P. Vincent and Others, Coimbatore (by manager Mr. Paul Vincent) vs Commr. of Income Tax, Madras

Satyanarayana Rao, J.—u/s 66 (1), Income Tax Act the Appellate Tribunal referred to this Court two questions for decision. They are:

Whether on the facts and in the circumstances of the case the assesses is entitled to claim registration as a firm u/s 26A, Income Tax Act on the

basis of the partnership deed, dated 21-8-1942, and/or on the deed of family arrangement, dated 7-8-1942 and/or the deed, dated 24-3-1948?

Whether on the facts and in the circumstances of the cases, the provisions of Section 9(3) of the Act are attracted to the income from property.

We may at once point out that question 2 arises only out of the assessment and does not arise out of the order u/s 26A of the Act. The reference

that was sought for was only against the order u/s 26A and not against the assessment order. Therefore question 2 should not have been referred

by the Appellate Tribunal to this Court. The argument was therefore confined before us to question 1 alone. It is that question which we have to

answer as arising out of the appellate order of the Tribunal.

One S. Vincent executed a Will on 4-2-1941 and died on 22-4-1942, leaving behind him four sons, two daughters and a widow. Immediately

after his death there were disputes regarding the Will between the members of the family and the disputes were ultimately settled by a deed of

family arrangement of 7-8-1942. Under this arrangement it was agreed between the members that the entire properties and the business left by the

deceased S. Vincent should be managed by the eldest son P. Vincent, and after his, on behalf of all the members of the family, by the then

surviving eldest son. The managing member was given complete control over the business belonging to the members for a period of seven years

from the date of the deed. At the end of the period, it was provided that the parties should scrutinise the accounts and draw a true and accurate list

of all the assets and liabilities and if thereafter they did not wish to continue the business, the properties should be divided so as to give a one-sixth

share to each of the four sons and the widow and a one-twelfth to each of the two daughters.

Within fourteen days after this deed, they entered into a deed of partnership in respect of the business. The four sons, the two daughters and the

widow were treated as the partners, and their shares were one-sixth each to the four sons and the widow and one-twelfth to each daughter. There

is a provision in the partnership deed whereunder notwithstanding the death of anyone of the partners the partnership should not be dissolved. At

the date of the family arrangement one of the sons, Danaraj Vincent, was a minor and was represented by the eldest son as guardian. But in the

partnership deed however Danaraj Vincent signed as a major. Notwithstanding the execution of the partnership deed in 1942 no attempt was

made by the assessees to get the deed registered u/s 26A, Income Tax Act. For the first time an application to register the firm was made on 11-

3-1946 during the assessment year 1945-46. The registration of this firm as a partnership was rejected by the Income Tax authorities and also by

the Appellate Tribunal and at the instance of the assessee this reference was made to this Court. During the pendency of these proceedings, on 1-

11-1947, Danaraj, who had by then attained majority, released his interest in the business under a release deed and on 24-3-1948 there was a

ratification executed between the parties whereunder Danaraj ratified the previous arrangements from the date of the family arrangement till the

date of his relinquishment on 1-11-1947 when he retired from the partnership. These documents which came into existence on a date subsequent

to the date of the application were not and could not be taken into consideration and in that we think that the revenue authorities were correct. The

assessee contended that there was a valid partnership both under the deed of family arrangement of 7-8-1942 and also under the partnership deed

of 21-8-1942. It is rather difficult to construe the deed of family arrangement as constituting a partnership as it proceeds on the assumption that the

parties became co-owners of all the properties, movable and immovable, and the businesses and they provided for the management of the

properties for a period of seven years by appointing a common manager. At the end of the period it was provided that there should be a taking of

accounts and if there is no intention to continue joint they could divide in accordance with the shares provided in the deed. The deed in no sense

can be treated as constituting the co-sharers, partners.

The deed of partnership was considered invalid as Danaraj signed the documents as a major while in fact he was a minor. The view taken was

that because a minor could not be made a partner and as the deed purported to make Danaraj a partner the whole of that deed was void and of

no legal effect. The other aspect, whether the deed could not be so construed as to imply that the parties intended thereby to admit Danaraj to the

benefits of the partnership was also rejected on the ground that the two could not be separated from the document i.e., the intention to constitute a

partnership could not be severed and from that an inference to admit the minor as a partner could not be made. We are however unable to accept

this view. If the minor signed as major, he could not bind himself by that contract. That does not mean that the partnership between the remaining

members was thereby also made invalid. In the judgment in -- ''Jakka Devayya & Sons v. Commr. of Income Tax, Madras'', RC Nos. 1 and 2 of

1950 (Mad.) which we delivered to day we gave reasons for construing a document of a similar nature as constituting a minor as a person

admitted to the benefits of a partnership, and as according to the definition of ""partner"" in the Income Tax Act even a minor is treated as a partner

for the purpose of the Act, the six adults may be treated as having entered into a valid partnership and the minor as having been admitted to the

benefits of the partnership. As he is also a partner according to the definition of the in come-tax Act there is no valid objection for registering the

partnership u/s 2GA, Income Tax Act. As already stated, the subsequent deed of 24-3-1948 could not be considered in these proceedings and it

was rightly rejected. We have already given reasons for not construing the settlement deed of 7-8- 1942, as constituting a partnership. There is

however a valid partnership deed under the deed of 21-3-1942 and the partnership should have been registered u/s 26A of the Act. The answer

therefore to the question referred to us is in the affirmative and in favour of the assessee. As the assessee has succeeded he is entitled to his costs

which we fix at Rs. 250.