THE COMMISSIONER OF INCOME-TAX, BOMBAY vs. M/S. DWARKADAS KHETAN & CO.

CIVIL APPEAL No. 328/1959Supreme Court[1961] 2 S.C.R. 82101 December 1960Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH S.C.R. SUPREME COURT REPORTS8 pages
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What were the facts?

The assessee, M/s. Dwarkadas Khetan & Co., sought registration of a partnership firm under Section 26A of the Indian Income-tax Act, 1922, for the assessment year 1947-48. The partnership deed, dated March 27, 1946, included a minor, Kantilal Kasherdeo, as a full partner with equal rights and obligations, and he was a signatory to the deed. The Registrar of Firms granted registration, showing the minor as a full partner. However, the Income-tax Officer refused registration, holding that a minor could not be a full partner. This decision was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, though there was a difference of opinion between the Accountant Member and the Judicial Member of the Tribunal. The High Court, on reference, differed from the Tribunal and answered the questions in favour of the assessee.

What did the Supreme Court hold?

The Supreme Court held that the High Court erred in its interpretation. The Court found that Section 30 of the Indian Partnership Act, 1932, clearly states that a minor cannot become a partner, although they can be admitted to the benefits of a partnership with the consent of the adult partners. Any document that goes beyond this provision, by admitting a minor as a full partner with equal rights and obligations, cannot be considered valid for the purpose of registration under Section 26A of the Indian Income-tax Act. The Income-tax authorities cannot register a partnership different from the one actually executed. Therefore, the instrument of partnership, which treated the minor as a full partner, was invalid for registration. The Court disagreed with the Madras High Court's view that such a deed could be registered by treating it as a partnership between the adult partners only, as this would amount to creating a new contract. The first question was answered in the negative, in favour of the Revenue, and the second question became unnecessary to answer. The appeal was allowed.

What were the issues?

1. Whether the instrument of partnership dated 27-3-1946 created a valid deed of partnership for the purpose of registration under Section 26A of the Indian Income-tax Act, 1922, given that it admitted a minor as a full partner with equal rights and obligations. 2. If the deed was valid, whether the fact that no firm existed on January 1, 1946, would be fatal to the application for registration, or if the firm could be registered retrospectively from March 26, 1946. Assessee's contentions (as inferred from the High Court's decision and the Tribunal's differing opinion): The document must be construed as showing that the minor was admitted only to the benefits of the partnership, not as a full partner. If the firm was genuine, it could be registered retrospectively. Revenue's contentions (as inferred from the Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal's majority opinion): A minor cannot be a full partner under Section 30 of the Indian Partnership Act, 1932. Therefore, the deed admitting a minor as a full partner is invalid and cannot be registered. The retrospective operation of the firm from a date when no firm existed is also a ground for refusal.

Which sections of the Income-tax Act were involved?

Section 26A,Section 30

AI-generated summary — verify with the full judgment below

2 S.C.R. SUPREME COURT REPORTS 821 THE COMMISSIONER OF INCOME-TAX, BOMBAY v. M/S. DWARKADAS KHETAN & CO. (J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, J.J.)

Income Tax - Partnership firm including minor, if can be registered- Indian Income-tax Act, I9ZZ (II of I9ZZ), s. z6A- Indian Partnership Act, I93Z (IX of I9JZ), s. 30. · One of the persons who entered into a partnership was a minor and in the instrument of partnership he was described as a full partner with equal rights and obligations with the other adult partners. The deed of partnership which was signed by the minor was produced before the Registrar of Firms for regis- tration and he granted a certificate showing the minor as a full partner and not as one entitled merely to the benefts of the partnership. The Income-true Officer, however, refuse<.! to regis- ter the firm under s. 26A of the Indian Income-tax Act and his decision was upheld by the Income-tax Authorities and the Income-tax Appellate Tribunal. The High Court differed from the Tribunal and held that the J)rm should be registered. On appeal by the Commissioner of Income-tax, Held, that the Rules framed under s. 26A quite clearly show that a

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