Mehrotra, J. - (1.) AT the instance of the assessee, the Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for the opinion of this court: "Whether, on a minor admitted to the benefits of partnership attaining majority, a change takes place in the constitution of the firm and the execution of a fresh deed of partnership is necessary ?"
(2.) IT also referred another question, again at the instance of the assessee, when directed by this court to do so, and that question is this: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law to hold the assessment under Section 144 and grant of registration were not in two parts and the registration order passed therein was also set aside Under Section 146 along with the assessment order and, if not, whether the Income-tax Officer could cancel the registration already granted in the manner done by him without resorting to Section 186 ?" The latter question arises in the connected I.T.R. No. 708 of 1978. The year in question is 1968-69. The deed of partnership is on the record of the case before us and the relevant conditions are conditions Nos. 8 and 9, which are in these terms: "8. That the said Surendra Swarup Mathur, minor son of Sri Basant Behari Lal Mathur, has been admitted to the benefits of the partnership firm. During his minority he will not be personally responsible for the loss of the firm, if any, but his responsibility shall extend to his accumulated share of profit in the firm, if any. On attaining majority if the said Surendra Swarup Mathur shall not repudiate the partnership he shall ipso facto become a full-fledged partner in the partnership. 9. That the profit and loss of all the business of partnership including the profit and loss of the capital which shall be ascertained after accounting for all the business expenses and interest to the partners as provided hereinbefore and shall be divided and borne by the partners in the following proportions: 1. Sri Nawalbehari Mathur--Two annas and eight paise in a rupee. 2. Sri Gopal Behari Mathur--Two annas and eight paise in a rupee. 3. Sri Hari Shanker Mathur--Two annas and eight paise in a rupee. 4. Sri Basant Behari Lal--Eight upon nine annas in a rupee. 5. Sri Anand Swarup Mathur--Eight upon nine annas in a rupee. 6. Sri Jagannath Swarup Mathur--Eight upon nine annas in a rupee. 7. Sri Virendra Swarup Mathur--Eight upon nine annas in a rupee. 8. Sri Jyoti Swarup Mathur--Eight upon nine annas in a rupee. 9. Sri Daya Swarup Mathur--Eight upon nine annas in a rupee. 10. Sri Jagadamba Swarup Mathur--Eight upon nine annas in a rupee. 11. Sri Bhupendra Swarup Mathur--Eight upon nine annas in a rupee. 12. Sri Surendra Swarup Mathur--Eight upon nine annas in a rupee." Provided further in case the loss falling to the share of the minor cannot be set off as provided in Clause 8 above, the same shall be borne by the parties of the 4th to 11th parts in equal proportions."
(3.) THE Income-tax Appellate Tribunal has taken the view, following some decisions of this court, that on the attainment of majority by a minor, admitted to the benefits of partnership, a change in the constitution of the firm takes place. And, consequently, it held that the benefit of registration would not be available to the firm in the year following the attainment of majority by such a minor partner. THEre arose some doubt in this court about the correctness of the view taken by the court earlier in three decisions, namely, in Ganesh Lal Laxmi Narain v. CIT [1968] 68 ITR 696 (All), Ram Narain Laxman Prasad v. ITO [1972] 84 ITR 233 (All) and CIT v. Wajid Ali [1972] UPTC 532 (All), where it had been held that upon attainment of majority by a minor partner, the firm ceased to be constituted as before and a change in constitution takes place. THE matter was considered by a Full Bench of the court in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858. Speaking through Satish Chandra C.J., the Full Bench held that if after attaining majority, the erstwhile minor partner does not repudiate the partnership and the instrument of partnership provides both for his share as well as for the loss incurred by the firm during the minority of such partner, there is no change in the constitution of the firm when the minor partner attains majority. At page 863 of the report, the Bench observed: "For purposes of the I.T. Act, a minor admitted to the benefits of the partnership is to be deemed to be a partner, entitled to all the benefits conferred on a partner by the Act. Thus, when an instrument of partnership evidences a constitution indicating that apart from some partners, a minor has been admitted to its benefits, the instrument of partnership will be deemed to evidence, for purposes of the I.T. Act, that the constitution of the firm was as if the minor was also a partner. When a minor becomes major, and on his opting becomes a partner within the meaning of the Indian Partnership Act, no change occurs in the constitution of the firm under the I.T. Act. THE instrument of partnership evidences the same number and identity of partners as before. An instrument of partnership has to be reasonably construed in the background of the general law. If an instrument provides that a minor who has been admitted to the benefits of the partnership will become a partner if he so elects on his attaining majority, there is no difficulty. But if an instrument confers on a minor the benefits of the partnership and then it is silent, the general law will apply ; and it will be deemed that in view of Section 30 of the Indian Partnership Act, the instrument evidences that on the minor electing to remain a partner on his attaining majority he will be a partner. THE only situation where it can be said that the instrument does not evidence this development will be where it, on a reasonable construction, is held to provide to the contrary, namely, that a minor will have no right to continue even if he elects to do so. In view of the fact that the I.T. Act deems a minor to be a partner, there can be no change in the constitution of the firm by the mere fact of his attaining majority and electing to remain a partner. He was already a partner, and he continues as a partner. THE second part of the enquiry is whether there has been a change in the shares of the partners as evidenced by the instrument of partnership. Where the instrument foresees the eventuality of a minor becoming major and makes provision for the distribution of the shares at that time, the instrument evidences the change in the shares. But if the ITO is unable to ascertain the shares from the instrument, it will be a case where the instrument does not evidence the change. A minor is not liable to share in the losses though he is entitled to share in the profits. THE share of the loss relatable to the share of the minor has hence to be provided for. THE redistribution of the shares in loss on the minor attaining majority has also to be ascertained. If, on a reasonable construction of the instrument of partnership, these matters cannot be ascertained, it will be a case where the instrument of partnership does not evidence the change in the shares. THE important thing is not that there should be no change at all, but that if there is a change it must be evidenced by the original instrument." In view of the law so declared, it is obvious that on the conditions aforesaid in the instrument of partnership it could not be said that a change in the constitution of the firm had taken place upon Surendra Swarup Mathur attaining majority.;