1. This is an appeal by the assessee against the order of the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act').
2. The assessee is a partnership firm. For the previous year ended 30-6-1980 relevant to the assessment year 1981-82 the assessee was granted registration under the Act by the ITO in his order dated 22-6-1983 under Section 185 of the Act. The Commissioner exercising the power vested in him under Section 263(1) scrutinised the records of the assessee and found that the partnership was governed by an instrument in writing drawn on 3-8-1979, with nine partners. He issued a show-cause notice dated 21-1-1985 in which he was of the opinion that partner No. 9, Shri R. Thanikachalam, was a minor and that he was represented by his father Shri Dhanasekharan and that as per clause 7 of the deed of partnership, the profit or loss shall be enjoyed or borne by the partners, which included the minor Shri Thanikachalam, in equal shares. He also observed that as per the return filed by the assessee, the share of loss has been allocated to Shri Thanikachalam along with others which was not permissible under the Indian Partnership Act, 1932. It was further made out by the Commissioner that though the income computed by the ITO in his assessment order dated 22-6-1983 was nil, still the granting of registration is not proper as the minor was liable to share the loss of the firm and, therefore, he proposed to cancel the registration accorded by the ITO as being erroneous and prejudicial to the interests of the revenue and invited the objections of the assessee.
3. The assessee in its reply dated 28-1-1985 submitted that the Commissioner had not understood the deed in the proper perspective and informed the Commissioner that Shri Thanikachalam (partner No. 9) is the father of Shri Dhanasekharan who is the minor. Shri Thanikachalam as a major is a partner in the firm. The assessee finally stated that 'having erroneously understood that Shri Thanikachalam is a minor, the present show-cause notice seems to have been given to us' and requested the Commissioner not to proceed under Section 263, in the facts and circumstances of the case. The Commissioner did not issue any fresh notice to the assessee but proceeded on the footing that Dhanasekharan, the minor, was admitted as a full-fledged partner and rejected the contentions of the assessee at the time of hearing and finally cancelled the registration of the firm. He also cancelled the assessment order passed by the ITO under Section 143(3) of the Act with a direction to redo the same determining the correct status of the assessee.
4. Before us, Shri M.J. Swamy, the learned counsel for the assessee, vehemently contended that the Commissioner was basking under a misunderstanding of the provisions of the partnership deed. He was under the impression that the ninth partner, viz., Shri Thanikachalam is a minor and he was made liable for the losses of the firm. That is what he had made out in the notice cited supra. When the assessee pointed out the error in the Commissioner's reading of the document, he ought to have issued fresh notice if he had wanted to continue the proceedings under Section 263. This he did not do but sought to justify his action by stating that the minor Dhanasekharan was made a full-fledged partner. Thus, the Commissioner was shifting the ground of attack which he was not entitled to do. He further submitted that the order of the ITO granting registration and the assessment order flowing from it did not suffer from any error prejudicial to the revenue as the loss admitted by the assessee was converted into nil income by the ITO against which no appeal was filed. In order to invoke the provisions of Section 263, it is for the Commissioner to establish that the order of the ITO suffered from an error as a result of which the revenue has suffered. Both these conditions, viz., error and prejudice, must co-exist. This the Commissioner has not established and, therefore, his order is fit to be vacated.
5. On merits, Shri Swamy submitted that it was Shri Thanikachalam who was the partner and Shri Thanikachalam is a major. Maybe, he represented his minor son Dhanasekharan. But, that would not make Dhanasekharan a partner of the firm. In fact, in all the years, the assessment of the share income from this firm is made in the bands of Shri Thanikachalam himself. In law there is nothing wrong for the father and guardian to enter into partnership representing his minor son. Qua the partnership, it is only Thanikachalam who is a partner and none else. He also explained the circumstances under which corrections happened to be made in the partnership deed. Originally, it was contemplated to admit Shri Dhanasekharan the minor and in fact the deed was drafted with that in view. The other partners objected to the minor being made a partner and wanted Shri Thanikachalam to be the partner and, therefore, the corrections were carried out in the instrument of partnership itself. One of the conditions to become a partner is to enlist 200 members to the chit fund. He referred to the materials collected by the department long after the passing of the order under Section 263, which are placed before the Tribunal on behalf of the department, and submitted that it is true that in the hand bills that were printed prior to the execution of the partnership deed, Shri Dhanasekharan, minor son of Shri Thanikachalam, was described as a partner. But, that was before the execution of the partnership deed and was in keeping with the idea of making Shri Dhanasekharan a partner.
Upon objections from other partners, the idea was given up and Shri Thanikachalam entered the partnership representing his son. Shri Swamy submitted that the distribution of the hand bills that were published before the execution of the partnership deed could have been avoided, but such descriptions in the hand bills would not make Shri Dhanasekharan a partner vis-a-vis the assessee. These hand bills were lying in stock and they were utilised and the partners now realised that they were 'penny wise and pound foolish'. He pleaded that it should not be taken as an evidence against the genuineness of the partnership that came into existence subsequently between Shri Thanikachalam, the major, and others. Similarly, the old draft deeds which were meant for circulation among the partners prior to coming into existence of the firm showed Shri Dhanasekharan as a partner and copies of these old drafts might have been given to the bankers inadvertently by the clerical staff, but that would not make Shri Dhanasekharan, minor, a full-fledged partner. It is Shri Thanikachalam who had signed the partnership deed though representing the minor and the partnership deed was registered under the Indian Partnership Act wherein Shri Thanikachalam had subscribed his signature as Shri Thanikachalam and it was this partnership deed that was before the ITO at the time of granting of registration and in Form No. 11 also it is Shri Thanikachalam who had signed as Thanikachalam though in the remarks column it was indicated that he is the father of the minor. As all these facts will prove that there was a genuine partnership among adult partners, but the Commissioner misconstrued the partnership deed and also did not appreciate in the proper perspective the weight of evidence in favour of the assessee. He had not established that there was any error resulting in prejudice to the revenue. Therefore, he submitted that the order of the Commissioner as regards registration of the firm and assessment should be cancelled.
6. Shri N. Santhanam, the learned departmental representative submitted that even though the notice issued to the assessee under Section 263 inadvertently described Shri Thanikachalam as the minor partner, the assessee had participated in the proceedings before the Commissioner and, therefore, the plea that the notice was defective is not available to the assessee now. The Commissioner found that the minor had been admitted as a full-fledged partner liable to the share of profits and losses and such admission was against the provisions of Section 39 of the Indian Partnership Act. The hand bills circulated among the public contained the name of Shri Dhanasekharan as a partner and Shri Dhanasekharan being a minor, and yet made liable to share losses, the firm is not entitled to registration. Even the copies of the deed that were submitted to the bankers contained Shri Dhanasekharan's name as a partner. In the face of such adverse evidence, it does not lie in the mouth of the assessee to take the plea that it was Shri Thauikachalam who was the partner and not Shri Dhanasekharan. Even though there was no taxable income for the firm in the relevant assessment year, if registration is granted to the firm, continuation of registration will have to be granted in the future when the firm might be earning large incomes. Therefore, the prejudice envisaged in Section 263 is not a prejudice confined to the year of assessment alone, but can also be one taking in the repercussions that might follow in the subsequent years in terms of loss of revenue. The mere registration of the firm under the Indian Partnership Act would not automatically lead to registration under the Income-tax Act - Ladhu Ram Taparia v. CIT [1962] 44 ITR 521 (SC). For reasons stated in the order of the Commissioner and in the light of the material gathered subsequently, Shri Santhanam pleaded that the action of the Commissioner should be sustained.
7. We have heard rival submissions and perused the records. The partnership firm came into existence by an instrument in writing dated 3-8-1979. The partnership is for a fixed period till 31-3-1986. There are nine partners. There is no controversy that partners 1 to 8 are adults. The controversy revolves round only the ninth partner. The original deed of partnership, a photostat copy of which was furnished before us, would appear to have contained 'Shri Dhanasekharan, son of Shri Thanikachalam, aged 15 years, resident of Vizianagaram, hereinafter called the ninth partner represented by father and natural guardian Thanikachalam'. In its place, typed corrections have been carried out whereby 'Shri Thanikachalam, resident of Vizianagaram, hereinafter called the ninth partner representing as father and natural guardian Dhanasekharan, minor aged 15 years' is described as a partner.
It is the department's contention that it is Dhanasekharan, the minor, who is the partner. The alternative contention is that the guardian cannot become a partner on behalf of his minor son and thereby make the latter liable to losses in the partnership.
8. Before we proceed to examine the issue, it has to be seen whether the order of the ITO was erroneous and prejudicial to the revenue without which the Commissioner cannot invoke his jurisdiction under Section 263(1). It is not enough that the order suffers from an error but it must be shown that the order is prejudicial to the revenue.
These two factors, viz., error and prejudice, must exist simultaneously. If one or other of the factors is absent, the Commissioner cannot exercise the suo motu power of revision. We are supported in this proposition by the Karnataka High Court decision in V.G. Krishnamurthy v. CIT [1985] 152 ITR 683. If loss of revenue arises out of an erroneous order of the ITO, certainly the Commissioner has jurisdiction to invoke the provisions of Section 263. In this case, Shri Swamy contends that the assessing authority had determined the income at nil even though the assessee had returned a loss at Rs. 36,834.93 The assessee had not gone on appeal against the assessment.
When the income is nil, there could be no prejudice to the revenue even if the order is erroneous. Shri Santhanam contends that the prejudice is not confined to one particular year and as a result of an erroneous order prejudice might be caused in the subsequent years.
9. Though prejudice to the interests of the revenue may either be an immediate one or in future, it has not been shown how the interests of the revenue have suffered in the year of assessment when the income was determined at nil. To decide whether there is justification for the apprehension that prejudice might be caused in future years, one has to go into the merits of the case, to which we shall revert later. Even if it is assumed, without admitting in the facts and circumstances of this case, that prejudice might be caused in future, the department is not without remedy : In the case of CIT v. Voleti Veerabhadra Rao [1972] 84 ITR 764, it was laid down by their Lordships of the Andhra Pradesh High Court that where the original registration has been granted under Section 185(1) or the certificate of continuation of registration under Sub-section (7) of Section 184, read with Sub-section (4) of Section 185 of the Act is granted for the subsequent years of assessment, the ITO may cancel the same if, in his opinion, in the previous year, no genuine firm was in existence. The Allahabad High Court in Badri Narain Kashi Prasad v. Addl. CIT [1981] 128 ITR 663 (head-notes at p. 664), held that the Commissioner acting under Section 263(1) is competent to cancel the continuation of registration for the subsequent year if in that year it is proved that the continuation of registration was wrongly granted.
10. In our view, on the facts and in the circumstances of the case, no prejudice is caused either in the year of assessment or might be caused in the future as would be seen in the later part of our discussions.
Therefore, the order of the Commissioner is liable to be set aside.
11. Section 263 is in two parts. The first part is confined to the assumption of jurisdiction by the Commissioner and that is ex parte. No notice or opportunity need be given by the Commissioner to the assessee before the former's arriving at a decision that recourse to that section is necessary in the circumstances of the case. The second part concerns with actually revising and varying the ITO's order. Before that, the requirement of natural justice comes in and a notice has to be served on the assessee giving him opportunity to meet the charge.
Now, we are concerned with the first part of Section 263 in which the Commissioner forms a belief ex parte from the notice issued to the assessee, it is abundantly clear that the Commissioner was under the impression that Shri Thanikachalam is the minor partner. This assumption or belief is not warranted in terms of the partnership deed and other records before him. This assumption is an erroneous assumption and the Commissioner misdirected himself as to facts even though none of the records before him suggested that Shri Thanikachalam was a minor. Therefore, the assumption of jurisdiction itself, though should be done ex parte, is undoubtedly based on a misunderstanding of facts in this case. However, when the Commissioner realised that Shri Thanikachalam is not a minor; he sought to shift his ground by reaching a conclusion that Shri Dhanasekharan, a minor, had been admitted as a full-fledged partner. When the assumption of jurisdiction itself is upon misconstruction of facts, in our opinion, the Commissioner is precluded from proceeding further and that too by shifting grounds. In this view of the matter also, the order of the Commissioner is liable to be set aside.
12. We have already held that for a proper appreciation of the fact whether prejudice would be caused in future also, a discussion of the merits of the case is called for. The learned Commissioner is of the view that the corrections carried out in the original deed of partnership were not specifically attested by the partners and witnessed by witnesses and, therefore, the unattested corrections in the deed cause a doubt as regards what the other eight partners agreed to. However, the firm had filed its application under Section 58 of the Indian Partnership Act for registration of the firm on 30-3-1981 under Rule 5 in Form A in the file of the Registrar of Firms and according to it, against serial No. 9, Shri Thanikachalam is described as a partner having joined the partnership on 3-8-1979. True copy of the same is in the assessee's paper book at page 11. In addition, we notice that the assessee-firm had furnished to the Income-tax Department Form No. 11 under Rule 22(2) and Rule 22(4)(i) of the Income-tax Rules, 1962 as early as 25-12-1979 to which all the partners from 1 to 9 have subscribed their signatures. At serial No. 9, Shri Thanikachalam as Thanikachalam has signed. In the Schedule thereto, against serial No.9, the name of the partner is given as Shri R. Thanikachalam though in the remarks column there is a description to the effect : 'father and natural guardian of minor Shri Dhanasekharan'. Form No. 11 was also accompanied by the original deed of partnership with the corrections referred to by the Commissioner, carried out against serial No. 9. Form No. 11 and the deed of partnership are found in the departmental paper book at pages 8 to 15 and the originals of the same are in the custody of the department from 25-12-1979 onwards.
13. It may not be out of place to mention here that the department had obtained sworn statements from the partners after the passing of order under Section 263 by the Commissioner and has filed one such statement, that of Shri R.K. Ramachandran, managing partner of the assessee-firm.
The ITO had shown him two partnership deeds-one given to Indian Bank, Vizianagarain, and another given to Corporation Bank, Vizianagaram (pages 37 to 39 of the departmental paper book). The following questions put to Shri Ramachandran by the ITO and the answers given by him are relevant : Question 7 : In the first partnership deed dated 3-8-1979 filed before the Indian Bank, Vizianagaram by you, which I have just now shown to you, the fourth partner is shown as : T. Dhanasekharan, son of R. Thanikachalam, aged 15 years, resident of Vizianagaram, hereinafter called the fourth partner represented by father and natural guardian, Thanikachalam.
In the second partnership deed, dated 3-8-1979, filed by you before the Corporation Batik, T. Dhanasekharan was made as ninth partner as shown below : 9. T. Dhanasekharan, son of R. Thanikachalam, aged 15 years, resident of Vizianagaram, hereinafter called the ninth partner represented by father and natural guardian Thanikachalam.
Answer : Both the above partnership deeds are correct, except change in serial numbers of the partners.
Question 10 : Your firm has published a pamphlet under Saving-cum-Benefit Scheme wherein the following persons are shown as partners in Shri Mahalaxmi Finance Corporation, which I am showing to you : From the above questions and answers, it is evident that Shri Ramachandran was shown two partnership deeds other than the one that was presented to the income-tax authorities along with Form No. 11 in which Shri Thanikachalam is described as a partner with of course the corrections carried out in the original deed of partnership. The last-mentioned partnership deed was never put to Shri Ramachandran and there was not even a question put by the department to the concerned person as to how and why a different document describing Shri Thanikachalam as partner came to be presented to the ITO. Therefore, nothing turns out of this sworn statement in favour of the department.
14. Shri Swamy, the assessee's counsel, filed sworn statements obtained by the department from the other partners. Here also, the partnership deeds furnished to the Indian Bank and the Corporation Bank, Vizianagaram, where the theme on which the questions were framed. In addition, the following questions and answers are found in the statement of Shri Akasapu Surya Rao (pages 16 and 17 of the paper book): Question : Do you agree that all the nine partners described in the copy of the partnership deed dated 3-8-1979 filed before the Corporation Bank, Vizianagaram, to open a fixed deposit account in 1982 are parters in the firm of Shri Mahalaxmi Finance Corporation, Vizianagaram Answer : Shri Dhanasekharan described as the ninth partner is not a partner in Mahalaxmi Finance Corporation, Vizianagaram.
Question : I show you a partnership deed dated 3-8-1979 filed before the Income-tax Department. There is another copy of the partnership deed with the same date filed before the Indian Bank to open a current account and also a copy of the partnership deed with the above date filed before the Corporation Bank, Vizianagaram to open a fixed deposit account. In all the partnership deeds at clause 12 it is mentioned as under : . . . If any particular job is assigned to any one of the partners excluding the minor . . . .
It indicates that a minor is admitted in the business as per all the above partnership deeds. Do you agree Question : As per the pamphlet, there are nine partners printed underneath. Are they correct partners Answer : Out of the nine partners printed in the pamphlet, persons in item Nos. 5 and 6, viz., T. Dhanasekharan and K. Prakash are not partners.
Question : You say that Shri T. Dhanasekharan and K. Prakash are not partners. Who are the partners came in their place Answer : Shri P.V. Subramaniam and R. Thanikachalam came in the place of T. Dhanasekharan and K. Prakash.
14.1 No questions were put to Shri Akasapu Suryaprakasa Rao as regards the partnership deed filed before the income-tax authorities (sworn statement at pages 19 to 24 of the paper book).
14.2 In the sworn statement of Shri Yekula Paidilingam, another partner (pages 25 to 28 of the paper book), apart from the usual questions that were put to other partners, there are specific questions as follows : Question : Are there any minors admitted in the firm of Shri Mahalaxmi Finance Corporation, Vizianagaram Question : In the balance sheets filed before the ITO for the assessment years 1982-83, 1983-84 and 1984-85 you have shown capitals of Rs. 4,662.04 for assessment year 1982-83 at L.F. No. 17, Rs. 15,787.88 for the assessment year 1983-84 and Rs. 24,218.90 at L.F. No. 11 in the name of Shri T. Dhanasekharan. As per this, I conclude that Dhanasekharan is a partner in Shri Mahalaxmi Finance Corporation, Vizianagaram. What is your reply Answer : Shri Dhanasekharan is not a partner in the firm of Shri Mahalaxmi Finance Corporation, Vizianagaram. Thanikachalam is the partner. I think it is Accountant's mistake.
Question : . . . You have already stated that there are no minors in the business. Then where is the need to mention at clause 12 of the partnership deed dated 3-8-1979 filed before the ITO 'any one of the partners excluding the minors'? Where is the need to mention minors in the partnership deed when you say that there are no minors in the partnership Answer : There is no need to mention in the above partnership deed 'any one of the partners excluding the minors.' I do not know how it occurred.
Shri Dhanasekharan is not a partner. His father Thanikachalam is the partner.
Question : Finally I conclude that you have filed one copy of the partnership deed exhibiting Shri Dhanasekharan as the fourth partner before the Indian Bank, one copy of the partnership deed filed before the corporation bank to open a fixed deposit account in 1982 exhibiting Shri Dhanasekharan as the ninth partner aged 15 years and you have filed another partnership deed before the Income-tax Department. Hence, I conclude that you have not filed correct partnership deeds before the banks and ITO. I conclude that your firm is not a genuine one. What is your reply Answer : Our firm is a genuine one. The partnership deed filed before the ITO on 4-2-1980 is correct one.
14.3 In the sworn statement of Smt. Jayshree Bhag Mirpuri (pages 39 and 40 of the paper book), reference was made to the partnership deed filed with the Indian bank, Vizianagaram, and the following questions and answers are noticed : Question : In the above partnership deed Shri Dhanasekharan, son of Thanikachalam made as fourth partner. Is it correct Answer : It is a rough partnership deed in which Dhanasekharan is made as the fourth partner, but a fair partnership deed was written later wherein his father Thanikachalam is admitted as a partner.
Question : For the assessment years 1982-83, 1983-84 and 1984-85 you have distributed the profits of the firm to Shri Dhanasekharan, son of Thanikachalam. But you say Thanikachalam is a partner. Then where is the need to distribute the profits to Dhanasekharan instead of Thanikachalam Answer : I do not know how the profits were allocated to Dhanasekharan when the real partner is Thanikachalam.
My knowledge goes that Thanikachalam is a partner in Sri Mahalaxmi Finance Corporation, Vizianagaram.
14.4 In the sworn statement of Smt. Vusirikala Jagadamba (pages 41 to 43 of the paper book) the following questions and answers are worth-noting : Question : The firm has filed the original partnership deed dated 3-8-1979 before the ITO, Vizianagaram along with Form No. 11. Dp you know the contents of this deed Question : Are there any minors admitted in the partnership firm Sri Mahalaxmi Finance Corporation, Vizianagaram, as per the partnership deed dated 3-8-1979 Answer : There are no minors admitted in the partnership firm as per the partnership deed dated 3-8-1979.
14.5 In the sworn statement of Shri Yelchuri Sangayya (pages 47 to 49 of the paper book), the following question and answer are noticed among others : Question : Your firm, i.e., Sri Mahalaxmi Finance Corporation, Vizianagaram, filed original partnership deed dated 3-8-1979 before the ITO, Vizianagaram, on 4-2-1980. There are some corrections on the 1st page of the partnership deed at ninth partner. Do you know anything about it 15. From a perusal of the answers elicited from the partners in the sworn statements, one fact stands out very clear, viz., that Shri Thanikachalam was admitted as a partner and before the addition, a number of draft or 'rough' partnership deeds were in circulation. The first draft in which Shri Dhanasekharan was shown as partner No. 4 was not acted upon. The second draft in which Shri Dhanasekharan was shown as the ninth partner was typed on stamp paper and on second thoughts the corrections would appear to have been carried out in the stamp paper itself and it was this partnership deed with the said corrections that was acted upon, and it was on the basis of this partnership deed registration was sought from the income-tax authorities and losses were distributed in the previous year. There is force in the plea of Shri Swamy that for opening of accounts, those rough deeds or draft deeds that were not on stamp paper, might have been given to the bankers inadvertently by the staff. Similarly, the distribution of profits to the minor in the subsequent years may be viewed as an act of inadvertence or clerical error, but such distribution will not make Shri Dhanasekharan a partner. The plea of the assessee is that in the later years, due to clerical inadvertence or mistake profits came to be credited to the account of Dhanasekharan in the books of the firm, but such mistake was rectified subsequently. That it is a clerical mistake in the later years is proved by the fact that in the first year of assessment, it is Thanikachalam's account in the books of the firm which was dealt with but not Dhanasekharan's. Even though the clerical mistake was committed in the books of the firm in the later years, which was subsequently rectified, it is pertinent to point out that Thanikachalam had offered these incomes in his assessment in T-1722/NRD I (I) (pages 63 to 67 of the assessee's paper book). In our view, clerical errors cannot affect the genuineness of the firm as has been held in Addl. CIT v. Mardan Khan Rafiq Ahmad Khan [1978] 115 ITR 559 (All.) and other cases in CIT v. Hari Ram Khanna [1979] 116 ITR 886 (All.), CIT v. K. Venkateswara [1982] 134 ITR 328 (AP) and Tax Case Nos. 11 and 12 of 1979 dated 6-3-1980 arising out of Income-tax Appeal Nos. 1971 and 1972 (Hyd.) of 1975-76.
16. The department has brought on record certain hand bills (page 25 of its paper book). These hand bills were issued in connection with Saving-cum-Benefit Scheme organised by the assessee. There are nine partners mentioned therein. Against serial No. 5, Shri Dhanasekharan's name is found, and against serial No. 6, the name of Kapuganti Prakash is mentioned as partners. According to the partnership deeds that were presented to Indian bank, Dhanasekharan's name appears as a partner against serial No. 4, and according to the partnership deed filed with Corporation bank, Shri Dhanasekharan's name appears against serial No.9. The name of Kapuganti Prakash does not appear in either of these deeds. In the deed filed before the income-tax authorities, it is Thanikachalam's name representing Dhanasekharan that appears against serial No. 9 and the name of Kapuganti Prakash is not found therein.
These circumstances would reinforce the plea of Shri Swamy that the initial drafts presented to the bankers and the hand bills were all drafted long before the emergence of the final deed of partnership on the basis of which registration was granted.
17. Now, we turn to the partnership deed on the basis of which registra was initially granted which was subsequently cancelled by the Commissioner under Section 263. In the preamble, partner No. 9 is described as follows : R. Thanikachalam, resident of Vizianagaram, hereinafter called the ninth partner representing as father and natural guardian Dhanasekharan, minor, aged 15 years.
During the course of the existence of the partnership, the partners shall convene monthly meeting of partners where all issues relevant to the partnership can be discussed and such discussions shall be reduced to writing. In such meeting, if any particular job is assigned to any one of the partners excluding the minor, such job or work so entrusted to such partners shall be attended to by such partner with honesty and due diligence.
Reading these two clauses together, the Commissioner reached the conclusion that Shri Dhanasekharan, minor, became a partner either on his own or through his father and natural guardian Shri Thanikachalam and he was given a share in loss. Reference to the minor would appear to have been made in this clause because in the recital it is stated that Shri Thanikachalam represented the minor and, therefore, the partners wanted to emphasise minor's exclusion and to look to Thanikachalam alone for all intents and purposes. This is one view.
Another view is also possible, viz., in the rough deeds, as Shri Dhanasekharan was mentioned as a partner with this clause No. 12 intact, when the final deed was approved with Shri Thanikachalam as partner representing the minor, this particular provision excluding the minor came to be mentioned innocuously. But, the extreme view that the mention of the exclusion of the minor in clause 12 by itself would make the minor a partner does not appeal to us. In this view of the matter, we are also supported by clause 19 of the partnership deed wherein 'the provisions of the Indian Partnership Act insofar as they are not contained herein' have been adopted. In spite of the specific provision in clause 19 incorporating the provisions of the Indian Partnership Act, the conclusion that Section 30 of the said Act is violated does not appear to be valid. In Manvi Bros. v. CIT [1960] 39 ITR 173 (Bom.) (as per headnote) father and two sons who originally formed a joint Hindu family, entered into a partnership on 1-4-1945, when the family was disrupted. The elder of the two sons died on 18-3-1947, but the partnership was continued, his widow representing the interest of three minor sons stepping into the shoes of her deceased husband. The partnership deed was executed on 8-4-1948, the parties to it being father, second son and third being described as 'the names of the three minor sons by their guardian mother'. Clause 5 of the partnership deed provided that the shares of the parties both in profits and losses were equal and clause 8 provided that the relation of the parties shall be governed by the said Act. The partnership deed was signed by the father and the son and by the mother on behalf of her minor sons. It was held on facts that it was the widow who became partner representing her minor sons and the deed of partnership was in conformity with Section 26(a) of the Indian partnership Act and did not suffer from any defect which would entail nonregistration of the partnership. It was further held that in law it is quite possible for a guardian to become a partner and to be liable for profits and losses although the question as to how far his wards are bound by any losses incurred by the guardian may be entirely a different question. The assessee's facts are on a stronger footing since Shri Thanikachalam had signed the partnership deed and other documents as a partner and never as guardian or representative of his minor son. In CIT v. Kedarmall Keshardeo [1969] 73 ITR 150 (Assam & Nagaland), the facts of the case are that on the death of a partner, his widow joined the firm as partner. In the deed of partnership, the widow was described as representing herself and her minor son and she also signed the deed accordingly. The deed did not provide for the individual shares of the widow and the minor son and they were made liable for losses also. On the question whether on a construction of the deed the minor was taken in as a full-fledged partner and the partnership was, therefore, invalid and, hence, the firm was not entitled to registration, it was held that the widow was a partner only in a representative capacity and not in a dual capacity and the minor was not made a full-fledged partner, nor were the widow and the minor made partners jointly and hence, their individual shares were not required to be specified, nor was the minor made liable for losses, and, therefore, the firm was entitled to registration. In the facts of the assessee's case, in our view, the partner is Shri Thanikachalam who is liable for losses. The minor has not been made a full-fledged partner. The cases relied on by the Commissioner are not applicable to the facts of the case before us. Shri Thanikachalam has not signed on behalf of his minor son but has only indicated his desire to represent him in the preamble. In our view, there is force in the contention that Shri Thanikachalam has signed the partnership deed in question and the application in Form No. 11 as a partner without the qualification as guardian and again given himself as partner in column No. 1 of the Schedule mentioning the names of the partners in the application form. The remark in the remarks column that he is guardian of Shri Dhanasekharan apparently expresses his intention to benefit the minor but in all essential particulars, it is Shri Thanikachalam who is clearly shown as partner and not the minor. It is significant that Shri Thanikachalam accounts for his profits and loss in his own assessment even after the minor became a major subsequently. Therefore, we set aside the order of the Commissioner.
18. We have already held that the firm is a genuine one and the order cancelling registration must fail in terms of lack of jurisdiction and on merits. The Commissioner has also cancelled the assessment order in the last paragraph of his order. In the case before us, the assessee returned a loss of Rs. 36,834.93 which was converted into nil income against which no appeal was instituted. The quantum assessment was never before the Commissioner. The cancellation of the assessment arises only on account of the status of the assessee. At nil income, no prejudice would be caused to the revenue whether the assessee is assessed as a registered firm or an unregistered firm. Besides, as we have held that the correct status of the assessee is that of a registered firm, no prejudice would be caused in future also. The consequential order of the Commissioner in respect of assessment also does not survive.