K.C. Agrawal, J. - (1.) AT the instance of the CIT, U. P., Lucknow, the ITA Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the I.T. Act, 1961, for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no change took place in the constitution of the firm on March 14, 1969, in the previous year relevant to the assessment year 1969-70, when Shri Radhey Lal attained majority and for that year his rights and liabilities continued under the deed of partnership dated April 15, 1967, and the firm was entitled to the benefit of continuation of registration under Section 184(7) of the I.T. Act, 1961, on the basis of that partnership deed ?"
(2.) THE assessee was a partnership firm originally constituted under a deed of partnership dated 15th April, 1967. It consisted of three partners. Sheo Kumar Shah and Radhey Lal Shah, who were minors at the time of the execution of the deed of partnership, were admitted to the benefits of partnership. THE benefit of registration was continued thereafter under Section 184(7) up to the assessment year 1968-69. Radhey Lal Shah became major on 14th March, 1969. For the assessment year 1969-70, with which we are concerned in this reference application, a fresh application in Form No. XI-A was filed by the assessee-firm along with a new deed of partnership executed on June 12, 1969. THE ITO rejected the application for registration as, in his opinion, the fresh partnership deed should have been executed before 31st March, 1969, and since it was executed on Juno, 12, 1969, the firm was not entitled to registration. Against the aforesaid order of the ITO, an appeal was filed by the assessee-firm before the AAC of Income-tax, Bareilly. Disagreeing with the view taken by the ITO, the AAC of Income-tax held that since the old deed of partnership was in force up to six months of the minor attaining majority, therefore, the assessee-firm was not required to execute a fresh deed of partnership before 31st March, 1968. He held that the old deed continued to have legal force for six months. Accordingly, the AAC of Income-tax allowed the appeal and directed the ITO to treat the assessee-firm as a registered firm under Section 185 of the I.T. Act. Aggrieved by the judgment and order of the AAC of Income-tax, the revenue preferred an appeal before the ITA Tribunal. The Tribunal upheld the judgment of the AAC and dismissed the appeal of the department. It was thereupon that an application was filed by the revenue under Section 256(1) of the I.T. Act for referring three questions framed by it in the application to the High Court. Having found that the question mentioned above was one of law and covered the entire controversy between the parties, the Tribunal referred the same to this court by its order dated 30th November, 1973. Hence this reference. The question is whether there is a change in the constitution of the firm when a minor admitted to the partnership attains majority. Before dealing with this question, we may refer briefly to the relevant provisions of the I.T. Act as well as that of the Partnership Act. S. 4 of the Partnership Act gives the definition of partnership, a partner, firm and firm's name. Section 5 provides that, the relation of partnership arises from contract and not from status. Section 11 of the Contract Act says that a minor is incompetent to enter into a contract. Thus, a minor cannot be a partner in the firm. Section 30 of the Partnership Act, however, permits a minor to be admitted to the benefits of the partnership. Such a minor is, however, not a full-fledged partner. Sub-section (5) of Section 30 deals with a contingency when a minor attains majority. It lays down that at any time within six months of his becoming major or of his obtaining knowledge that he had been admitted to the benefits of the partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm. The proviso to Sub-section (5), however, prescribes that in case such a minor fails to give notice provided for by Sub-section (5), then he shall become a partner in the firm on the expiry of the said six months. The other important provision is Sub-section (7) of Section 30 which lays down that the rights and liabilities of a minor continue as such up to the date on which he becomes a partner.
(3.) IT would thus be seen that a minor admitted to the benefits of the partnership is not a partner and that he is only entitled to the benefits of the partnership and may also be liable to losses but not personally. Under Sub-section (5) he has, however, to indicate his choice in the prescribed manner, whether he wants to continue as a partner or not. The legislature, however, has given a period of six months to him to take a decision whether he wants to continue as a partner or not. During this period of six months he continues to enjoy the same status in the firm which he had earlier before attaining the majority. Although Sub-section (5) has not clearly said so, yet it appears that by the legal fiction incorporated in this provision, a minor continues to be a minor and does not become a partner. The court has to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect of this fiction. In the instant case, it appears that Radhey Lal Shah had become a major on 14th March, 1969. The assessment year 1968-69 was closed on 31st March, 1969. Up to that date, the period of six months given to a minor to make his option about the joining of the firm as a partner had not expired. It was, therefore, not incumbent on the assessee-firm to either draw up a fresh partnership deed or to give any intimation in respect thereof to the ITO within this period. However, before this period expired a fresh partnership deed was entered into on June 12, 1969, and, thereafter, the application was filed for the registration of the firm before the ITO. The application filed by the assessee-firm for registration thus did not suffer from any deficiency and, therefore, the ground on which the ITO rejected the application for registration was not justified. In other words, he was not right in holding that since a new partnership deed had not been entered into before the expiry of 31st March, 1969, therefore, the assessee-firm could not be granted registration. As no change in the constitution of the partnership had been brought about merely because Radhey Lal Shah, one of the partners, had attained majority on 14th March, 1969, the ITO was not right in rejecting the application.;