Kerala High Court
Commissioner Of Agricultural ... vs Elembellery Estate on 26 June, 1997
Equivalent citations: [1997]228ITR539(KER)
JUDGMENT K.K. Usha, J.
1. These reference cases at the instance of the Revenue arise from the order of the Kerala Agricultural Income-tax Appellate Tribunal, Additional Bench, Kozhikode, dated November 21, 1983. The relevant assessment years are 1975-76 and 1976-77. The accounting periods relevant for the above assessment years are April 1, 1974, to March 31, 1975, and April 1, 1975, to March 31, 1976. The following are the questions referred by the Tribunal :
"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing to allow registration to the firm when the partnership deed was defective ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the defect in the partnership deed can be rectified by a subsequent declaration from the guardian of the minor and, therefore, the registration to the firm can be granted ?"
2. The respondent firm was an assessee on the files of the Inspecting Assistant Commissioner (Special), Agricultural Income-tax and Sales-tax, Kozhikode. It was being assessed in the status of a registered firm. During the accounting period relevant for the assessment year 1975-76, there was a change in the constitution of the firm due to death of one of the partners. In the place of the deceased partner, his minor son was admitted to the benefits of the partnership. The firm applied for registration after making suitable modification in the deed of partnership. The assessing authority declined registration as per. assessment order dated December 16, 1977, holding that the partnership deed was not valid in law as the minor was not represented by the guardian in the instrument of partnership. For the same reason, renewal of registration for the assessment year 1976-77 was refused as per assessment order dated January 20, 1979, The assessee took up the matter in appeal before the Deputy Commissioner (Appeals). He found that the guardian of the minor who was admitted to the benefits of the partnership, had, by a subsequent declaration, made it clear that the minor had been admitted to the benefits of the partnership with his consent and knowledge. He, therefore, held that the defect in the partnership deed stood cured and, therefore, the firm was entitled to registration. The appeals were thus allowed by a common order dated March 13, 1981. Even though the State took up the matter before the Appellate Tribunal, by a common order dated November 21, 1983, the Tribunal upheld the decision of the first appellate authority.
3. On the Tribunal declining to refer the questions for decision of this court, the Revenue filed Original Petition No. 1253 of 1985 (see [1993] 203 ITR 638) for compelling reference. Pursuant to the judgment of this court in the above original petition, the Tribunal has referred the two questions mentioned above for decision of this court.
4. The assessing authority declined registration relying on a decision of the Allahabad High Court in Addl CIT v. Uttam Kumar Promod Kumar [1974] 97 ITR 730. The Tribunal, on the other hand, relied on another decision of the Allahabad High Court in Brij Rattan Lal Bhoop Kishore v. CIT [1982] 136 ITR 722 and held that even if there was a mistake in the original document or application, the firm should be given an opportunity to correct the same. Since the Deputy Commissioner (Appeals) was satisfied that the firm had rectified the defect, he was fully justified in directing the grant of registration to the firm.
5. The provisions under the Agricultural Income-tax Act, 1950, which are relevant for the registration of the firm and the liability of the minor are Section 8 and Section 27. Rules 2 and 3 of the Agricultural Income-tax Rules, 1951, also deal with the procedure for registration of firms. Subsection (1)(a) of Section 8 provides that in the case of agricultural income taxable under this Act, which the guardian is entitled to receive on behalf of a minor, the tax shall be levied upon and recoverable from the guardian in like manner and the same amount as it would be leviable upon and recoverable from the minor and all provisions of the Act shall apply accordingly. Section 27 provides that application may be made to the Agricultural Income-tax Officer on behalf of any firm constituted under an instrument of partnership specifying the individual shares of the partners for registration. The application shall be filed by such person or persons and at such times and shall contain such particulars and shall be in such form and be verified in such a manner as may be prescribed. Rules 2 and 3 of the Agricultural Income-tax Rules, 1951, deal with the manner in which the applications are to be submitted. It is provided therein that the application shall be signed by all persons (not being minors) personally. The format is also prescribed under the rules. Rule 3 provides that the application in the prescribed form shall be accompanied by the original instrument of partnership under which the firm is constituted together with a copy thereof. Admittedly, in this case the minor was not made a full-fledged partner. He was only admitted to the benefits of the partnership. It is also not disputed that a declaration has been signed by the guardian of the minor concerned and was made available before the first appellate authority, to the effect that the minor was admitted to the benefits of the partnership with his knowledge and consent. In the light of the above admitted facts, the only question to be considered is whether such subsequent declaration by the guardian of the minor is sufficient or not. In other words, if the guardian had not signed, on behalf of the minor, in the partnership deed itself whether it is fatal and the defect cannot be rectified by a subsequent declaration. In Addl CIT v. Uttam Kumar Promod Kumar [1974] 97 ITR 730, a decision of the Allahabad High Court on which reliance was placed by the assessing authority, the court found that going by the terms of the partnership deed the minor was treated as a full-fledged partner and not merely admitted to the benefits of partnership. Under those circumstances the agreement of partnership was found illegal and partnership was not entitled to registration under Section 185 of the Income-tax Act, 1961. It was also found that neither the minor nor his guardian acting on his behalf had signed in the document and on that ground also the partnership was not entitled to registration. The above decision was later approved by a Full Bench of the Allahabad High Court in Addl. CIT v. Uttam Kumar Pramod Kumar [1978] 115 ITR 796. In that case also the minors were made full-fledged partners and the document was not signed by anyone on behalf of the minors. We find that the Tribunal was justified in taking the view that the above two decisions are not applicable to the facts of the present case.
6. The Calcutta High Court had occasion to consider a similar issue in CIT v. Associate Industrial Distributors [1982] 138 ITR 304 where the facts are similar to those in the present case. Minors were admitted to the benefits of partnership, but their guardians had not given their assent in the instrument of partnership or by separate agreement at the time when the partnership came into existence. The Income-tax Officer, therefore, refused the claim for registration and proceeded to assess assigning the status of an association of persons. On the basis of affidavits filed by the guardians of minors, the Appellate Assistant Commissioner, before whom the assessee had taken up the matter in appeal, took the view that the guardians were fully aware of the terms and conditions under which the minors were admitted to the benefits of the partnership and they had assented to those terms and conditions. He, therefore, directed the Income-tax Officer to grant registration to the firm and to make assessment on that basis. The order of the Appellate Assistant Commissioner was upheld by the Appellate Tribunal. The Tribunal found that the guardians had signed the statement of accounts and had received the ad interim shares of profits attributable to the shares of the minors. Such conduct on the part of the guardians, according to the Tribunal, was sufficient evidence to show that they had assented to the terms of which the minors had been admitted to the benefits of the partnership. The above view taken by the Tribunal was affirmed by the High Court. The decision of the Allahabad High Court in Addl CIT v. Uttam Kumar Pramod Kumar [1978] 115 ITR 796 [FB] was not followed. The Calcutta decision has been followed by the Andhra Pradesh High Court in Safari Wines v. CIT [1988] 169 ITR 695. It was held that the consent of the guardian for the minor being admitted to the benefits of the partnership can be established by other evidence even if he had not signed in the partnership deed itself.
7. We are inclined to agree with the view taken by the Calcutta High Court. In the relevant provisions under the Kerala Agricultural Income-tax Rules we do not find any mandatory provision by which the guardian has to sign in the instrument of partnership itself to express his assent in admitting the minor to the benefits of partnership. On the other hand, specific provision is made for all the partners to sign personally in the application which has to be accompanied by the instrument of partnership. We are, therefore, of the view that if the guardian of the minor has expressed his consent in any manner to the satisfaction of the authority, it would be sufficient compliance. We are also of the view that the Tribunal is justified in holding that the assessee was entitled to an opportunity to correct a mistake even if there was one in the application. In BRIJ Rattan Lal Bhoop Kishore v. CIT [1982] 136 ITR 722, the Allahabad High Court took the view that if an application for registration under Section 185 of the Income-tax Act, 1961, was not personally signed by one of the partners of a firm, the Income-tax Officer ought to give an opportunity to the firm to rectify the defect in the application and registration cannot be refused without giving such opportunity. A similar view is seen to have been taken by the apex court in Pratapmal Luxmichand v. CIT [1956] 29 ITR 489 when it observed that the Appellate Assistant Commissioner could under rule 2C of the Indian Income-tax Rules, 1922, accord permission to the assessee to make the application in the proper form to the Income-tax Officer signed by all the partners personally.
8. In the present case, the Agricultural Income-tax Officer had no doubt about the genuineness of the firm. The only objection raised was that the guardian had not signed in the instrument of partnership on behalf of the minor who was admitted to the benefits of partnership. As mentioned earlier, before the first appellate authority a declaration was given by the guardian to the effect that the minor was admitted to the benefits of the partnership with his consent and knowledge. In the facts of this case, we are of the view that the Tribunal was fully justified in directing to allow the registration of the firm. The Tribunal was right in holding that the defect in the partnership deed could be rectified by a subsequent declaration from the guardian of the minor.
9. We, therefore, answer question No. 1 in the affirmative against the Revenue and in favour of the assessee. Question No. 2 is also answered in the affirmative against the Revenue and in favour of the assessee.
10. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Additional Bench, Kozhikode.