ORDER
A.V. Balasubramanyam, Judicial Member
1. The question involved in the appeal is whether registration to the firm (assessee) is or is not to be granted.
2. M/s. A.J. Lopez & Sons (firm) is. the assessee which was treated as an unregistered firm in the assessment for 1978-79 for which the previous year terminated on 31-7-1977. M/s. AJ. Lopez & Sons had been formed by A.J. Lopez and few others and this had undergone certain changes with effect from 10-3-1976. The firm was reconstituted by indenture dated 15-6-1977. As per that indenture, AJ. Lopez and three other partners were relieved. The reconstituted firm comprised of four partners (Majors). They are the wife and three sons of AJ. Lopez. These partners admitted a minor (Silvister Lopez) to the benefits of the firm. The minor was then aged17 and he was the youngest son of the retired partner AJ. Lopez and the first partner in the reconstituted firm, Mrs. Floe Lopez. The reconstituted firm was effective from 31-5-1977.
3. The partners applied for registration by filing Form Nos. Hand 11A and the four partners had signed it. The Income-tax Officer passed an order under Section 185(1) declining registration. The reasons can be listed as follows.
4. It is stated that the reconstituted document dated 15-6-1977 had not been signed by the guardian of the minor who was admitted to the benefits of the firm. The second was that the forms had not been signed by the guardian of the minor. Lastly, that the profits of the firm had not been arrived at by actually closing the books of account on the day previous to its change in the constitution and that it had been allocated only on time basis. The Commissioner of Income-tax (Appeals) did not approve any of them, and rightly too in our opinion.
5. The Income-tax Officer relied upon the decision of the Allahabad High Court in the case of Addl. CIT v. Uttar Kumar Promod Kumar [1974] 97 ITR 730 in support of its view that the identure of reconstitution was required to be signed by the guardian of the minor for having admitted him to the benefits of the firm. The facts in Uttam Kumar Promod Kumar’s case (supra) are distinguishable. In that case, the High Court found that the minors were made liable for losses of the partnership. The terms of the partnership deed, the High Court concluded, were such which purported to make the minors full-fledged partners. In that setting, the Allahabad High Court concluded that the partnership was not legal.
6. Minors cannot be full-fledged partners and the law is very clear. A minor can only be admitted to the benefits of the firm. We have perused the indenture of reconstitution dated 15-6-1977. The minor Silvister Lopez was merely admitted to the benefits of the firm. It is a document strictly complying to Section 30 of the Partnership Act.
7. The Income-tax Officer comments that in the absence of signature of the guardian of the minor to the document, registration to the firm cannot be granted. We may usefully refer to the decision of the Bombay High Court in the case of CIT v. S. Moonalal & Co. [1976] 104 ITR 688. In this reported case, the High Court, upon examination of the document, found that the minor had been only admitted to the benefits of the partnership though the natural guardian had signed the document. Tulzapurkar J. observed:
…the provisions in the deed of partnership showed that the minor was merely admitted to the benefits of the partnership and was not made a full-fledged partner. The mere fact that the deed was signed by the minor’s natural guardian was immaterial. The firm was entitled to registration.
The Revenue had, in the above case, taken exception to the minor’s guardian signing the partnership deed, though, in reality, the minor had been admitted only to the benefits of the firm. Their Lordships of the Bombay High Court have referred to the decision of the Supreme Court in the case of CIT v. Shah Mohandas Sadhuram [1965] 57 ITR 415 where the same question had been considered in a somewhat different context It is clear that the true position is that the guardian of the minor is not required to sign the partnership deed though his signing would not invalidate the document so long as the minor is not equated with the partners in respect of obligations. All that is necessary in law is that the minor must have been merely admitted to the benefits of the firm.
8. If Section 30(2) suggests that there should be an agreement on behalf of the minor and the partners, then law does not require the assent of the guardian to be express. It can be implied also. The father of the minor retired from the firm and her mother became the partner and she has signed the deed of reconstitution dated 15-6-1977. It cannot be said that the father had no knowledge of what the wife was doing. It was ascertained that the minor was in the care and protection of the parents. In the circumstances, the consent of the guardian is implicit in itself.
9. Rules do not prescribe that Form 11 or 11A is to be signed by the guardian of the minor who is admitted to the benefits of the firm. On the other hand, there is clear indication in Rule 22(5) that the form should be signed only by the partners. A minor admitted to the benefits of the firm is not a partner and it would be a contradiction in terms to say that minor admitted to the benefits of the firm is a partner. The first two objections taken by the Income-tax Officer have no real validity.
10. With regard to the other objection, the profits of the firm had been arrived at on time basis. Instead of closing the accounts as on the date of reconstitution, the profits had been apportioned on time basis. In the assessment, the income of the firm is determined and the same is allocated to the various partners and the minor in accordance with the shares specified in the deed. The profit sharing ratio is not altered. Therefore, it is incorrect to say that the partners have not distributed the profits in accordance with the terms agreed upon. Determination of the profits is beside the issue. A particular method adopted by the partners cannot be said to have been done with any design. So long as there are no mala fides, the genuineness of the firm is not open for any suspicion. The Commissioner (Appeals) has rightly concluded this issue against the revenue and we fully concur with the reasons given by him in paragraph 6 of his impugned order.
11. On the whole we are satisfied that the firm is genuine and registration has been rightly granted by the Commissioner (Appeals). The appeal is dismissed.