High Court Of Calcutta
CIT vs. Sriram Industries Distributors
Asst. Year 1968-69
Ajit K. Sengupta & K.M. Yusuf, JJ.
IT Ref. No. 274 of 1979
18th July, 1988
AJIT K. SENGUPTA, J.
At the instance of the CIT, West Bengal-III, the following question of law has been referred to this Court under s. 256(1) of the IT Act, 1961, for the asst. yr. 1969-70.
“Whether, on the facts and in the circumstances of the case and on a proper construction of the deed dated the twenty-sixth day of December in the year one thousand nine hundred and sixty seven, the Tribunal was correct in law in holding that a genuine firm had come into existence and the same was entitled to registration ?”
2. The facts leading to this reference are that the assessee-firm filed an application on December 30, 1967, for registration for the asst. yr. 1968-69. The partnership consisted of 13 partners and one minor was admitted to the benefits of the partnership. On a perusal of the partnership deed, the ITO found that cl. 8 of the deed provided that the capital was to be contributed by all the partners including the minor and on failure to do so, interest was to be charged as the partners may decide. From this, he came to the conclusion that the minor has been treated as equal with the other partners and thus he held that there was no genuine partnership and refused registration for the asst. yr. 1968-69. For the same reasons, he also refused renewal of registration for the asst. yr. 1969-70.
3. The assessee preferred an appeal before the AAC. The AAC allowed the appeals and directed the ITO to grant registration for the asst. yr. 1968-69 and renewal of registration for the asst. yr. 1969-70. Against the order of the AAC, the Department filed an appeal before the Tribunal. The Tribunal observed that the minor has been admitted only to the benefits of the partnership and that even if the guardian has agreed to contribute the capital, that will not invalidate the deed, as that is not one of the conditions for admitting the minor to the benefits of the partnership. The Tribunal also noted that, in fact, no capital was contributed. The Tribunal held that the partnership deed contemplating contribution of capital on behalf of the minor did not render the deed invalid. The question is whether the clause contemplating contribution of capital by the minor or on behalf of the minor would vitiate the deed of partnership.
4. There is nothing in law which prevents a guardian from entering into a partnership on behalf of his minor ward. A minor can never be taken as a full-fledged partner. If a guardian enters into a contract of partnership on behalf of a minor, he may agree to contribute capital on behalf of the minor. Even if there is a clause that the minor has to contribute capital, if the minor does not contribute capital in pursuance of the clause, the clause cannot be enforced against the minor. The material clause in this case on which the ITO relied stipulates that the capital has to be contributed by the minor also and failure to do would make him liable to pay interest. This clause did not make the minor a partner of the firm and the partnership cannot be held to be invalid on that ground (sic).
5. The Supreme Court in the case of CIT vs. Shah Mohandas Sadhuram (1965) 57 ITR 415 (SC), held that where the guardian agrees to contribute capital on behalf of a minor but the minor is not made a full partner, the deed cannot be regarded as invalid on the ground that the guardian has purported to contract on behalf of the minor. In the premise, we are of the view that the clause relating to contribution of capital by the minor and payment of interest in default did not render the partnership invalid.
6. For the reasons aforesaid, we answer the question in the reference in the affirmative and in favour of the assessee.
There will be no order as to costs.
[Citation : 175 ITR 341]