http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: THE COMMISSIONER OF INCOME-TAX, BOMBAY

       Vs.

RESPONDENT: M/S.  DWARKADAS KHETAN & CO.

DATE OF JUDGMENT: 01/12/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. KAPUR, J.L. SHAH, J.C.

CITATION:  1961 AIR  680            1961 SCR  (2) 821  CITATOR INFO :  E          1966 SC  15  (8)  MV         1966 SC1490  (23)

ACT: Income  Tax--Partnership  firm including minor,  if  can  be registered--Indian  Income-tax  Act, 1922 (11 of  1922),  S. 26A--Indian Partnership Act, 1932 (IX of 1932), s. 30.

HEADNOTE: One  of  the persons who entered into a  partnership  was  a minor and in the instrument of partnership he was  described as a full partner with equal rights and obligations with the other  adult  partners.  The deed of partnership  which  was signed  by the minor was produced before th e  Registrar  of Firms f or registration and he granted a certificate showing the  minor as a full partner and not as one entitled  merely to the benefits of the partnership.  The Income-tax Officer, however,  refused to register the firm under S. 26A  of  the Indian  Income-tax  Act and his decision was upheld  by  the Income-tax   Authorities   and  the   Income-tax   Appellate Tribunal.   The  High Court differed from the  Tribunal  and held  that the firm should be registered.  On appeal by  the Commissioner of Income-tax, Held, that the Rules framed under S. 26A quite clearly  show that a minor who is admitted to the benefits of  partnership need  not sign- the application for registration..  The  law requires  all partners to sign the application, and  if  the definition  were to be carried to the extreme, even a  minor who  is  admitted to  the benefits of partnership  would  be competent  to sign such an application.  The  definition  is designed to confer equal benefits upon the minor by treating him  as  a  partner;  but it does  not  render   a  minor  a competent    and full partner.  For that purpose, the law  of Partnership must be considered, apart from the definition in the Income-tax Act. Section 30 of the Indian Partnershi  Act clearly lays down that a minor...cannot  become  a partner, I tough  with  the consent of the adult.....partners, he may be admitted to the benefits of partnership. .....Any document which goes beyond this section cannot be regarded as valid for the  purpose of registration.   Registration  can  only  be  granted  of   a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

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 tot open to the Incometax  Authorities  to register a document which is different from the one actually executed and asked to be registered. Hoosen  Kassam Dada v. Commissioner of  Income-tax,  Bengal, [1937]5 I.T.R. 182, Hardutt Ray Gajadhar Ram v. Commissioner of 104 822 Income-tax,  [1950] 18 I.T.R. 106, Banka Mal Lajja  Ram  and Co. v.    Commissioner of Income-tax, [1953] 24 I.T.R.  150, approved. Jakka Devayya and Sons v. Commissioner of Income-tax, [1952) 22 I.T.R. 264, disapproved.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 328 of 1959. Appeal  by special leave from the judgment and  order  dated 23rd February, 1956, of the Bombay High Court in  Income-tax Reference No. 34 of 1955. K....N. Rajagopala Ayyangar and D. Gupta, for the appellant. Rameshwar  Nath,  S. N. Andley, J. B. Dadachanji and  P.  L. Vohra, for the respondent. 1960.   December 1. The Judgment of the Court was  delivered by HIDAYATULLAH,  J.-The  Commissioner of Incometax  has  filed this  appeal, with special leave, against the  judgment  and order  of the High Court of Bombay, by which the High  Court answered  two  questions  referred to it in  favour  of  the respondents, Messrs.  Dwarkadas Khetan & Co., Bombay.  These questions were: "(1)  Whether the instrument of partnership dated  27-3-1946 created a deed of partnership? (2)..If the answer to question No. 1 is in the  affirmative, whether  the  fact  that on 1-1-1946 there was  no  firm  in existence would be fatal to the application for registration of  the firm under Section 26A of the Indian Income-tax  Act or whether the firm could be registered with effect from 26- 3-1946 if it is held that the firm was genuine?" Prior to January 1, 1945, there was a firm called  Dwarkadas Khetan & Co. On that date, the firm ceased to exist, because the other partners had previously withdrawn, and it came  to be  the  sole proprietary concern of Dwarkadas  Khetan.   On February  12,  1946, Dwarkadas Khetan obtained  the  selling agency of Seksaria Cotton Mills, Ltd.  On March 27, 1946, he entered into a partnership, with three others 823 by  an instrument of partnership executed that  day.   Those three  others were Viswanath Purumul, Govindram  Khetan  and Kantilal   Kasherdeo.   Dwarkadas  Khetan’s  share  in   the partnership was 7 annas in the rupee, while the remaining  9 annas’  share  was divided equally among the  three  others. Though Kantilal Kasherdeo was a minor, he was admitted as  a full partner and not merely to the benefits of the  partner- ship,  as required by s. 30 of the Indian  Partnership  Act. To  the  instrument of partnership, Kantilal  Kasherdeo  was also  a  signatory, though immediately after  his  signature there was the signature of one Kasherdeo Rungta, the natural guardian   of  the  minor.   In  the  instrument,   Kantilal

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

Kasherdeo was described as a full partner entitled not  only to  a share in the profits but also liable to bear  all  the losses including loss of capital.  It was also provided that all the four partners were to attend to the business, and if consent was needed, all the partners including the minor had to  give  their  consent in writing.   The  minor  was  also entitled  to  manage  the affairs  of  the  firm,  including inspection of the account books, and was given the right  to vote, if a decision on votes had to be taken.  In short,  no distinction  was  made between the adult  partners  and  the minor, and to all intents and purposes, the minor was a full partner, even though under the partnership law he could only be admitted to the benefits of the partnership and not as  a partner. The deed of partnership was produced before the Registrar of Firms  showing  the  names  of  the  four  partner,%.    The Registrar  of Firms granted a registration certificate,  and in  the certificate, Kantilal Kasherdeo was shown as a  full partner  and not as one entitled merely to the  benefits  of the,, partnership.  Banks were also informed about the  four partners,  and. it does not appear that to  them  intimation was sent that one of the named partners was a minor.  Though the  partnership came into existence on March 27, 1946,  the firm was stated to have started retrospectively from January 1,  1946.   It  may be pointed out that  the  firm  has  the calendar year as its account year, and the matter before  us refers  to  the  account year,  1946  corresponding  to  the assessment year, 1947-48. 824 For  purposes  of that year, registration of  the  firm  was sought  under  s.  26A of the Indian  Income-tax  Act.   The Income-tax  Officer  refused to accord registration  on  the ground that a minor had been admitted as a partner  contrary to  law,  and  that  the  deed  could  not,  therefore,   be registered.    The   appeal  to  the   Appellate   Assistant Commissioner  also  failed, the  Commissioner  holding  that registration could only be of a legal or valid document  and not  of a document which was invalid in law.  An appeal  was then  taken to the Tribunal, and it was contended  that  the document  must be construed as showing only that  the  minor was  admitted not as a full partner but to the  benefits  of the partnership.  The Accountant Member hold that the  order of the Appellate Assistant Commissioner was correct,  giving two reasons.  The first was that the construction sought  to be  placed upon the document was not open, and  the  second, that  since  retrospective operation was given to  the  firm even   though  no  firm  existed  from  January   1,   1946, registration  could  not be granted.   The  Judicial  Member differed  from  the  Accountant  Member,  holding,  as   was contended,  that the document must be construed  as  showing merely  that the minor had been admitted to the benefits  of the  partnership.   The appeal was then  placed  before  the President, who agreed with the conclusion of the  Accountant Member,  with  the result that the refusal to  register  the firm under s. 26A by the authorities was upheld. Two  questions were then posed for the decision of the  High Court.   The  High  Court differed from  the  Tribunal,  and answered  both the questions in favour of the assessee.   In so  far as the second question is concerned, the  matter  is now settled by the decision of this Court in B. C. Mitter  & Sons  v.  Commissioner  of  Income-tax  (1).   But,  in  our opinion,  the  decision  of  the High  Court  on  the  first question  was not correct, and the correct answer  does  not leave the second quest-ion open at all. There  is  a  distinct cleavage of opinion  among  the  High

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

Courts on this point.  The Bombay, Madras and (1) [1959] 36 I.T. R. 194. 825 Patna  High Courts have held that where a minor is  admitted as  a  full partner by adult partners, the document  can  be registered after interpreting it to mean that the minor  has been  admitted to the benefits of partnership and not  as  a full  partner.   The  Calcutta, Allahabad  and  Punjab  High Courts  have taken a contrary view.  The Bombay case is  the one which is under appeal, and the Patna High Court followed that  decision and the two earlier decisions of  the  Madras High Court.  The Madras High Court decisions are of the same Divisional Bench, and were pronounced on the same day.   The leading  case  in support of the respondents is  the  Madras decision reported in Jakka Devayya and Sons v.  Commissioner of  Income-tax  (1),  and  that  case  alone  needs  to   be considered,  because all the reasons on which the  cases  on this  side  have proceeded are given there.  In  that  case, there  were three partners, one of whom was a  minor.   They formed   a  Hindu  undivided  family;  later,  a   deed   of partnership was executed in which the minor was  represented by  his father-in-law.  It was held that the fact  that  the minor was included as a partner did not make the partnership as  between  the two adult partners invalid,  and  that  the minor  must be deemed to have been admitted to the  benefits of  the partnership by the two adults.  The  learned  Judges referred  to the provision of s. 2 (6-B) of  the  Income-tax Act, where it is provided: "  "Partner" includes any person who being a minor has  been admitted to the benefits of partnership;", and  observed that in view of this definition and  the  fact that   a  minor  could  be  admitted  to  the  benefits   of partnership  under s. 30, the document was not invalid,  but must be read as giving to the minor the rights laid down  by the  Partnership Act.  They also observed that too  rigid  a construction need not be put upon the deed, and referred  to Lindley on Partnership, 11th Edn., p. 87 and A. Khorasany v. C.  Acha and Others (2).  The other cases which we need  not examine are Vincent and Others v. Commissioner of (1) [1952] 22 I.T.R. 264. (2) (1928) I.L.R. 6 Ran. 198. 826 Income-tax     and Sahai Brothers v. Commissioner of Income- tax On the other hand, there is a decision of the Calcutta  High Court  reported  in Hoosen Kassam Dada  v.  Commissioner  of Income-tax,  Bengal (3), in which Costello  and  Panckridge, JJ.  have held that under s. 26A of the Income-tax  Act  and the  Rules,  the Income-tax Officer is  only.  empowered  to register a partnership which is specified in the  instrument of partnership and of which registration is asked for.   The learned  Judges, therefore, hold that it is not open to  the Department  to  ’register partnership  different  from  that which is formed by the instrument.  In Hardutt Ray  Gajadhar Ram v. Commissioner of Income-tax(4) Malik, C. J. and  Seth, J.  hold  that where a minor is admitted as a  full  partner with  equal rights and obligations with adults, the deed  is invalid.   It  is pointed out that the English  law  on  the subject is different.  In that case, however, there was  one other  ground for invalidating the deed, because  the  minor had been adopted into another family and his natural  father who had signed as his guardian in the deed could not do  so, as he had ceased to be the natural guardian.  The  decision, however, supports the case of the Commissioner. In  Banka Mal Lajja Ram & Co. v. Commissioner of  Income-tax

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

(5),  it is held that a minor cannot be a partner, and  that the partnership which admits a minor as full partner  cannot be registered.  It is true that in that case the High  Court did not consider the question whether the partnership should have. been taken to be a valid partnership consisting of the adult partners, because no such question was referred.   The decision,  however, is against a claim for  registration  of such a document. In our opinion, the Calcutta vie’ is preferable to the  view taken  by  the Madras High Court.  The error in  the  Madras view  is  in  using  the definition  to  show  that  a  deed including a minor as a competent partner (1)[1952] 22 I.T.R. 285. (3)[1937] 5  I.T.R. 182. (2)[1950] 33 I.T.R. 40. (4)[1950] 18 I.T.R. 106. (5)[1953] 24 I.T.R. 150. 827 is  valid.  What the definition does is to apply to a  minor admitted to the benefits of partnership all the 2 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.  The Rules which have been framed under s. 26A quite clearly show that a minor who is admitted to the benefits of  partnership need  not  sign the application for registration.   The  law requires  all partners to sign the application, and  if  the definition  were to be carried to the extreme, even a  minor who  is  admitted to the benefits of  partnership  would  be competent  to sign such an application.  The  definition  is designed to confer equal benefits upon the minor by treating him as a partner; but it does not render a minor a competent and full partner.  For that purpose, the law of  Partnership must be considered, apart from the definition in the Income- tax Act. Section  30 of the Indian Partnership Act clearly lays  down that  a  minor  cannot become a  partner,  though  with  the consent  of  the adult partners, he may be admitted  to  the benefits  of  partnership.  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.  In our  opinion,  the Madras view cannot be accepted. The judgment under appeal has followed the Madras view, and, in  our opinion, it falls into the same error in  which  the Madras  High  Court had fallen earlier.  The answer  to  the first  question should, therefore, have been in  favour  ;of the  Department.   The  answer given by the  High  Court  is vacated, and 828 the  question  will  now be answered in  the  negative.   As already  stated,  there  is no need  to  answer  the  second question, which does not arise. The appeal is allowed with costs here and in the High Court.                                        Appeal allowed.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6