ORDER
Shri Y. R. Meena, Judicial Member
1. This appeal is file by the assessee against the order of Commissioner passed under section 263 of the Income-tax Act, 1961 (“the Act”), dated 3-11-1980. The main issue for our consideration in this appeal is whether the Commissioner has erred in treating the sum of Rs. 96,000 paid to the outgoing minors for the use of their goodwill, agency rights, etc., retained by them on dissolution of the firm as per the terms of the dissolution deed (sic). The ITO allowed the claim of the assessee in his assessment order dated 30-11-1978. On perusal of records of the assessment of the assessee, the Commissioner found that one of the clauses in the dissolution deed mentions that as it was not possible to ascertain the value of intangible rights such as goodwill, quota rights, selling agency rights and business connections, the retiring minors in consideration of their agreement to allow the other remaining partners to use such intangible assets were allowed payments of Rs. 96,000. According to the Commissioner, the provisions of the Indian Partnership Act clearly shows that the minors had no right in the assets of the firm and as such the ITO has committed an error in law in treating them as entitled to payment of fixed sums every month for the user by the remaining partners for their share in the assets of the firm. When the minors do not have any share in the property, the question of user of such share by the remaining partners and payment of fixed monthly amount for such user could not arise. Finally the Commissioner held that the ITO has committed an error in allowing deduction of Rs. 96,000 per year. The Commissioner held that the order passed by the ITO was prejudicial to the interest of revenue and, therefore, he set aside the ITO’s order and directed him to frame a fresh assessment in accordance with law. Being aggrieved, the assessee came in appeal before us.
2. The contention of the learned counsel for the assessee, Shri Raiyani, was that the Commissioner has erred in holding that the three minors had no right in the assets of the firm and also in observing that the minor partners are full-fledged partners. In fact, the scheme of section 30 of the Partnership Act is to give benefit to the minor and not to restrict his rights in the firm. The minors were admitted to the benefits of the partnership and they are liable to the acts of the firm up to their shares in the firm but not personally liable of any such act and sub-section (4) of section 30 provides that when the minor servers his connection with the firm in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48. Section 48(b) (iv) provides that the residue, if any, shall be divided amongst the partners in the proportion in which they were entitled to share profits. Therefore, it is very clear from the plain reading of the provisions of section 30 and 48, that the scheme of section 30 is for the benefit of minors and at the time of dissolution the share in the property should be given to the partners in accordance with the share of profit in the partnership firm. In support of his contention he relied on the observations in CIT. v. Devson Ltd. [1975] 98 ITR 311 (J&K) wherein it is held by their Lordships that minor has equal right in the property of the firm as the major partners in the firm. On the other hand, Shri Harne, the learned departmental representative, contended that the minors were admitted to the benefits of partnership under section 30 and they were entitled to share of profit and property as provided in accordance with the provisions of section 30(2). His submission was that the minors had no right in the assets of the firm. When the minors had no rights in the assets of the firm the question of payment of Rs. 96,000 does not arise. The Commissioner, he contended, was justified in directing the ITO to reframe the assessment afresh in accordance with law.
3. We heard the rival contentions and considered the material on record. From the material on record, it appears that the assessee-firm executed dissolution deed on 7-11-1975 by which three minors, viz., Jayesh B. Mistry, Lata B. Mistry and Sangeeta B. Mistry, who were admitted to the benefits of partnership firm, decided to withdraw from the firm. The remaining partners decided, to carry on the business in the same name. The shares of the minors in the profit of the firm were 30 per cent, 15 per cent and 15 percent, respectively. According to the terms of the dissolution deed, the minors were entitled to the share in the assets of the firm in proportion to the ratio in which they shared profits in the firm; one of the clauses in the dissolution deed mentions that as it is not possible to ascertain the value of intangible rights such as goodwill, quota rights, selling agency rights and other business connections, the retiring minors, in consideration of their agreement to allow the remaining partners to use intangible assets, the firm will pay to the minors the following amounts :
1. Jayesh B. Mistry Rs. 4,000 per month
2. Lata B. Mistry Rs. 2,000 per month
3. Sangeeta B. Mistry Rs. 2,000 per month
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Rs. 8,000
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The payment of the amount involved is not is dispute. The controversy centres around the issue whether the minors had any right in the assets in question before the dissolution of the firm. The assessee cited the following observations of the various High Courts and the Supreme Court :
4. In CIT v. Khetan & Co. [1962] 45 ITR 170, their Lordships of the Calcutta High Court observed as under :
"For instance, sub-section (2) gives such a minor a right to the share of the property and of the profits of the firm. The words 'as may be agreed upon' in sub-section (2) mean agreed upon between the adult partners, because a minor cannot agree."
According to the assessee, these observations suggest that the share in the property is the same as that of the share in the profits.
5. In Chiman Lal Umaji & Sons V. CIT [1975] 98 ITR 306, their Lordships of the Madhya Pradesh High Court observed as follows :
"As pointed out by the Privy Council in Sanyasi Charan Mandal v. Krishna-Dhan Banerji AIR 1922 PC 237-the right of a minor admitted to the benefits of a partnership is merely to participate in the property of the firm after its obligations have been discharged."
According to these observations, the counsel of the assessee submitted that the share of the minors in the property is the residue under the provisions of section 48(b) (iv) at the time of the dissolution of the firm.
6. In Satya Narain V. Jugul Kishore AIR 1958 All. 512 their Lordships of the Allahabad High Court observed at page 513 of the report as under :
“(6) It is true that in view of section 30 of the Partnership Act, a minor though participating in the profits of the firm, is not a partner. A person who is a minor cannot be a member of a firm, he may be admitted to the benefits of the firm but cannot be made personally liable for any liability of the firm. His share in the property of the firm is liable for the obligations of the firm and that share is not more than his right to participate in the property of the firm after its obligation has been satisfied. Such a minor cannot sue the partners for an account of the firm or for the payment of his share of the property or profits of the firm, except when he severs his connection with the firm, in which case the amounts of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48 of the Partnership Act. Where the firm is dissolved, as here, by all the partners acting together, the amount of the share of the minor shall be determined along with the share of the partners.”
These observations also throw light on the provisions of section 30(2) read with section 48. When minor severs his connection with the firm, the share in the property shall be determined as far as possible in accordance with the rule of section 48 of the Partnership Act.
7. In Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300, their Lordships of the Supreme Court observed that section 30 of the Partnership Act deals with the case of a minor admitted to the benefits of partnership. Such a minor is given a right to share the property of the firm and also a right to share in the profits of the firm, as may be agreed upon, but his share will be liable for the acts of the firm though he would not be personally liable for them. Sub-section (4), however, debars a minor from suing the partners for accounts or for his share of the property or profit of the firm, save when severing his connection with the firm, the Court shall make a valuation of the share in the property of the firm.
8. In our view, the above decisions of the various High Courts and the Supreme Court are not directly on the issue but observations have been made and are relevant in the sense that they provide guidelines to ascertain the status and position of the minor in the firm and to determine as to what rights he has in the firm in view of the provisions of section 30 read with section 48 of the Partnership Act. In our view, the scheme of section 30 is to give some benefit to the minor or to put him in privileged position in the firm so that his liability in the firm may not extend beyond the share of the minor in the firm. The firm was dissolved and the minors have allowed their rights of assets goodwill, etc., to be used by the continuing partners for which they were entitled under the provisions of section 48 of the Partnership Act (sic). The provisions of section 48(b) (iv) postulates that the residue, if any, shall be divided amongst the partners in the proportion in which they are entitled to share profits. Subsection (2) of section 30 of course mentions that the share of the property and profit should be such as agreed upon but sub-section (4) clarifies the position that a minor cannot sue the partners for accounts or for payment of his share of the property or profits of the firm, save when severing his connections with the firm. In such a case, the share in assets shall be determined by the valuation made as far as possible in accordance with the rules contained in section 48. Therefore, in our view, the scheme of section 30 is restricted to liabiity but the share shooud be ascertained in accordance with section 48. The provisions of section 48(b) (iv) provides that the residue, if any, shall be divided amongst the partners in the proportion in which they are entitled to share profits. In this case, it is not disputed that the firm has residue at the time of the dissolution and even the partners agreed that the minors have the right in the assets such as goodwill, agency rights, etc., and as the assets are intangible the firm will retain their right in the intangible assets and for that the firm will pay for the use of such intangible assets the amount aforesaid. Therefore, in our view, the observations of the various High Courts and the Supreme Courts and the specific clause in the dissolution deed and the provisions of section 30 read with section 48(b) (iv) support the claim of the assessee and the Commissioner was not justified in directing the ITO to frame a fresh assessment in accordance with his observations.
9. The second ground raised by the assessee is that the Commissioner has no jurisdiction to take action under section 263 as the appeal has already been decided by the Commissioner (Appeals). We heard the rival contentions. It is pointed out that the issue involved has not been dealt with by the Commissioner (Appeals) in his order dated 1-10-1981. If that is the position, we do not agree with the submission of the assessee’s counsel that the Commissioner has no right to invoke the provisions of section 263 when the point regarding section 263 was not dealt with by the Commissioner (Appeals). Therefore, we reject the claim of the assessee.
10. In the result, we reverse the order of the Commissioner and restore the order of the ITO. The appeal is allowed.