P. B. MUKHARJI J. - This is a reference under section 66(1) of the Income-tax Act by the Tribunal at the instance of the Commissioner of Income-tax, West Bengal. The question of law on which the decision of this court is sought is as follows :
'Whether on a true construction of the partnership deed dated 7th April, 1949, registration under section 26A of the Act can be granted to the assessee.'
The assessee is a firm of partnership called Khetan & Company, Jalpaiguri. The assessment year out of which these proceedings started is the year 1950-51. The deed of partnership is dated 7th April, 1949. It is expressly made between four parties, (1) Sagarmull Khetan, (2) Shankarlal Khetan, (3) Rameshwardas Agarwalla, and (4) Shambhulal Khetan. The first, second and the fourth parties are brothers, all being sons of one Ghasiram Khetan. The fourth party, Shambhulal Khetan, in the deed of partnership is described as a minor son of Ghasiram Khetan and represented by his natural guardian and father, Ghasiram. When this deed of partnership was presented to the Income-tax Officer, the Income-tax Officer refused registration of the firm under section 26A of the Income-tax Act on the ground that appropriate interest in terms of the partnership deed was not charged and apportioned and, therefore, it was not properly acted upon and, secondly, that one of the partners, Rameshwardas, did not appear to be a genuine one.
The assessee appealed to the Appellate Assistant Commissioner who expressed the opinion that clause 5 of the partnership deed required the partners to share the losses and as one of the partners was a minor and under the law the minor could not be made liable to share the loss, the partnership was void ab initio. On this question of law there followed difference between the members of the Calcutta Bench of the Appellate Tribunal. The Accountant Member of the Appellate Tribunal expressed the opinion that the deed of partnership expressly stated that the minor was admitted to the benefits of partnership and expressly mentioned that this case was subject to section 30 of the Indian Partnership Act and, therefore, he read clause 5 of the partnership deed as subject to section 30 of the Partnership Act with the result that he was of the view that clause 5 should be read, so far as the minor was concerned, as a liability for the loss for his share only without any personal liability for the minor. The Judicial Member of the Appellate Tribunal, on the other hand, expressed the contrary opinion holding that clause 5 of the partnership deed made the minor liable to bear the losses in the same manner as the other partners and was, therefore, bar and in breach of section 30 of the Partnership Act. The difference between the members was thereafter referred to the President under section 5A(7) of the Income-tax Act and the President, as the third member, agreed with the Accountant Member and held that in the case of losses the minors share of the loss of the year of account would be debited to the minors account and the partners of the firm would be precluded from suing the minor for the balance of the loss assuming that the firm was wound up at the end of the year, and that no outsider could make the minor personally liable because he was only admitted to the benefits of partnership. The order of the President, therefore, was to allow the appeal and permit registration of this deed of partnership. This is the chequered history of the proceedings. The Tribunal, therefore, in this context rightly referred the aforesaid question of law for determination by this court.
A preliminary point on behalf of the was taken to confine the answer to the question only to a consideration of clause 5 of the partnership deed because the difference in view and opinion arose on that point. Reliance was placed on the well known decision of the Supreme Court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, laying down the principle that the only question of law which the assessee or the Commissioner can require the Tribunal to refer to the High Court under section 66(1) of the Income-tax Act is 'any question of law arising out of an order of the Tribunal.' On the strength of that decision it is contended that the order of the Tribunal shows that it proceeded only upon the construction of clause 5 of the partnership deed. The difficulty on behalf of the assessee so far as this point is concerned lies elsewhere. That is in the question already framed and sent to this court for decision. The question itself, quoted above, will show that it is not confined to any particular clause of the partnership deed but has been widely framed to depend on the construction of the whole deed of partnership. Therefore, the ambit of the question of law asked in this case will no justify us to limit ourselves to clause 5 of the partnership deed only but to have an entire view and conspectus of the whole deed of partnership in this case.
The assessees argument on this point also suffers from a wrong approach of law under section 66(1) of the Income-tax Act. To indicate the fallacy of the assessees argument it will be enough to refer to the latest Supreme Court decision in Kusumben D. Mahadevia v. Commissioner of Income-tax, where it is expressly laid down that while section 66 only confers jurisdiction on the High Court to permit a reference on a question of law arising out of the order of a Tribunal and does not confer jurisdiction on the High Court to decide a different question of law not arising from such order, nevertheless it is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. But certainly the question must still be one which was before the Tribunal and was decided by it. It must not be an entirely different question which the Tribunal never considered (see the observations of the Supreme Court at page 544 of that report). Applying those principles here it is plain that the whole question before the taxing authority was whether the particular deed of partnership could be registered under section 26A of the Income-tax Act. The fact that according to the taxing authorities they put forward the reason of clause 5 of the partnership deed to dispose of the question, does not mean that other clauses of the partnership deed cannot be examined by this court. Indeed the Accountant Member himself refers also to clause 6 of the partnership deed and quotes it, as well as other parts of the deed. In the first place, as indicated above, the question itself that has been raised by the Tribunal is not at all limited to clause 5 but makes reference to the true construction of the whole deed of partnership, and, secondly, it is the same question of law whether this particular deed of partnership could be registered and the different approaches for its solution through the different clauses of the partnership cannot, therefore, be excluded.
Reverting back to the deed of partnership, which I propose to analyse clause by clause it will be necessary to see that the deed of partnership is signed by the minor as a fourth party although, as has already been said, he was being represented by his natural guardian, father. The order of the Accountant Member shows that the application was signed by the three adult partners and by the minor partner also. In fact, therefore, one of the contentions raised was that the application had become void by the signature of the minor partner.
Large questions for determination arise on the Contract Act, the Partnership Act and the Income-tax Act including interpretation of the different clauses of the partnership deed.
The first question is whether a minor can enter into a contract of partnership. It is necessary at the outset to mention that the English law is different from the Indian law on this point and there is nothing in English law comparable to section 30 of the Indian Partnership Act. Before dealing with the provisions of section 30 of the Indian Partnership Act it will be necessary to dispose of shortly the argument about minors capacity to enter into a contract of partnership under the Indian law.
Section 10 of the Contract Act provides that all agreements contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. It is followed by section 11 of the Contract Act which lays down that every person is competent to contract who is of the age of majority. It follows that a person who is not of the age of majority is not a person competent to contract and make a lawful contract within the meaning of section 10 of the Contract Act. The position formerly taken by certain Indian decisions was that because under the English law a minors contract was only voidable at his opinion a minors contract even under the Indian Contract Act was also to be regarded as such. Under the common law of England a minors contract is not generally void but voidable at his option and if it appeared to the English court to be for his benefit it should even be binding specially if the contract was for necessaries. But in 1903 the Privy Council in Mohori Bibee v. Dharmodas Ghose emphasises the difference between the Indian law and the English law and clearly lays down that the Indian Contract Act makes it essential that all contracting parties should be competent to make a contract and a person who by reason of infancy is incompetent to contract, cannot make a contract within the meaning of the Act. Although this case relates to a mortgage by a minor, the Privy Council lays down the principles and construction of the Indian Contract Act. Following the same principle in this case, therefore, the signature by the minor to the partnership deed cannot make it a contract binding on the minor, just as the mortgage by the minor was held by the Privy Council not to bind the minor.
On the question of minority section 26A of the Income-tax Act and the Rules made thereunder are also relevant for this appeal. Section 26A of the Income-tax Act lays down the procedure for registration of firms. It provides as follows :
'(1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax.
(2) The application shall be made by such person or persons, and at such times and shall contain such particulars and shall be in such form, and be verified in such manner as may be prescribed; and it shall be dealt with by the Income-tax Officer in such manner as any be prescribed.'
This section 26A was inserted by section 5 of the Indian Income-tax (Amendment) Act, 1930 (Act XXI of 1930). An analysis of this section shows that the application may be made on behalf of a firm. The firm is qualified by the expression 'constituted under an instrument of partnership.' An instrument of partnership necessarily means a written agreement or deed of partnership. Now an actual instrument of partnership, which is itself an agreement of partnership and therefore a contract, cannot be signed by a minor who has not the capacity under the Contract Act to enter into any contract including a contract of partnership. This section itself does not speak of the minority of any partner expressly. But rules made under section 59 of the Income-tax Act refer to minors. Before dealing with the rules it may be mentioned in passing that rules made under section 59 when published in the Official Gazette are expressly laid upon such publication to 'have an effect as if enacted in this Act' by reason of sub-section (5) of section 59 of the Income-tax Act. The result, therefore, is that rules have the same effect now as if enacted in this Act. Rule 2 of the Indian Income-tax Rules expressly provides that an application for registration 'shall be signed by all the partners' (not being minors) personally. Rule 3 similarly provides that 'if the Income-tax Officer is satisfied that for some sufficient reason the original instrument of partnership cannot conveniently be produced he may accept a copy of it certified in writing by all the partners (not being minors).' Rule 3 also provides that the application for registration mentioned in rule 2 'shall be made in the form annexed to this rule'. Form I is such a form that is annexed to the rule. There is a note attached to that form which expressly says 'this application must be signed personally by all the partners (not being minors).' Particulars of the form containing the columns indicate in I only names of partners, and not other persons and not those who may not be partners but may be admitted to the benefits of partnership such as a minor under section 30 of the Partnership Act.
On a true interpretation of section 26A and the rules made thereunder having the effect that such rules are also enacted in the Act, it follows irresistibly for the reasons stated above that a minor cannot enter into a contract of partnership and that is why minors are not required (1) to sign the application for registration, (2) to certify the copy and (3) only partners and not minors who are only admitted to the benefits of partnership are included in the form to be filled in. The question whether the application for registration in this case was invalid merely because the minor put his signature is a small point compared with the larger question about his capacity to enter into such contract and the Accountant Member tried to dispose of the question, in our view wrongly, by only holding that such a signature was redundant in terms of rule 3 under section 26A and the whole application was not invalid.
The point that next arises for discussion is nowhere section 30 of the Partnership Act recognises a minors position in a contract of partnership. Partnership belongs to the realm of contract and section 5 of the Indian Partnership Act expressly makes it clear by saying 'the relation of partnership arises from contract and not from status.' It is defined by section 4 of the Partnership Act to be the relation between persons who have 'agreed' to share the profits of the business carried on by all or any of them acting for all. It is then said that such persons who have entered into partnership are individually called the partners and collectively called a firm. It follows from the definition of section 4 of the Partnership Act, by virtue of the word 'agreed' that the persons must be competent to agree. A person who is not competent to agree or to make a contract is, therefore, outside the scope of persons within the meaning of section 4 of the Partnership Act. From these two sections alone it is a legitimate conclusion to draw that even under the Partnership Act, apart from the Contract Act, the minor cannot be a partner. This conclusion is confirmed by section 30 of the Partnership Act which expressly says that a person who is a minor 'may not be a partner in a firm.' It begins, therefore, with the enunciation of the principle of the inability of a minor to be a partner in a firm. Then it goes on to provide the manner in which a minor may be recognised in a partnership. The crucial words in sub-section (1) of section 30 of the Partnership Act on this point are 'with the consent of all the partners for the time being he may be admitted to the benefits of the partnership.' That means the adult partners may consent and agree between themselves and confer upon the minor 'the benefits of partnership.' Having first postulated the incapacity of a minor to be a partner in a firm this provision which follows to admit him to the benefits of partnership must, therefore, be read subject to that disqualification. Admission to the benefits of partnership cannot therefore make a minor an actual partner in a firm. He does not by admission to the benefits of a partnership acquire the status of a partner. It is something less. The reason for making such provision is that the minor cannot enter and has not the capacity to enter into a contract of partnership. Therefore, section 30(1) of the Partnership Act cannot mean that there is a kind of contract by the minor to get the benefits of partnership. It indeed suggests that it is the adult partners who are conferring the benefits of partnership upon the minor. From that point of view the minor is a kind of beneficiary admitted to 'the benefits of partnership.'
There are nine sub-section of section 30 of the Partnership Act. A scrutiny of the provisions of these various sub-sections confirms the same view that a minor has not the status of a partner. These sub-sections are illustrative of the rights which a minor admitted to the benefits of partnership has; for instance, sub-section (2) gives such a minor a right to the share of the property and of the profits of the firm. The words 'as may be agreed upon' in the sub-section (2) mean agreed upon between the adult partners because a minor cannot agree. It also gives the minor access to and inspect and copy any of the accounts of the firm. If a minor was himself a partner then express provision giving him right to the share of the property and of the profits of the firm and the limited right of access to, inspection and copy of any of the accounts of the firm, which all full-fledged partners have, would not have been necessary.
Similarly, again, sub-section (3) makes such minors share liable for the acts of the firm but provides that the minor is not personally liable for any such act. This personal immunity of the minor again marks the difference between a partner and a minor admitted to the benefits of a partnership.
Fourthly, sub-section (4) of section 30 of the Partnership Act gives a limited right to such a minor to sue the partners for an account or payment of his share of profits of the firm. A minor can only sue the partners for such account or such payment when he severs his connection with the firm and not before that. A minor cannot by himself sue for dissolution of the firm which a partner can. It is, of course, provided by that sub-section that when he does sever his connection, then the valuation of his share, as far as possible, will be in accordance with the rules mentioned in section 48 of the Partnership Act as between partners. A proviso to sub-section (4) gives an option to the adult partners to elect to dissolve the firm in such a suit brought by the minor. In that event, it is provided that the court shall proceed with the suit as one for dissolution and for settling accounts between the partners and the amount of the share of the minor shall be determined along with the shares of the partners. The difference between the minor and the partners is, therefore, maintained even in sub-section (4).
Sub-section (5) of the Indian Partnership Act gives to the minor on attaining majority a right to elect to become or not to become a partner in the firm by a public notice in default of which the minor becomes a partner in the firm on the expire of six months. If a minor were in fact a partner, then there would be no need for making an express provision in sub-section (5) of the section 30 of the Partnership Act giving him a right to elect to become or not to become a partner. In other words, it means that during his minority he is clearly not and cannot be a partner.
Sub-section (6) of section 30 of the Partnership Act proceeds to provide as to who shall have the burden of proving the fact that the minor had not knowledge of admission into partnership, a consideration which is not relevant for the purpose of deciding the point in this appeal and we shall pass it by.
Sub-section (7) of section 30 of the Partnership Act proceeds to provide as to who shall have the burden of proving the fact that the minor had no knowledge of admission into partnership, a consideration which is not relevant for the purpose of deciding the point in this appeal and we shall pass it by.
Sub-section (7) of section 30 of the Partnership Act provides for the rights and liabilities of the minor who becomes a partner. It provides in sub-clause (a) that his rights and liabilities as a minor continue up to the date on which he becomes a partner, but thereupon he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership. In other words, this is a significant provision. As indicated already in sub-section (3), the minor has no personal liability, but the moment he becomes a partner, then his personal liability relates back to all acts of the firm since the very time when he was admitted to the benefits of the partnership but had not become a partner. Sub-clause (b) of sub-section (7) provides that his share in the property and profits of the firm upon his becoming a partner, shall be the share to which he was entitled as a minor.
Correspondingly opposite provisions are made in sub-section (8) of section 30 of the Indian Partnership Act where such person elects not to become a partner. In that case his rights and liabilities continue only to be those of a minor up to the date on which he gives public notice and his share is not liable for any acts of the firm done after the date of the notice, and he is entitled to sue the partners for his share of the property and profits in accordance with sub-section (4).
Sub-section (9) of section 30 of the Indian Partnership Act is careful to provide that the provisions in sub-sections (7) and (8) relating to the two events when such a minor becomes a partner or elects not to become a partner, shall not affect the consequences of holding out as a partner, as provided in section 28 of the Indian Partnership Act.
Taking a total view of section 30 of the Indian Partnership Act and its different sub-sections it, therefore, follows that although the expression 'benefits of partnership' is wide enough to include whatever those benefits may be and the legislature has not thought fit to define and particularise what are and what constitute these benefits of partnership, yet this much is clear that the status of a partner in the firm is not one of the benefits of partnership which can be given to a minor.
Mr. Ashoke Chandra Sen, learned advocate for the assessee, who argued this case with very great ability, realised the difficulty of his position. He, therefore, took a very bold and ingenious step in the argument by contending that in this case while the minor could not enter into a contract, the natural guardian who was representing the minor, could do so and that there is nothing either in the Contract Act or in the Partnership Act which prevents a natural guardian to enter into a contract of partnership for and on behalf of the minor. For this purpose he relied on two decisions, - one of the Privy Council and the other of a division bench of this court. He relied first on the Privy Council decision in Sri Kakulam Subrahmanyam v. Kurra Subba Rao Lord Morton delivering the judgment of the Privy Council in that case observes that the position of a guardian under the Hindu law was considered by the Privy Council in the case of Hunoomanpersaud Panday v. Mussumat Babooee Munraj Koonweree. His Lordship there points out that the act of the mother and guardian in entering into the contract of sale was an act done on behalf of the minor appellant. His Lordship then quotes Mullas Indian Contract and Specific Relief Acts, 7th edition, page 70. Lord Morton thereafter refers to the decision of the Privy Council in Mohori thereafter refers to the decision of the Privy Council in Mohori Bibee v. Dharmodas Ghose, where it is said that it is different with regard to contracts entered into on behalf of the minors by a guardian or by a manager of the estate. In such a case it has been held by the High Court of India, in cases arising subsequent to the governing decision of the Privy Council, that the contract could be specifically enforced by or against the minor if the contract was one which it was within the competence of the guardian to enter into on his behalf so as to bind him by it, and, further that it was for the benefit of the minor. But if either of those two conditions was wanting, the contract could not be specifically enforced at all. Mr. Sen thereafter relied on the decision of a division bench of this court in Commissioner of Agricultural Income-tax v. Jagadish Chandra Sahoo, holding that the transfer by way of gift, (which Mr. Sen contended could never be for the benefit of a minor) of land belonging to the assessee by his mother in her capacity as his natural guardian when the assessee was a minor, was not void ab initio, but was merely voidable at the option of the minor on attainment of majority.
On the strength of these authorities it is contended before us that in this case as the minor was represented by his father and natural guardian, this contract avoids the incapacity of minor to contract and is not void but only voidable until it is shown that the guardian in this case was acting outside the scope of his authority and not for the minor.
This argument, ingenious and far-reaching as it is, on a closer scrutiny appears to suffer from certain basic fallacies. A guardians capacity to act for and on behalf of the minor within the two limits expressed by Privy Council that he must do so within the scope of his authority and for the benefit of the minor, is unquestioned. But even a guardian while he can supply the deficiency suffered by the minor in age in law cannot supply the defects which the law prohibits. If the law, as section 30 of the Partnership Act in this case, prohibits a minor to become a partner in a firm, then no guardian acting on his behalf can over-reach that law and argue that as the guardian is a major, the minor becomes a partner of a firm which the law expressly prohibits because his guardian did it for him. Such a contract will be hit by section 23 of the Contract Act on the ground that it is forbidden by law. Therefore in such a case the guardians contract on behalf of minor resulting in making the minor a partner in a firm will be void ab initio and not voidable. It is not a question then whether the guardian acts within the scope of his authority and for the benefit of the minor. It is then a question that the guardian was trying to do from the beginning something which was illegal and forbidden by the law. This is exactly what has happened in this case, as we shall see when we analyse the different clauses in this partnership deed.
There are authorities which also indicate the fallacy of this argument. In A. Khorasany v. C. Acha a division bench decision of the Rangoon High Court of Carr and Cunliffe JJ., the question of a Mahomedan widow acting on behalf of her minor son was raised. There after the death of one of the two partners the widow of the deceased partner entered into an agreement on behalf of her minor sons to carry on the partnership, the widow and her minor sons being in the position of the deceased partner. The District Judge there held that the agreement constituted a valid contract of partnership so far as the minors report, quoted above, observed as follows :
'It is made quite clear by the decision of their Lordships of the Privy Council in Imambandi v. Mutsaddi, that a Mahomedan widow as such is not competent to enter into a contract binding on her minor children and, therefore, in this case the agreement could not bind the minor plaintiffs.
It has been urged that section 247, Contract Act, is sufficient to make the agreement a binding contract. I do not think that it is. That section lays down that when a minor is admitted to the benefits of partnership he is not personally liable for the obligations of the firm, but that his share of the property of the firm is so liable.'
In other words, there the same plea that the mother was acting as the natural guardian of her minor sons could not validate a minors contract of partnership. It is true that it was a case of Mahomedan law but the decision on this particular point rests not only on the peculiarities of Mahomedan law, but also on the construction of old section 247 of the Contract Act, the precursor of section 30 of the present Partnership Act.
It will be appropriate at this stage to refer to the different relevant clauses of the partnership deed. The four parties mentioned above are expressly made in the recital to 'agree' to carry on the business in 'co-partnership' between them in the name and style of 'Khetan and Company'. That means that the minor party also is 'agreeing' to enter into 'co-partnership'. That, as indicated above, is illegal and in violation of section 30 of the Partnership Act. It is true that in the recital the fourth party is described as 'shall be admitted into the benefits of the partnership in the share and under the terms hereinafter contained subject to all the rights and liabilities as contemplated under section 30 of the Indian Partnership Act.' Although the preamble and clause 12 of the deed of partnership state so, a glance at the different clauses in the partnership deed would at once indicate how the provisions of section 30 of the Partnership Act are plainly violated. Clause 5 of the partnership deed provides 'that the profit or loss as may accrue from year to year including loss of capital shall be divided between and borne by the partners hereto in the following shares :
Rs. A. P.
First party .
Second party .
Third party .
Fourth party .
This plainly indicates that the fourth party who is the minor is expressly and clearly described as a partner. Now a minor cannot be a partner in a firm under section 30 of the Indian Partnership Act. The clause also says that the loss is to be borne by the minor partner. There is no limitation that such liability should be confined to his share and will not touch him personally. If it is read subject to section 30 of the Partnership Act, as it must be, whether it is stated in the clause of the partnership deed or not, because the law must always be applied, the fact remains that the clause makes the minor a full-fledged partner. That defect cannot be cured by spelling out his liability differently than that expressed plainly in clause 5 of the deed. An instrument of partnership intended to be registered under section 26A of the Income-tax Act must be a legal document and not an illegal one. Nor can it be re-written by changing liabilities of partners as expressly provided in the clause of the partnership deed in order to bring it within the law. That will be spelling out a new contract by the court and not the contract of the parties. Then again clause 6 of the partnership deed makes it obligatory 'that capital as may be needed for running of the partnership business shall be contributed by the parties hereto in proportion to their aforesaid shares.' Now this is a serious obligation upon a minor. The minor is being required to provide capital as and when needed for the running of the partnership business. Now, unpredictable and recurring liability for providing capital is, therefore, imposed upon the minor. This not only violates section 30 of the Partnership Act as analysed above, and cannot even be modified by reading it as subject to that section, but also violates the principle so well recognised ever since the Privy Council decision in Sanyasi Charan Mandal v. Krishnadhan Banerji, where Sir Lawrence Jenkins at page 115 laid down the law of the inability of any karta to impose on a minor co-parcener the risks and liabilities of a new business started by himself. Therefore, here even the fact on which Mr. Sen relied, that the father or karta of this minor son was acting on behalf of him, could not help the contention. Section 30(3) of the Partnership Act clearly circumstances the maximum limit of a minors liability to one limited to his share and therefore no personal liability or no recurring liability of such a nature as provided in clause 6 of the partnership agreement in this case can be imposed on the minor. The Accountant Member failed to notice this part of the recurring obligation to provide capital in clause 6 of the partnership deed and proceeded only with regard to the subsidiary provision for interest which was permissive in that very clause.
Then again clauses 8 and 9 of the partnership deed, although not particularly material, speak of necessary and proper books of accounts and making then accessible to all partners. Now if Mr. Sens argument is right that this clause is to be read subject to section 30 in the sense that the minor is not a party, then it obvious that even the minors right of inspection and access to the accounts of the firm are being denied in violation of section 30 of the Partnership Act by express provision in the deed of partnership. That would make it illegal. Clause 9 of the partnership deed may be passed over as not decisive for this question but clause 10 of the partnership deed again creates difficulties. It keeps the control and management of the partnership business on all the partners and directs that all partners shall diligently attend to the business and devote their best attention to the same. If the minor here again is a partner under clauses 5 and 6 of the deed, then a minor is being made to accept obligations which he could not be made to do under section 30 of the Partnership Act beyond the limits mentioned there. The whole difficulty with the partnership deed is the express mentioning of the minor as a partner in clause 5 of the operative part of the partnership deed. If by constant application of section 30 of the Partnership Act each clause was to be defined, re-defined, modified and interpreted to mean something different than what it says, then it is really re-writing a new contract of partnership distinct from the one that is put up for registration.
This problem came up recently before the Supreme Court in Commissioner of Income-tax v. Dwarkadas Khetan & Co. There the Supreme Court at page 533 clearly lays down the principle that section 30 of the Partnership Act says that a minor cannot become a partner, though with the consent of the adult partners he may be admitted to the benefits of the partnership and observes as follows :
'Any document which goes beyond this section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it. If the income-tax authorities register the partnership as between the adults only contrary to the terms of the document, in substance a new contract is made out. It is not open to the income-tax authorities to register a document which is different from the one actually executed and asked to be registered.'
It is not doubt true as contended at the Bar that the facts before the Supreme Court were not the same and there are distinguishing features. Before the Supreme Court the minor was admitted as a full partner and he was also a signatory to the instrument, though the natural guardian also signed it. But then he was not only entitled to share in the profits but he was also made liable to bear all the losses including loss of capital. The provision was also there that all the four partners including the minor were to attend to the business. The points of similarity are, however, great between that case and the case before us and what is more the principle laid down on the interpretation of section 30 of the Partnership Act clearly binds us.
An attempt was made to urge before us the ground that under section 2(6B) of the Income-tax Act a partner includes any person who being a minor has been admitted to the benefits of partnership. It was, therefore, contended that a minor could be a partner within the meaning of the Income-tax Act. There, again, the Supreme Court in the case of Commissioner of Income-tax v. Dwarkadas Khetan & Co., already cited, points out at page 533 of that report : 'the error in the Madras view is in using the definition to show that a deed including a minor as a competent partner is valid. What the definition does is to apply to a minor admitted to the benefits of partnership all the provisions of the Income-tax Act applicable to partners. The definition cannot be read to mean that in every case where a minor has, contrary to law, been admitted as a full partner, the deed is to be regarded as valid, because, under the law, a minor can be admitted to the benefits of partnership.' This observation completely answers this particular ground urged before us.
In this view of the matter it is no longer necessary for us to consider the Federal Court decision in Kondamudi Sriramulu v. Myneni Punderikakshayya on the question of minors contract.
On these reasons it will follow that the income-tax authorities would be justified in refusing registration of this deed of partnership framed as it is with its present clauses. A reference, however, is necessary in conclusion to the provisions of section 26A of the Income-tax Act because Mr. Meyer, learned counsel for the Commissioner of Income-tax, urged that the instrument of partnership must specify the shares, and in this case clause 5 of the partnership deed does not satisfy the requirements of the statute. For this purpose he relied on the decision of the Supreme Court in R. C. Mitter & Sons v. Commissioner of Income-tax. The language of the section makes it quite clear that the instrument of partnership must itself specify the shares. There is no question of any implication of law or any inference. The word 'instrument' and the word 'specify' would seem to indicate that conclusion plainly. It is laid down by the Supreme Court in R. C. Mitter & Sons v. Commissioner of Income-tax that a firm is entitled to registration under section 26A of the Income-tax Act only on satisfying five essential conditions, namely, (1) that the firm should be constituted under an instrument of partnership specifying the individual shares of the partners; (2) an application on behalf of, and signed by, all the partners and containing all the particulars as set out in the rules must be made; (3) the application should be made before the assessment of the firm of the business 23 for that particular year; (4) the profits or losses if any of the business relating to the accounting year should have been divided or credited, as the case may be, in accordance with the terms of the instrument; and (5) the partnership must be genuine and must actually have existed in conformity with the terms and conditions of the instrument of partnership in the accounting year. The rules expressly provide that this is an annual registration which has to be renewed and it does not therefore matter that the partnership deed provides for its continuance during a number of years.
The strict application of the requirements of section 26A and the rules thereunder was clearly brought out and expounded by the Supreme Court decision in Rao Bahadur Ravulu Subba Rao v. Commissioner of Income-tax, where the Supreme Court lays down the principle that the right to apply for the registration of a firm under section 26A is to be determined exclusively by reference to the prescriptions laid down therein and it would be repugnant to the character of such a right to add to the terms of section 26A by reference to other laws. There the point arose whether the signature under a power of attorney was enough compliance with rules 2 and 6 and it was held it could not be because the rules enjoined that the partners must personally sign.
If the purpose of registration of a firm is kept in view, then there is little scope for misunderstanding these conditions and requirements of section 26A of the Income-tax Act. The registration of a firm with the income-tax authorities has a very clear objective for the purposes of the Income-tax Act. That objective or purpose is to enable the individual partners of a registered firm to get the benefit of lower rates of assessment on the dividend income in the hands of each partner wherever such rates are lower than the rate applicable to the larger total income of the firm computed as a whole. As I said before, if the object of registration under section 26A of the Income-tax Act is kept in view, then the reason and utility of all this stringent law would be clear. These conditions and rules for registration should be read along with section 23(5) of the Income-tax Act which lays down the procedure with regard to the assessment of a firms whether registered or unregistered. In the case of a registered firm the sum payable by the firm itself shall not be determined but the total income of each partner of the firm including therein his share of its income, profits and gains of the previous year shall be assessed and the sum payable by him on the basis of such assessment shall be determined. That is a great relief to each of the partners. That is the benefit of section 23(5) which accrue to a firm which has been registered under section 26A of the Income-tax Act. Therefore it is clear that section 26A and the rules framed thereunder and the particulars required to be stated are intended to help and facilitate assessment on registered firms in the manner provided and laid down in section 23, sub-section (5), of the Income-tax Act. It is therefore, of prime importance that the real partner should be disclosed and the precise share of each partner should be specified both in the application and in the deed of partnership upon which the application is based, as pointed out by Ramaswami J. in Khimji Walji & Co. v. Commissioner of Income-tax. Otherwise the object of the whole scheme will be defeated if it is found that either the partnership is not genuine or the shares mentioned in the deed of partnership are not correct. The learned judge again points our at page 469 the essential basis of these rules and sections in the following terms :
'It should be remembered in this connection that the registration of firms under the Income-tax Act is not a general right but it is a mere privilege given to the partnership in order to enable the individual partners to get the benefit of the lower rates of assessment applicable wherever such rates are lower than the rate applicable to the total income of the firm computed as a whole. If a firm desires to take advantage of this privilege, it must conform strictly to the requirements of section 26A and the rules made under section 59.'
Applying these tests it is incontestable that these different clauses of the partnership deed do not satisfy them in the present case, as indicated above.
For these reasons we decide the question of law by answering it in that negative and by holding that on a true construction of the partnership deed dated 7th April, 1949, registration under section 26A of the Income-tax Act cannot be granted to the assessee.
There will be no order as to costs.
Law J. - I agree.
Question answered in the negative.