# COMMISSIONER OF INCOME-TAX, BANGALORE v. SHAHMOHANDASSADHURAM

- **Citation:** [1965] 3 S.C.R. 771
- **Court:** Supreme Court of India
- **Decided:** 1965-04-15
- **Case number:** Civil Appeals Nos. 144-145 H of 1964
- **Bench:** K. Subba Rao, J. C. Shah, S. M. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-bangalore-v-shahmohandassadhuram-3457
- **Pages:** 6

## Headnote

Indian Income-tax Act (11 of 1922), s. 26A-Minors as partners
of a firm-G11ardian, if can contract on minor's behalf-Whether such
C partnership could be registered.
The assessee-firm claimed registration under s. 26A of the Indian
Income Tax Act on the strength of a partnership deed executed between four partners of which t\vo were minors. The Income Tax Officer refused registration on the ground that the minors were made
parties to a contract by the eldest ·brother acting on their behalf and
the minor had actually been debited with a share of loss. This was
D
upheld by the Appellate Assistant Commissioner, but the Appellate
Tribunal, on a further appeal. construed the deed as having admitted
the minors only to the benefits of the partnership, and accordingly
held that the assessee w'1s entitled to be registered. In reference, the
High Court answered the question in favour of the assessee. In appeal
by certificate to this Court, the Revenue contended that (i) a guardian is not entitled to contract on behalf of a minor and the deed
E
was consequently void, and (ii) the partnership deed made the minors as full partners.
F
HELD: The assessee-firm was entitled to be registered under
the Income-tax Act. (776 HJ
(i) As long as a partnership deed does not make a minor full
partner a partnership deed cannot be regarded as invalid on the
ground that a guardian has purported to contract on behalf of a
minor. A guardian can do all that is necessary to effect the conferment and receipt of the benefits of partnership. So he must have
the pawer to scrutinse the terms on which such benefits are received
by the minor. He must also have the power to accept the conditions
on which the benefits of partnership are being conferred. [775 G-H]
(ii} The Partnership deed reasonably construed, only conferred
G
benefits of partnership on the two minors and did not make them full
partners.

## Text

A
B
COMMISSIONER OF INCOME-TAX, BANGALORE
v.
SHAHMOHANDASSADHURAM
April 15, 1965
(K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.]
Indian Income-tax Act (11 of 1922), s. 26A-Minors as partners
of a firm-G11ardian, if can contract on minor's behalf-Whether such
C partnership could be registered.
The assessee-firm claimed registration under s. 26A of the Indian
Income Tax Act on the strength of a partnership deed executed between four partners of which t\vo were minors. The Income Tax Officer refused registration on the ground that the minors were made
parties to a contract by the eldest ·brother acting on their behalf and
the minor had actually been debited with a share of loss. This was
D
upheld by the Appellate Assistant Commissioner, but the Appellate
Tribunal, on a further appeal. construed the deed as having admitted
the minors only to the benefits of the partnership, and accordingly
held that the assessee w'1s entitled to be registered. In reference, the
High Court answered the question in favour of the assessee. In appeal
by certificate to this Court, the Revenue contended that (i) a guardian is not entitled to contract on behalf of a minor and the deed
E
was consequently void, and (ii) the partnership deed made the minors as full partners.
F
HELD: The assessee-firm was entitled to be registered under
the Income-tax Act. (776 HJ
(i) As long as a partnership deed does not make a minor full
partner a partnership deed cannot be regarded as invalid on the
ground that a guardian has purported to contract on behalf of a
minor. A guardian can do all that is necessary to effect the conferment and receipt of the benefits of partnership. So he must have
the pawer to scrutinse the terms on which such benefits are received
by the minor. He must also have the power to accept the conditions
on which the benefits of partnership are being conferred. [775 G-H]
(ii} The Partnership deed reasonably construed, only conferred
G
benefits of partnership on the two minors and did not make them full
partners.
Case law referred to.
OVIL APPELLATE JurusmCllON: Civil Appeals Nos. 144-145
H of 1964.
Appeals from the order dated November 16, 1960 of the Mysore High Court in Income-tax Reference No. 3/1959.
N. D. Karkhanis and R. N. Sachthey, for the appellant (in
both the appeals).
R. Ganapathy Iyer, for the respondent (in both the appeal!l).
77i
772
SUPREME
COURT
RIWORTS
[1965] 3 s.c.R.
The Judgment of the Court was delivered by
A
Sikri, J. These two appeals pursuant to a certificate granted
by the High Court of Mysore under s. 66-A(2) of the Income-tax
Act, 1922, are directed against its judgment answering the question referred tQ it in favour of the respondent-assessee. The question referred to is:
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"Whether the assessee, Mohandas Sadhuram, can be granted registration under Section 26-A of the Indian Income Tax Act on the basis of the partnership deed
made ,1n 1-4-1952 for the assessment.year 1953-54 and
on the basis of the said deed read with the supplementary· deed on 1-4-1953 for the assessment year 1954-55".
C
The respondent, MI s Shah Mohandas Sadhuram, hereinafter
referred to as the assessee, is a firm. The assessee claimed registration under s. 26-A of the Indian Income- Tax Act on the strength of
a Partnership Deed executed on April 1, 1952. As the answer to
the question in part turns on the construction of the deed, the reD .
levant clauses may. be set out here. The Partnership Deed first describes the parties and then recites:
"Whereof the above four members were till this day members of a Joint Family, whereof yesterday that is on
31-3-1952 the said four members have 'tlecome divided
not ·only in interest but also by metes and bounds, each E
of the said members taking to his share one fourth (! / 4)
of the said joint family assets and liabilities as detailed in the books of account as maintained by the fim1
known as Seth Mohandas Sadhuram and whereof we
the first and second members have decided to constitute
all the said four members as a partnership admitting the
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third and fourth members thereof to the benefits of the
said partnership but not to the liabilities thereunder". ·
The first and second members referred to in the recital are
Atmaram and Doulatram, both majors.
The other relevant clauses are as follows:
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"(4) The said firm is agreed to do business of Banking and
Commerce (which term includes all that is usually and
customarily is understood to be done· thereunder) and
also to deal in Automobiles business. The Automobiles
business having been started by the said first and H
second members under the name and style of Vijaya
Automobiles, Mysore, when they were members of the
said joint family as a partnership venture apart from
the said family, it is agreed between us now that the
said Automobiles business shall hereafter be continued
to be done under the name and style of Vijaya Automobiles as part of the said firm.
A
B
c
D
E
F
C.J.T. V.
SHAH MOHANDAS (Sikri, J.)
(7) It is agreed that the capital contribution of each member will be equal and the accounts to be maintained to
indicate the said capital contribution, will show what
each member has so contributed in the personal capital ledger account.
(8) It is further agreed that after debiting all working expenses inclusive of those rererred to in para 6 supra,
the profits of the firm less six pies per every rupee of
profits which will be reserved for Charity Fuud will be
distributed pro rata according to the proportion of capital investment as detailed of each member, all to be
paid to his account in the books of account, from
where each member can draw. The losses are agreed to
be shared by the members in the like manner.
The share of profits for the 3rd and 4th member will be
paid to them, the said profits to be credited to their ac:
counts, and from there their maintenance charges and
other expenses of necessities if any may be drawn by
the said Guardian from the .said accounts.
(I 0) It is agreed that the duration of this partnership will be
for a period of one year, i.e. from !st of April, 1952 to
31st March, 1953, and the members might agree to
continue the said partnership even
thereafter under
these terms or on terms to be determined then.
(11) It is agreed that the profits and losses of the Bombay
branch and other branches if any outside the State of
Mysore will be credited or debited separately in the
books of account of these branches and final allocation
made in those books of account. as distinct from the
profits and losses of the firm .in State of Mysore.
(12) It is agreed that the first and the second members do
maintain proper accounts as is customarily to be maintained".
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For the assessment year 1953-54, the Income Tax Officer rejected the application for registration on the ground that "in the
case of the assessee, the minors are made parties to a contract by
the eldest brother acting on their behalf. The minor has actually
been debited with a share of loss. Taking these facts into account,
I hold that the partnership is not entitled to the benefits of registraH tion". For the assessment year 1954-55, he also rejected the application but added thi~ further ground that "a supplementary deed
of partnership extending the life of the partnership beyond 1-4-1953
for a further period at the will of the partners is filed. This is on
10 annas stamp paper. (The supplementary deed rests on clause
10 of the ori3inal deed.) I have already held that the original deed
is not registerable. The supplementary deed cannot confer any
fresh rights in the matter".
774
· SUPllllJJ
COURT
RJJlOBT8
(19611) 3 S.C.R.
The f>ppellate Assistant Commissioner, on
appeal, upheld
the orders of the Income Tax Officer in respect of both the assessment years.
A
On further appeal, the Appellate Tribunal, following the decision of the Madras High Court in Jakka Devayya and Sons v.
Commissioner of Income-tax, Madras(') construed the deed as
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having admitted the minors only to the benefits of the partnership.
It accordingly held that the assessee was entitled to be registered
for both the years.
·
At the instance of the Commissioner of Income Tax, the Tribunal referred the question already set out above to the High
Court: The High Court, following its judgment in Income Tax ReC
ference No. 2 of 1959, which is the subject-matter of appeal before us in The Commissioner of Income Tax Madras v. MI s Shah
Jethaji Plm/chand(') answered the question in favom of the
assess.ee. The main reason given in that judgment of the High
Court is "that an instrument of partnership entered into between
persons, some of whom are by law incompetent to contract, as
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might happen if one of them is a minor, is not' necessarily null and
void, and in a ca<e lil,e the present one, where the execution of the
instrument of partn·ership on behalf of a minor by his guardian
was for the purpose of admitting the minor to th_e benefits of partnership, no question of the invalidity of the instrum~nt can proper·
Jy arise".
E
Mr. Karkhanis, the learned counsel for the appellant contends
that on a proper construction of the deed it is clear that the minors
have been made partners, and therefore the deed is not valid. He
relies on clauses 4, 7, 8, 10, 11 and 12 of the Partnership deed, set
out above, to establish that the minors were admitted as full partners. He further urges that a guardian is not entitled to contract on
behalf of a minor and the deed is consequently void.
This Court hele in Commissioner of Income Tax, Bombay v.
Dwarkadas Khetan & Co.(') that the income tax officer was only
empowered to register a partnership which was specified in the instrument of partnership and it was nbt open to the Department to
register ·a partnership different from that which was formed by the
instrument. It further held that s. 30 of the Indian Partnership Act
was designed to confer equal benefits upon the minor by treating
him as a partner, but it did. not render a minor a competent and
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full partner, and any document which made a minor full partner
could not be regarded as valid for the purpose of registration. But B
the facts in that case were that in the instrument of partnership
Kantilal Kasherdeo was described as a full partner entitled not only
to a share in the profits but also liable to bear all the lossess including loss of capital. It was also provided that "all the four partners
(') (
) 22 I.T.R, 26i.
(') Ciril Appe&ls Nos. 146·1'7 of 1964; judgment delivered on April 15, 1965.
(') (t
) 41 I.T.R. 528.
\
('.I.T. V. SHAH llOHANDAS (Sikri, J.)
775
A were to attend to the business, and if consent was needed, aU the
partners including the minor had to give their consent in writi~g.
The minor was also entitled to manage the affairs of the firm, mcluding inspection of the account books, and was given tlie right
to vote, if a decision on votes had to be taken". As Hidayatullah J.
observed, "in short, no distinction was made between the
a~ult
B partner and the minor and to all intents and purposes, the mmor
was a full partner, even though under the partnership law he could
only be admitted to the benefits of the partnership and not as a
partner".
Does this deed then make the minors full partners or does it
c only confer benefits of \>artnership on them? Is any clause of the
deed void? Before we discuss these questions it is necessary to consider what are the incidents and true nature of 'benefits of partnership' and what is a guardian of a minor competent to do on behalf of a minor to secure the full benefits of partnership to a minor.
First it is clear from sub-s. (2) of s. 30 of the Partnership Act that a
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minor cannot be made liable for losses. Secondly, s. 30, sub. s (-4)
enables a minor to sever his connection with the firm and if he
does so, the amount of his share has to be determined by evaluation made, as far as possible, in accordance with the rules contain•
ed in s. 48, which section visualises capital having been contributed
by partners. There is no difficulty in holding that this severance
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may be effected on behalf of a minor by his guardian. Therefore,
sub-s.(4) contemplates that capital may have been contributed on
behalf of a minor and that a guardian may on behalf of a minor
sever his connection with the firm. If the guardian is entitled to
sever the minor's connection with the firm, he must also be held to
be entitled to refuse to accept the benefits of partnership or agree
F to accept the benefits of partnership for a further period on terms
which are in accordance with law. Sub-Section (5) proceeds on the
basis that the minor may or may not know that he has been admitted to the benefits of partnership. This sub-section enables him to
elect, on attaining majority, either to remain a partner or not to
become a partner in the firm. Thus it contemplates that a guardian
G may have accepted the benefits of a partnership on behalf of a minor without his knowledge. If a guardian can accept benefits of
partnership on behalf of a minor he must have the power to scrutinise the terms on which such benefits are received by the minor.
He must also have the power to accept the conditions on which the
benefits of partnership are being conferred. It appears to us that
H the guardian can do all that is necessary to effectuate the conferment and receipt of the benefits of partnership.
It follows from the above discussion that as long as a partnership deed does not make a minor full partner a partnership deed
cannot be regarded as invalid on the ground that a guardian has
purported to contract on behalf of a minor if the contract is for
the purposes mentioned above.
'.f
776
SUPREME COURT REPORTS
[1965] 3 ",C,R:
Let us then examine the partnership deed in the light of these
A
principles. It need hardly be stated that the partnership deed must
be construed re.asonably. The recital set out above expressly states
that it is the major members who had decided to constitute the partnership and admit the minors to the benefits of the said partnership. The rest of the clauses must be construed in the light of this
recital. Clause 4 only states the business to be carried bn and the
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name of the business. It seems to us that the expression 'ii has been
agreed between us' has reference to the agreement mentioned in the
recital. Regarding clause 7, which deals with capital contribution,
it is urged that a guardian is not entitled to agree to contribute capital, We are unable to agree. If it is one of the terms on which benefits bf partnership are being conferred either the guardian must
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refuse to accept the benefits or he must accept this term. In some
cases such an agreement by a guardian may be avoided by the minor, if it was not entered into for his benefit, but the agreement will
remain valid as long as it is not avoided by the minor.
.
Regarding clause 10, Mr. Karkhanis submits that this emboD
dies a clear agreement enabling the minor to continue the said
partnership even thereafter umier these terms or on terms tb be
determined then, and therefore this clause is void. We can find no
defect in this clause. The duration of a partnership has to be fixed
between the major members, and the guardian on behalf of a minor
may agree to accept the benefits of the partnership only if the duE
ration is to the benefit of the minbr. Clause 10 enables the guardian to accept the benefits of partnership under these terms or
under such other terms as may be determined. If the terms determined in future are similar, no objection can be taken; if on the
other hand the terms determined later are in contravention of law,
the partnership deed will be held to be bad. Clause 11 has refe- · F
rence to the manner of keeping acclmnts and a guardian is entitled to assent to the mode of keeping accounts.
In our opinion, the partnership deed, reasonably construed,
only confers benefits of partnership on the two minors and does
not make them full partners. The guardian has agreed to certain
clauses in order to effectuate the decision of the major members to
confer the benefits of the said partnership to the minors. Accordingly we hold that the Income Tax authorities should not have declined to register the firm. We may mention that the supplemenG
tary deed dated April 1, 1953, has not been included in the statement of the case, but it is common ground that nothing turns on
H
any bf the clauses in the supplementary deed.
Accordingly, agreeing with the High Court; we hold that the
firm is entitled to be registered under s. 26-A of the Income Tax
Act, and the answer to the question referred is in the affirmative.
The appeals are dismissed with costs, one set of hearing fees.
Appeals dismissed .
•