Income-tax---

----Firm---Registration---Minor---Minors shown as 'partner---Share of minors in profits and losses of firm specified in partnership deed---No recital in partnership deed that minors were admitted to benefits of partnership---Firm not valid---Not entitled to registration---Indian Income Tax Act, 1961, S.185-- Indian Partnership Act, 1932, S.30.

Section 30 of the Indian Partnership Act, 1932, clearly lays down that a minor cannot become a partner, though with the consent of the adult partners he may be admitted to the benefits of a partnership. Any document which goes beyond' this section cannot be regarded as valid for purposes of registration under the Income-tax Act.

The guardian of a minor is entitled to do all things necessary for effectuating the conferment of the benefits of partnership on the minor. A guardian can agree on behalf of the minor to contribute capital for the business of the firm in which the minor is admitted to the benefits of partnership. There is thus no bar in law to the guardian of a minor agreeing to the starting of a business and the constitution of a firm on the condition that the minor shall not be a full-fledged partner; but shall only be entitled to the benefits of partnership, for, he is only securing thereby the conferment of the benefit of partnership on the minor.

Held, that, in the instant case, the partnership deed specifically disclosed the names of the minors as being represented by their respective guardians. Under clause (8), the proportion of the profits and losses of the partnership to be shared and contributed by the partners was stated. There was no recital in the deed that the minor was being admitted only to the benefits of the partnership. On the other hand, he was being treated for all intents and purposes as a partner with the same rights and obligations as the major partners.

The expression "benami" denotes transactions for the benefit, not of the persons taking part in the transactions, but of the person or persons not mentioned in the transaction. As such, in the circumstances of the case, especially in view of the names of the minors being specifically shown as parties, represented by their respective guardians, and the undisputed fact that the capital invested belonged to the minors, the Tribunal clearly fell into an error in applying the concept of "benami" for justifying registration.

The firm was not valid and was not entitled to registration.

CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660 (SC) and CIT _v. Dwarkadas Khetan & Co. (1961) 41 ITR 528 (SC) applied.

Manvi Bros. v. CIT (1960) 39 ITR 173 (Bom.) and Ram Laxman Sugar Mills v. CIT (1967) 66 TTR 613 (SC) distinguished.

CIT v. A. Abdul Rahim & Co. (1965) 55 ITR 651(SC) ref.

H. Raghavendra Rao for the Commissioner.

K.S. Ramabhadran and others for the Assessee.

JUDGMENT

S.A. HAKEEM, J.---The question that arises in this case is with regard to the registration of a Mm.

The Income-tax Officer refused registration to the assessee-firm on the ground that the minors were made full-fledged partners under, the partnership deed. It was found by him that the recitals in the partnership deed make it clear that the minors represented by their respective guardians actually become full-fledged partners. He has further followed the direction of the Inspecting Assistant Commissioner under section 144-B of the Income-tax Act ("the Act") that the minors have been made to share the losses suffered by the firm which is prohibited under the Partnership Act and hence directing him to refuse registration. On appeal, the Commissioner (Appeals) has confirmed the order of the Income-tax Officer refusing registration.

Further, appeals of the assessee were allowed by the Appellate Tribunal on the ground that the lower authorities having admitted that the guardians acted as representative assessees for the minors, fell into an error in concluding that the minors were partners and that they were made to share losses, if any, incurred by the firm. The Tribunal further held that the guardians are the partners of the firm having necessary authority to become such partners on behalf of their wards and as the partnership was found to be genuine and without any defect in the partnership deed, the assessees were entitled to registration.

On the above facts, the Appellate Tribunal has referred the following question of law for the Court's opinion:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the guardian of a minor can be treated as a partner of the firm by obtaining relevant authority to become a partner from such ward and whether such a provision would not amount to a minor partner sharing losses in contravention of the requirements of a valid partnership eligible for registration?"

In order to appreciate the question involved, it is appropriate to refer to the deed of partnership made on July 2, 1979. This was done by way of reconstitution of the firm, the earlier reconstitution of the same firm having been made on January 1,1979. The description of the partners at Serial Nos. 9 to 12 which is relevant for our purpose is as follows:

The preamble to the deed which throws light upon the changes made in the reconstituted firm reads thus:

"Whereas parties Nos. 1 to 7 and Mr. Shailesh Shantilal Shah, Mrs. Rajani Rajkumar Shah, Mrs. Mangal Ramesh Shah, Mr. Shashikant Surendra Mirji (being Karta of HUF) and Mr. Ashok Surendra Mirji in his individual capacity had been carrying on business in partnership, under the name and style of `Messrs Manickbag Garage' in accordance with the deed of partnership, dated January 1, 1979, and whereas the said Mr. Shailesh Shantilal Shah, Mrs. Rajani Rajkumar Shah, Mrs. Mangal Ramesh Shah, Mr. Shashikant Surendra Mirji (being Karta of HUF) and Mr. Ashok Surendra Mirji in his individual capacity retired from the partnership by mutual consent and at the same time parties Nos. 8 to 12 joined as partners and whereas the parties hereto are desirous of executing a new deed of partnership with a view to put this change on record."

Clause (4) is relating to the capital of the firm and the proportion thereof contributed by each of the partners.

Clause (8) reads as under:

"(8) The profits and losses of the partnership shall be shared and contributed by the partners in the following proportion:

Clause 14(a) is another significant clause which states that "the death or retirement or insolvency of any partner shall not dissolve the partnership but such partner shall cease to be a partner on the happening of such event".

On behalf of partners at Sl. Nos. '9 to 12, the guardians have signed as representatives of their minor children. The answer to the question, in -our opinion, ultimately depends upon the correct interpretation of the partnership deed itself.

The scope of powers of the guardian of a minor to enter into a partnership on his behalf are well-settled. The guardian of a minor is entitled to do all things necessary for effectuating the conferment of the benefits of partnership on the minor. A guardian can agree on behalf of the minor to contribute capital for the business of the firm in which the minor is admitted to the benefits of partnership. There is thus no bar in law to the guardian of a minor agreeing to the starting of a business and the constitution of a firm on the condition that the minor shall not be a full-fledged partner; but shall only be entitled to the benefits of partnership, for, he is only securing thereby the conferment of the benefits of partnership on the minor.

A partnership deed must be construed reasonably having regard to the aforesaid principles. In the instant case, the question that has arisen is whether the partnership deed makes the minor a full partner or he has been admitted only to the benefits of partnership.

The description of the partners in the partnership deed at Sr. Nos. 9 to 12 specifically discloses the names of the minors as being represented by their respective guardians. Under clause 8, the proportion of the profits and losses of the partnership to be shared and contributed by the partners is stated. As against the names of the guardians of the minors, the shares ig the profits and losses are disclosed. There is no recital in the deed that the minor was being admitted to the benefits of the partnership. On the other hand, he was being treated for all intents and purposes, as partner with the same rights and obligations as the major partners.

The contention of the assessee appears to be that, in fact, the respective guardians of the four minors entered into partnership agreements and they, in law, were the partners qua the other partners, though they were accountable to the minors whom they represented. The Tribunal having accepted this contention has gone a step further in treating the guardians as benamidars for the minors and, therefore, held that for the internal relationship among the partners it is the guardians only who are to be considered as partners and not their wards. For this purpose, they have relied upon the decision of the Supreme Court in CIT v. A. Abdul 'Rahim & Co. (1965) 55 ITR 651). The observations of the Supreme Court in the facts and circumstances of that case relied upon by the Tribunal are as under (headnote):

"The benamidar of a partner, qua the other partners, has separate and real existence; he is governed by the terms of the partnership deed; his rights and liabilities are governed by the terms of the contract and by the provisions of the Partnership Act; his liability to third parties for the acts of the partnership is co-equal with that of the other partners; the other partners have no concern with the real owner; they can only look to him for enforcing their rights or discharging their obligations under the partnership deed. Any internal arrangement between him and another partner is not governed by the terms of the partnership; that arrangement operates only on the profits accruing to the benamidar; it is outside the partnership arrangement. If a benamidar possesses the legal character to enter into a partnership with another, the fact that he is accountable for his profits to and has the right to be indemnified for his losses by a third party or even by one of the partners does not disgorge him of the said character."

It is significant to note that in the said case the benamidars were representing third parties (not parties to the partnership deed), in which event his liability to third parties is held to be co-equal with that of the other partners; that the other partners have no concern with the real owners; that they can only look to him for enforcing their rights or discharging their obligations under the partnership deed.

It appears to be well-settled that the expression "benami" denotes transactions for the benefit, not of the persons taking part in the transactions, but of the person or persons not mentioned in the transaction. As such it seems to us that in the circumstances of the case, especially in view of the names of the minors being specifically shown as parties, represented by their respective guardians, and the undisputed fact that the capital invested belongs to the minors, the Tribunal clearly fell into an error in applying the concept of "benami" for justifying registration.

In that context, the observations of the Supreme Court in CIT v. Bagyalakshmi & Co. (1965) 55 ITR 660, are relevant (headnote):

"A contract of partnership has no concern with the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the Karta of a joint Hindu family; he may be a trustee; he may enter into a sub-partnership with others; he may, under an agreement, express or implied, be the representative of a group of persons; he may be a benamidar for another. In all such cases he occupies a dual position. Qua the partnership, he functions in his personal capacity; qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the other partners nor can the other partners do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the terms of the agreement, as the case may be."

In CIT v. Dwarkadas Khetan & Co. (1961) 41 ITR 528 (SC) (at page 533), while interpreting the definition of "partner" in the Income-tax Act, it is observed thus:

"What the definition does is to apply to a minor admitted to the benefits of partnership all the provisions of the Income-tax Act applicable to partners. The definition cannot be read to mean that in every case where a minor has, contrary to law, been admitted as a full partner, the deed is to be regarded as valid, because, under the law, a minor can be admitted only to the benefits of partnership. The rules which have been framed under section 26-A quite clearly show that a minor who is admitted to the benefits of partnership need not sign the application for registration. The law requires all partners to sign the application, and if the definition were to be carried to the extreme, even a minor who is admitted to the benefits of partnership would be competent to sign such an application. The definition is designed to confer equal benefits upon the minor by treating him as a partner; but it does not render a minor a competent and full partner. For that purpose, the law of partnership must be considered, apart from the definition in the Income-tax Act.

Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner, though with the consent of the adult partners he may, be admitted to the benefits of partnership. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration. Registration can only be granted of a document between persons who are parties to it and on the covenants set out in it. If the income-tax authorities register the partnership as between the adults only contrary to the terms of the document, in substance a new contract is made out. It is not open to the income-tax authorities to register a document which is different from the one actually executed and asked to be registered."

In that view of the matter, the interpretation sought to be given to the partnership would clearly be contrary td the terms of the document to make out in substance a new contract.

Sri Ramabhadran sought to rely upon the decision in Manvi Brothers v. CIT (1960) 39 ITR 173 (Bom.). In that case, the partnership deed involved only three parties, i.e., the father, the second son and the third being described as "the names of the three minor sons by their guardian mother". The minors were not shown as partners and the share of each of the three partners was shown as being equal and being one-third each. On the facts of that case, it was held that it was the widow who became the partner representing her minor sons and the deed of partnership was in conformity with section 26-A (of the 1922 Act) and did not suffer from any defect which would entail no registration of the partnership. The facts and circumstances in that case are different from the instant case. Similarly the facts and circumstances in Ram Laxman Sugar Mills v. CIT (1967) 66 ITR 613 (SC), were different and will have no application to the instant case.

In the view we have taken above, we answer the question referred by the Appellate Tribunal in the negative, in favour of the Revenue and against the assessee.

These references are disposed of accordingly.

M.BA./2374/T Order accordingly.