SATISH CHANDRA C.J. - (1.) DOUBTING the correctness of the law laid down in earlier decisions of this court in Ganesh lals, 1972 84 ITR 233 , a Division Bench of this court has referred the following question of law to a Full Bench : "Where a minor admitted to the benefits of a partnership, attains majority and elects to be a partner of the firm, is there a change in the constitution of firm as contemplated by cl. (i) of the prov. to subs-s. (7) of s. 184 of the I.T. Act, 1961 ?" Chap. XVI of the I.T. Act lays down special provisions applicable to the firms. Head "A is entitled Assessment of firms. It consists of s. 182 (assessment of unregistered firms). Head "B"is entitled Registration of firms. It consists of ss. 184 to 186. Under s. 184(1) an application for registration is to be made if the constitution of partnership is evidenced by an instrument and the individual shares of the partners are specified in that instrume nt. The application for the registration is to be signed by all the partners (not being minors) personally. It has to be made before the end of the previous year for the assessment year in respect of which registration is sought. The application is to be accompanied by the original instrument evidencing the partnership. Last, but not the least, the application is to be made in the prescribed form and is to contain the prescribed particulars.
(2.) S. 185(1) provides the procedure. It says : "185.(1) On receipt of an application for the registration of a firm, the Income-tax Officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and - (a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specefied. he shall pass an order in writing registering the frim for the assessment year; (b) if he is not so satisfied, he shall pass on order in writing refusing to register the firm." The Explanation to s. 185(1) furnishes some guidelines to determine the genuineness of a firm and its constitution. In the latter respect the enquiry is whether the constitution is as specified in the instrument of partnership. If the finding on these two aspects is in the affirmative, the ITO is to record a certificate or registration on the instrument of partnership. Sub-s. (7) of s. 184 provides for continuation of registration for subsequent years. It says : "(7) Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year : Provided that - (i) there is no change in the constitution of the firm of the shares of the partners as evidenced by the instrument of partnership on the basis of which the registraton was granted; (ii) the firm furnishes, before the expiry of the time allowed.......a declaration to that effect, in the prescribed manner......." Where a firm has been registered, the general rule is that the registration shall have effect for every subsequent year. For subsequent years, the ITO has to see that "there is no change in the constitution of the firm or the shares of the partners, as evidenced by the instrument of partnership on the basis of which the registration was granted". The enquiry begins with the instrument of partnership. Which instrument ? The instrument, on the basis of which the registration was granted. The ITO has to see that instrument and satisfy himself that in the subsequent year in question there is no change in the constitution of the firm or the shares of the partners from that mentioned in the instrument. In order words, the constiution of the firm or the shares of the parthers should be in accordance with the instrument of partnership. The phrase "constitution of the firm", or for the matter of that "the shares of the partners" has not been defined by the I.T. Act. In the context, the phrase "costitution of the firm", or for the matter of that "the shares of the partners" has been defined by the I.T. Act. In the context, the phrase "constitution of the firm" refers to the identity of the partners of the firm. Thus, the identity of the partners as well as their shares ought to be such as is evidenced by the instrument of partnership. If for any subsequent year there is a change either in the constitution of the firm or the share of the partners and such change is not evidenced by the instrument, the original registration shall have effect. But if it is found that the constitution of the firm or the shares of the partners continues to be evidenced by the instrument, then it will be a case where the conclusion will be that there has been no change. A change in the constitution, that is, in the identity of the partners, may take place when a person is introduced as a partner, or a partner retires, or is expelled, or ceases to be a partner on his becoming insolvent, or dies or a minor becomes major. The provisions in ss. 184 and 185 of the Act are intended to protect the interest of the revenue. The idea is to see that the tax may not be evaded by surreptitiously changing the partners or their shares in a manner which is not evidenced by the instrument. So long as the interest of the revenue are safegaurded, there seems no justification to interpret these provisions from a theoritical or technical viewpoint.
(3.) IF the changes, either in the constitution or the shares which are specified or evidenced by the instrument where not intended to be recognised without a fresh instrument, then cl. (i) of the prov. should have read : "that the original constitution of the firm or the shares of the partners continue inchanged". In the present cases, we are concerned with the problem of minors and death of a partner. Under s. 30(1) and (2) of the Indian Partnership Act, a minor cannot be a partner. He can be admitted to the benefits of the partnership. On attaining majority, if he so elects, he, under s. 30(5), becomes a partner. His share is the same to which he was entitled as a minor-vide s. 30(7)(b). He shares in losses also. When the partners agree to admit a minor to the benefits of a partnership, they are deemed to agree that if the minor on attaining majority elects, he will become a partner, without a fresh agreement. That is why no fresh agreement or instrument is needed. The I.T. Act makes a department in the treatment of minor qua partnership. S. 2(23) of the Act says : "2. (23) firm, partner and partnership have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (IX of 1932); but the expression of partner shall also include any person who, being a minor, has been admitted to the benefits of partnership." 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 enidences 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 parther. When a minor becomes major, and on his opting becomes a partner within the meaning of the Indian Par tnership 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 s. 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 in 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 entiled 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 of 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 orginal instrument. ;