DURGABATI SM AND NARMADABALA GUPTA SM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessment years are 1947 -48, 1948 -49 and 1949 -50 and the corresponding accounting periods are the calendar years 1946, 1947 and 1948. It appears that two ladies, Smt. Durgabati and Smt. Narmadabala Gupta were carrying on coal mining business as co -owners up till the asst. year 1942 -43. The ladies were assessed to income -tax as "AOPs." On the 21st April, 1943, the two ladies entered into a partnership for carrying on the coal mining business. It was stipulated in paragraph (o) of the partnership deed that "the partnership will not dissolve by the death of any of the partners and that on the death of a partner her sons and grandsons would automatically become partners and that the partnership would be deemed to be continuing and would continue." Srimati Durgabati Devi died on the 27th May, 1943, leaving a will by which she bequeathed her half share in the partnership business to her two minor sons, viz., Dinanath Agarwala and Basudeo Prasad Agarwala in equal shares. For the asst. year 1944 -45 an application was made under S. 26A of the IT Act for registration of the firm. The application was made on behalf of Smt. Narmadabala Gupta having eight annas share, Dinanath Agarwala having four annas share and Basudeo Prasad Agarwala having four annas share. The application for registration was based on the partnership deed dt. the 21st April, 1943. The ITO granted registration of the firm. For the asst. year 1945 -46 the same persons applied for registration but the application was rejected by the ITO on the ground that the shares of the minor sons of Smt. Durgabati Devi were not mentioned in the deed of partnership. An appeal was preferred to the AAC against the order of the ITO. The AAC allowed the appeal and directed that the partnership firm should be registered. For the asst. year 1946 -47 the ITO renewed the registration of the firm under S. 26A of the Act. For the asst. yrs. 1947 -48, 1948 -49 and 1949 -50, the ITO also renewed the registration of the firm and on that basis made assessment of the income of the partnership firm under S. 23(5) of the Act. An appeal was preferred by the assessee to the AAC against the quantum of the assessment. The appeal was decided by the AAC on 2nd Aug., 1950, and the assessments were either modified or affirmed.

(2.) THEREAFTER the CIT exercising his powers under S. 33B of the Act called for the records of the assessment and after giving notice to the assessee cancelled the registration of the firm made by the ITO. The CIT held that there was no firm in the eye of law which could be registered. He took the view that the order of the ITO was therefore erroneous in law and that "the error had resulted in a considerable reduction in the amount of tax payable and on that account the order was prejudicial to revenue." The CIT cancelled the registration for all the three years and "directed the ITO to determine the tax payable by the firm on the basis that no registration had been granted to the firm and on the total incomes already determined." The assessee preferred an appeal to the Tribunal against the order of the CIT under S. 33B. The Tribunal dismissed the appeal and affirmed the order of the CIT. At the instance of the assessee the Tribunal has submitted the following questions of law for the opinion of the High Court :

(3.) AS regards the second question the argument on behalf of the assessee is that the ITO had rightly granted registration of the firm under S. 26A and the view taken by the Tribunal was wrong. The argument of Mr. Dutt is based upon the deed of partnership dt. the 21st April, 1943, between Smt. Durgabati Devi and Smt. Narmadabala Gupta. Counsel referred to cl. (o) of the partnership deed which states : "That the partnership will not be dissolved by the death of any one of the partners. On the death of a partner, her sons and grandsons will automatically become partners and the partnership will be deemed to be continuing and will continue". It was contended therefore on behalf of the assessee that in view of this clause the partnership did not dissolve on the death of Smt. Durgabati Devi and the partnership should be deemed to have continued as between Smt. Narmadabala Gupta and the two minor sons of Smt. Durgabati Devi. In this connection Mr. Dutt referred to S. 42 of the Partnership Act and said that there may be a contract to continue a partnership even after the death of a partner. But the material provision to be considered in this case is S. 30(1) of the Partnership Act which enacts the rule that a person who is a minor according to his personal law may not be a partner in a firm but with the consent of all the partners he may be admitted to the benefits of a partnership. In this connection S. 4 of the Partnership Act is also important. Sec. 4 contains the definition as to the legal attributes of a partnership. According to s.4, a partnership is a contract between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Sec. 4 therefore lays emphasis on the contractual nature of the partnership and it is well established in Indian law that a minor cannot make a contract and therefore cannot really enter into a contract of partnership. In my view the statutory provisions enacted in S. 30(1) and in S. 11 of the Contract Act cannot be overridden by any contract between the partners. The reason is that the statutory provisions enacted in S. 42 of the Partnership Act are subject to contract between the partners, but there is no such exception in s. 30(1) of the Partnership Act or in S. 11 of the Contract Act. The effect of S. 11 of the Contract Act is that a minor is absolutely incompetent to make a contract and that is the view taken by the Judicial Committee in Mohori Bibee vs. Dharmodas Ghose (1903) 30 IA 114, which overruled a line of previous Indian decisions to the effect that the contract of a minor was not void but voidable at his option. It follows therefore that a valid partnership between the minor sons of Smt. Durgabati and Smt. Narmadabala Gupta could not be constituted in the present case according to the provisions of the partnership deed dt. the 21st April, 1943, between Smt. Durgabati Devi and Smt. Narmadabala Gupta. Mr. Dutt then presented the argument that there could be a valid contract of partnership between an adult partner and two minor partners under the Income -tax law, though such a partnership would not be legally valid under the Partnership Act. In support of his argument counsel referred to s. 2(6B) of the IT Act which states "' firm', ' partner and ' partnership ' have the same meanings respectively as in the Indian Partnership Act, 1932 (IX of 1932) : Provided that the expression ' partner ' includes any person who being a minor has been admitted to the benefits of partnership." But I am unable to accept the argument of Mr. Dutt as correct. It is important to notice that S. 2(6B) extends the definition of the expression ' partner', but S. 2(6B) expressly states that the expression ' firm ' and the expression ' partnership ' would have the same meanings as in the Indian Partnership Act. It is clear that S. 2(6B) does not extend the legal meaning of partnership, and I think that the proviso to S. 2(6B) only means that if there is a subsisting partnership and if a minor is admitted to the benefits of this subsisting partnership then he should be treated as a partner for certain purposes under the IT Act. Sec. 2(6B) cannot be applied to the present case, for upon the death of Smt. Durgabati Devi there was no subsisting partnership in existence. There was only one adult person Smt. Narmadabala Gupta carrying on the business and she could not by herself constitute a partnership. It is impossible therefore to hold that the two minor sons of Smt. Durgabati Devi were admitted to the benefits of any partnership after the death of Smt. Durgabati Devi. It is true that a minor who is admitted to the benefits of a subsisting partnership is himself a partner within the meaning of S. 2(6B) of the IT Act. He is also a partner for the purposes of calculating the shares of the income under S. 16(3) and S. 23(5) of the IT Act. But the meaning of ' partnership ' in S. 2(6B) of the IT Act is exactly the same as in the Partnership Act. I am therefore of opinion that there is no legal partnership constituted between Smt. Narmadabala Gupta and the two minor sons of Smt. Durgabati Devi, and the Tribunal was right in holding that there could be no registration under S. 26A of the IT Act. It follows that the second question must be answered against the assessee and in favour of the IT Department.