners, or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm.

We do not understand clause 8 of the deed of partnership as indicating the creation of a personal liability on the part of the minors for the acts of the firm. All that it does, in effect, is to provide that the shares of the minors are liable for the acts of the firm; and that is certainly permissible under sub-section (3) of section 30 of the Indian Partnership Act, 1932.'

We do not think that clause 4 in annexure 'A' and clause 11 in annexure 'B' in the two partnership deeds concerned have provided for anything other than what has been done in clause 8 of the partnership deed which we then construed. If there has been no imposition of personal liability on the minots, section 30(3) of the Indian Partnership Act, 1932, is not infringed. The refusal of registration cannot be sustained.

We answer question No. 1 referred to us in the negative, that is, in favour of the assessee and against the department. In the light of the answer to question No. 1, question No. 2 does not arise for consideration. This income-tax referred case is ordered as above. There will be no order as to costs.

A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.


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