Decided on January 14,1972

Messers Imadali Tayabali Appellant


Deshmukh, J. - (1.) The question which is referred by the Income-tax Appellate Tribunal for our opinion is as follows: Whether having regard to the terms of Annexure A, the assessee-firm is eligible for renewal of registration for the Assessment Years 1961-62 and 1962-63? The facts which are relevant for the purpose of considering the question show that an instrument of partnership was executed on August 30, 1956, be ween Imdadali-Party No. 1-the father, and his major son Zakir Hussain-Party No. 2. In that instrument three other sons of Imdadali, who are respectively Parties Nos. 3, 4 and 5, aged 14, 9 and 7, were admitted to the benefits of the partnership as they were minors. The instrument appears to have been executed on behalf of the minors by their father Party No. 1 as guardian The instrument itself shows that the two major partners, namely Imdadali and his son Zakir Hussain were entitled to six annas share each in the profits of the firm. However, Imdadali the father was to bear losses of the firm, if any, to the extent of nine annas and Zakir Hussain was to bear the losses to the extent of remaining seven annas. Out of the three minor partners, Zulfikar Hussain was entitled to a share of two annas in the profits and the other two minor brothers Zakir Hussain and Zubair Hussain were entitled to a share of one anna each in the profits of the firm. On the basis of the instrument of partnership, the firm was registered by the Income-tax Officer and the assessees were taxed accordingly for a number of years.
(2.) In the two relevant years under consideration, viz. the Assessment Years 1961-62 and 1962-63, which covered the accounting year ending with the Diwali of 1960 and Diwali of 1961, the partnership was registered and benefit of the lower assessment was given to the partners of the firm. However, in his revisional jurisdiction, the Commissioner of Income-tax, cancelled the registration in respect of the two years and directed the Income-tax Officer to treat the assessees as an association of persons and collect tax accordingly. The ground on which the Commissioner of Income tax exercised his revisional powers was that on a true construction of the instrument of partnership it appeared that the minors were not merely admitted to the benefits of the partnership but were given the full status of partners. Since this could not be done, the order of cancellation came to be passed. Against this order the assessees filed two separate appeals.
(3.) The appeals filed by the assessees in respect of both the years were disposed of by the Income-tax Tribunal by common order. The Tribunal negatived the view of the Commissioner that the minors appeared to have been treated as full partners and not persons merely admitted to the benefits of the partnership. A conclusion was, therefore, reached that the minors were not admitted as full partners in the partnership firm and the Commissioner was not right in cancelling the renewal and continuation of the registration granted by the Income-tax Officer for the two years under appeal. The departmental representative raised two additional alternate arguments before the Tribunal to sustain the order of cancellation of the registration. The first ground urged was that Party No. 3 Zulfikar Hussain attained majority on June 5, 1960 but no fresh deed of partnership was executed between the partners which would govern the relationship between the partners. The original instrument of partnership date 1 August 30, 1956 does not mention the losses which Zulfikar Hussain the minor who has now become major was to bear. It was therefore pointed out that renewal should be refused on the ground that there was no fresh document relating to the partnership which now came into existence after the attainment of majority of original Party No. 3. The second ground urged was that not only the profits but also the losses of the partners ought to be mentioned in the instrument and to the extent of the share in the loss so far as the now major partner Zulfikar Hussain is concerned, nothing is found in the instrument of partnership. The Tribunal has not pointedly dealt with the requirement of the execution of a new instrument of partnership. It has however concluded that so far as Zulfikar Hussain who has now become major is concerned, there is no mention of loss which he is to bear. The old entries regarding the distribution of losses among the two earlier major partners would not, therefore, properly represent the internal relationship between the partners. To this extent the instrument of partnership was defective and the assessees were not entitled to renewal of the registration. At the instance of the assessees, the Tribunal referred abovementioned question to this Court for expressing its opinion.;

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