COMMISSIONER OF INCOME-TAX VS INDIAN TIMBER TRADERS
1991 P T D 88
[Kerala High Court (India)]
Before K.S. Paripoornan and K.A. Nayar, JJ
COMMISSIONER OF INCOME-TAX
versus
INDIAN TIMBER TRADERS
Income-tax Reference No. 11 of 1983, decided on 09/03/1989.
Income-tax---
----Firm---Registration---Firm consisting of 7 partners constituted by partnership deed dated 26-2-1974---Four partners retiring with effect from 1-4-1975---New deed of partnership executed on 25-8-1975 between the three original partners and one M, a minor, who had by then attained majority and was competent to contract---Reconstituted partnership, as per clause of the deed was to be deemed to have come into force with effect from 1-4-1975---Partnership was therefore valid as deed did not make minor a partner on 1-4-1975---Clause in deed was only for taking accounts back to 1-4-1975---Firm was thus entitled to registration.
The assessee-firm, constituted by a deed of partnership dated February 26, 1974, consisted of seven persons. Out of the original seven partners, four retired from the firm with effect from April 1, 1975. The three others continued in the firm and inducted one M, as a partner, and a deed of partnership was drawn up between the three original partners and M on August 25, 1975. The firm claimed registration for the assessment year 1976-77 on the basis of the partnership deed, dated August 25, 1975. The Income-tax Officer found that as per clause (2) of the partnership deed, the reconstituted partnership should be deemed to have come into force with effect from April 1, 1975. and on that day M was only a minor and hence rejected the claim for registration. The Commissioner (Appeals) held that M was a major on August 25, 1975, and competent to contract when the partnership deed was executed and allowed the claim for registration. The Tribunal held that clause (2) of the deed was only to the effect that the four parties became partners on August 25, 1975, on the date of the deed and that they were to take the accounts back to the date, namely, from April 1, 1975, that clause (2) did not made M a partner on April 1, 1975, and that since M entered into the partnership at a time when he was competent to contract, the partnership was validly formed and was entitled to registration. On a reference:
Held, (i) affirming the decision of the Tribunal, that the firm was entitled to registration;
(ii) that the Tribunal had found that, on the date of the partnership deed namely, August 25, 1975, M was a major and was competent to contract which was a finding of fact. Therefore, the partnership had been validly formed.
C.I.T. v. Ghulam Ahmad Khan & Bros. (1981) 130 ITR 636 (J & K) and Waddington v. O'Callaghan (1931) 16 T C 187 (KB) ref.
P.K.R. Menon for the Commissioner.
S. Vijayan Nair for the Assessee.
JUDGMENT
K.S. PARIPOORNAN, J.--At the instance of the Revenue, the Income tax Appellate Tribunal has referred the following two questions of law for the decision of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the assessee is entitled to registration under the Income-tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that Mayankutty has entered into the. partnership at the time when he was competent to contract, and, therefore the partnership has been validly formed?"
The respondent is an assessee to income-tax. We are concerned with the assessment year 1976-77. The respondent-firm was originally constituted by seven partners. It was constituted by a deed dated February 26, 1974. A new deed of partnership was executed on August 25, 1975, between four persons. Out of the original seven partners, four expressed their desire to retire from the firm with effect from April 1, 1975. The three others continued. They agreed to take one MA. Mayankutty as a partner. A partnership was entered into between the three partners, who were the original partners, and Sri Mayankutty by deed, dated August 25, 197"5. Registration was claimed for the firm on the basis of this deed, The Income-tax Officer noticed that as per clause (2) of the deed, the reconstituted partnership should be deemed to have come into force with effect from April 1,1975, and on that day Mayankutty was only a minor. So, he took the view that Mayankutty could not be a partner on April 1, 1975, and so the firm was not entitled to registration for the year 1976-77.
In appeal, the Commissioner of Income-tax (Appeals) held that at the time when the partnership contract was entered into, with Mayankuttv as a partner, on August 25, 1975, he was a major. The document was valid in law. Mayankutty was competent to enter into a contract to undertake the losses for the earlier period, if any. The Commissioner of Income-tax (Appeals) held that the firm is entitled to registration. The Revenue filed an appeal before the Appellate Tribunal and assailed the order passed by the Commissioner of Income-tax (Appeals). The Appellate Tribunal, by its order, dated April 27, 1982, dismissed the appeal filed by the Revenue. It was held that Mayankutty had entered into the partnership at the time when he was competent to contract. On the date of the deed, namely, August 25, 1975, Mayankutty was a major. Clause (2) of the partnership deed did not make Mayankutty a partner on April 1, 1975. It was provided only for the purpose of taking accounts. Since a valid partnership deed was entered into on August 25, 1975, the firm was entitled to registration, Construing the deed, the Appellate Tribunal held that the effect of clause (2) of the partnership deed is only to this effect that the four parties became partners on August 25, 1975, on the date of the deed and that they are to take the accounts back to the date that is mentioned, namely, April 1, 1975. That this is permissible was held in Waddington v. O'Callaghan (1931) 16 TC 187 (KB) 197. The above. decision was cited with approval in CIT v. Ghulam Ahmad Khan & Bros. (1981) 130 ITR 636, 642 (J & K). Since Mayankutty entered into the partnership at a time when he was competent to contract, the partnership was validly formed, and so the firm is entitled to registration.
Aggrieved by the decision of the Appellate Tribunal, the Revenue filed an application under section 256(1) of the Income-tax Act to refer the questions of law, extracted hereinabove, for the decision of this Court. The Appellate Tribunal has accordingly referred the above two questions of law for the decision of this Court.
We heard counsel. We concur with the Income-tax Appellate Tribunal in holding that Mayankutty became a partner only on August 25, 1975, on the date. when the deed was entered into. All that clause (2) of the deed provided was that the firm is to take accounts back to the date, April 1, 1975. It only means that for taking accounts, the transactions from April 1, 1975, should be looked into. This is permissible in view of the decision in Waddington's case (1931) 16 TC 187, (KB) (at p. 197) and as held by the Jammu and Kashmir High Court in CIT v. Ghulam Ahmad Khan and Bros. (1981) 130 ITR 636, 642.
In the light of the above, we are of the view that the Appellate Tribunal was justified in holding that the respondent/assessee-firm is entitled to registration. We answer question No. 1, referred to us, in the affirmative, in favour of the assessee and against the Revenue
The Appellate Tribunal, as a final fact-finding authority, has held that on the date of the partnership deed, namely, August 25, 1975, Mayankutty was a major and so competent to contract. This is a question of fact. The Appellate Tribunal has held that Mayankutty entered into the contract when he was a major and so competent to contract. Based on this finding of fact, the further finding that the partnership was validly formed, is sustainable. No question of law arises on this score. We answer question No. 2, referred to us, in the affirmative, in favour of the assessee and against the Revenue.
A copy of this judgment, under the seal of this Court and the signature of the Registrar, will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
Z.S./777/T Order accordingly.