Alankar Bhawan vs Commissioner of Income Tax

This is a reference u/s 66(1) of the Income Tax Act, 1922 (Act 11 of 1922), and the question of law which has been referred to this court is as follows :

"Whether, on the facts and circumstances of the case, renewal of registration ought to have been allowed to the assessee firm ?"

The relevant facts are as follows: There was a partnership firm constituting of four partners named Shri Mishrilal Sah, Shri Rajendra Prasad, Shri Ramchandra Prasad Mahasaya and Shrimati Bidyawati Devi. Each of these partners had one-fourth share in the partnership firm and the partnership deed had been executed on the 22nd October, 1957. The firm was known as Shri Alankar Bhawan and had been registered u/s 26A of the Indian Income Tax Act for the assessment year 1959-60. Shrimati Bidyawati Devi died on the 18th September, 1958, leaving behind her two heirs, who were Shri Birendra Kumar Gupta, her husband, and Kumari Rani, her daughter, a minor. For the assessment year 1960-61 the firm applied for renewal of registration u/s 26A. In place of Shrimati Bidyawati Devi came the husband and the daughter of the deceased. The application for renewal was made, so far as the heirs of Shrimati Bidyawati Devi were concerned, showing that in place of the deceased the partners were Shri Bircndra Kumar Gupta and Kumari Rani. Shri Birendra Kumar Gupta described himself as guardian of the minor.

By order dated the 11th April, 1963, the Income Tax Officer refused to register the firm for the assessment year 1960-61. On appeal, the Appellate Assistant Commissioner of Income Tax, Muzaffarpur, reversed the order of the Income Tax Officer and allowed the appeal by his order dated the 16th July, 1964, Renewal of registration for the assessment year 1960-61 was ordered. An appeal was preferred before the Income Tax Appellate Tribunal and the appeal was allowed on the 27th March, 1965, and the order of the. Income Tax Officer was restored. In these circumstances, the present reference has arisen.

Two questions have been pressed before us, the first being the interpretation of Clause 13 of the deed of partnership, apparently by virtue of which the heirs of Shrimati Bidyawati Devi claimed to have become partners in place of the deceased. The second question is whether the renewal of registration has been rightly disallowed on the ground that a minor person has been shown to be a partner sharing the profit as well as loss of the partnership business. Learned counsel for the assessee has contended that the first question regarding interpretation of Clause 13 of the partnership deed has been erroneously decided and that, on a true interpretation of that clause, the partnership was not dissolved by the death of Shrimati Bidyawati Devi and that it continued with the heirs of the deceased being partners. The learned standing counsel has, on the other hand, contended that the partnership came to an end on the death of Shrimati Bidyawati Devi and that Clause 13 of the partnership deed cannot be interpreted to mean that the partnership continued with the heirs of the deceased as partners in place of the deceased. We do not think that it is necessary to decide this question, as the reference can, be answered on the second point, which has been argued in this case. It appears from the judgment of the Appellate Tribunal that the objection which had been taken by the department was that the application for renewal of partnership could not be granted as the minor was shown to be a full-fledged partner sharing the loss of the partnership business also. The order of reference put the matter thus :

"Furthermore, the minor daughter, Kumari Rani, was admitted to the partnership as a full-fledged partner and not to the benefits of the partnership."

For this reason also, renewal of registration has been disallowed. We are of the opinion that the matter is concluded by the decision of their Lordships of the Supreme Court, in the case of Commissioner of Income Tax, Bombay Vs. Dwarkadas Khetan and Co., . In that case, an application had been made u/s 26A of the Indian Income Tax Act by a firm for registration, in which a minor had been shown as a full-fledged partner. The Income Tax authorities had ultimately refused to register the firm u/s 26A. The High Court had answered the reference by holding that the Income Tax authorities were in error and this particular question had been answered by the High Court in favour of the assessee. On appeal to the Supreme Court, their Lordships restored the order passed by the Income Tax authorities refusing to register the firm. Their Lordships held that u/s 30 of the Indian Partnership Act, 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 that any document which goes beyond this section cannot be regarded as valid for the purpose of registration. The only difference between that case and the instant case is that now we are concerned with a partnership firm in which it is said that two heirs of one of the original partners have stepped in by virtue of a clause in the original partnership deed. Assuming that they do so, it is clear that a minor has been described as a full-fledged partner in this case sharing the loss of the partnership also. The partnership which had applied for registration was, therefore, clearly an illegal partnership and, accordingly, the authorities were justified in refusing registration. Learned counsel for the assessee has tried to distinguish the decision in Commissioner of Income Tax v. Dwarkadas Khetan and Co. by urging that in that case the minor had also signed as a full-fledged partner, whereas in the instant case, the guardian of Kumari Rani, namely, her father, had applied for renewal of registration as her guardian. But, in our opinion, the distinction is without any difference altogether. The guardian had described the minor as a partner entitled to the profit and liable for the loss. In this context, learned counsel for the assessee has argued that the words " or loss " to be found in the application for renewal of registration may be ignored, so that the minor may be taken to be admitted to the benefits of the partnership business only. This is exactly what their Lordships of the Supreme Court deprecated in the case of Commissioner of Income Tax v. Dwarkadas Khetan and Co. The Income Tax authorities cannot hold that the minor, namely, Kumari Rani, will be entitled to profits only and permit registration of the partnership firm on that footing, when the partners applying for renewal of registration state that Kumari Rani was entitled to the profits and was responsible for the loss also. Learned counsel for the assessee has also referred to a decision of their Lordships of the Supreme Court in the case of Commissioner of Income Tax, Mysore Vs. Shah Mohandas Sadhuram, .

But, that decision does not support his contention in any manner. Their lordships of the Supreme Court, in this latter decision, have referred to their earlier decision in Commissioner of Income Tax v. Dwarkadas Khetan and Co. and have reiterated that it is clear from Section 30(2) of the Partnership Act, that the minor cannot be made liable for losses. In our opinion, the point under consideration is now concluded by the judgment of their Lordships of the Supreme Court referred to above and the Appellate Tribunal was justified in refusing to renew the registration of the partnership firm for the assessment year 1960-61.

The answer to the reference is therefore given against the assessee. In the circumstances of the case, there will be no order for costs of this court.