Commissioner of Income Tax, Poona vs S. Moonalal and Co. and Another

Tulzapurkar, J.—The question that has been referred to us for our determination by the Tribunal at the instance of the Commissioner of Income Tax u/s 66(1) of the Indian Income Tax Act, 1922, runs thus :

"Whether, on the facts and in the circumstance of the case, and on a proper construction of the document dated December 1, 1957, there was a valid partnership constituted so as to be eligible for registration u/s 26A ?"

The question relates to proceedings u/s 26A for the assessment year 1959-60, the relevant previous year being S.Y. 2014 which falls between October 24, 1957, and November 11, 1958. It appears that there was a family consisting of Chhaganlal Surajmal, Walchand Surajmal and Moonalal Surajmal, all being brothers. Moonalal dies prior to the relevant period leaving a son, named Ramesh, or on 26th May, 1951. On 24th December 1957, there was a partition of the family business in money-lending. After the partition Chhaganlal Surajmal and Walchand Surajmal, the two major members, agreed to carry on the business in partnership. A document of partnership dated December 1, 1957, was executed to which there was also signed or executed by the minor through his natural guardian and mother, Smt. Sayarrbai. On an application u/s 26A for registration of the partnership for the relevant assessment year, the Income Tax Officer held that the minor was a contracting party to the document and, therefore, the contract was vitiated and, therefore, he took the view that the document was invalid and refused to register the partnership. On appeal the Appellate Assistant Commissioner held that the preamble to the partnership deed dated December 1, 1957, read as a whole clearly showed that the minor, Ramesh, was only entitled to the benefits of partnership and that the guardian of the minor had signed the document only as a witness. He, therefore, took the view that the signature of the guardian did not enlarge the rights of the minor and that the agreement at more than one place stated that the minor was admitted only to the benefits of the partnership. He, therefore, directed that registration be granted. On further appeal to the Tribunal at the instance of the department, the Tribunal confirmed the view taken by the Appellate Assistant Commissioner. At the instance of the Commissioner of Income Tax, therefore, the aforesaid question has been referred to us for our determination.

In view of the Supreme Court judgment in the case of Commissioner of Income Tax v. Shah Mohandas Sadhuram it is clear that the mere fact that the guardian of a minor has signed the document of partnership would not be of much consequence and the entire deed will have to be construed to decide the question whether the minor had been a full-fledged partner or has been merely admitted to the benefits of the partnership. From that point of view certain recitals as well as the operative part of the deed assume considerable significance. Once of the recitals in the deed of partnership dated December 1, 1957, runs thus :

"AND WHEREAS after so commencing to carry on business in partnership, the said party of the first part and the said party of the second part found that it would be better for the stability of the partnership business to admit the party of the third part (a minor) to the benefits of the partnership of the two (i.e. party of the first part and party of the second part) on certain terms and conditions and they both agreed to do so and the guardian of the minor consented to the same."

This recital expressly states that the minor was merely admitted to the benefits of the partnership. Clause (c) of the operative part of the deed, which deals with the shares of the parties in the profits clearly states that Chhaganlal Surajmal would be entitled to 8 annas 4 pies share in a rupee, Walchand Surajmal would be entitled to 5 annas 4 pies share in a rupee and Ramesh Moonalal, the minor, would be entitled to 2 annas 4 pies share in a rupee and as regards the share in losses, clause (c) expressly stated thus :

"The minor not being liable for any losses and (sic) shares in losses will be :

Yet another clause in the operative part of the document is also material in the context of the question referred to us. It is clause (k) and it says that the party of the first part and the party of the second part, i.e., the two major parties, shall devote all their time for the business of the partnership and shall be faithful to each other and to the minor (party of the third part) admitted to the benefits of the partnership.

In view of the aforesaid recital and the aforesaid provisions, which are to be found in the operative part of the documents, it is more than clear that the minor was merely admitted to the benefits of the partnership and was not made a full-fledged partner. The mere fact, therefore, that the document was signed or executed by the minor''s natural guardian and mother cannot run counter tot he true and proper effect of the recital and the operative part.

In this view of the matter, in our view, the registration was properly granted. The question is, therefore, answered in the affirmative .There will be no order as to costs.