JUDGMENT The Income Tax Appellate Tribunal has referred the following question of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') for opinion of this court.
"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in directing the Income Tax Officer to grant registration to the assessee firm for the period falling after 7-4-1978 ?
2. Briefly stated, the facts giving rise to the present reference are as follows :-
2. Briefly stated, the facts giving rise to the present reference are as follows :-
The partnership firm with the name of Saree Sansar (Modern) was constituted by two partners namely Shri Rajesh Chandra Gupta and Shri Sanjay Kumar Gupta by a partnership deed which was executed on 7-4-1978. The partnership deed, however, provided that the firm will be deemed to have come into force with effect from 21-10-1977. The profits and losses of the firm were to be divided in proportion of 60% and 40%. The Income Tax Officer found that Shri Sanjay Kumar Gupta was minor on 21-10-1977 and on that date he could not have entered into a partnership with Rajesh Chandra Gupta. However, on the date of the execution of partnership deed both the partners were major as Sanjay Kumar Gupta had become major on 20-2-1978. The Income Tax Officer held that there could be no partnership with Sanjay Kumar Gupta and Rajesh Chandra Gupta with effect from 21-10-1977 as one of them was minor on that date. He declined to register the firm.
When the matter came before the Appellate Assistant CIThe held that the partnership deed was valid as it was entered into by two major persons. He directed the Income Tax Officer to register the firm.
3. The revenue preferred the appeal before the Tribunal. The Tribunal has dismissed the appeal by holding as follows :-
3. The revenue preferred the appeal before the Tribunal. The Tribunal has dismissed the appeal by holding as follows :-
"As we have noted above in the present case, "there is no invalidity in the agreement between the two partners and from that date of the execution of the deed, there was a valid partnership in existence. However, there was no firm as such in existence up to that date. No material has been placed before us to show tham fact there was any firm in existence before the date of execution of the partnership deed. In law also there could not have been agreement in the two partners as one of them was a minor at that time. We are, therefore, dealing with a case where there was no firm either in fact or in the eyes of law upto the particular date but after the execution of the deed there was a valid partnership agreement and there is evidence regarding the existence of the firm. When there is no firm in existence in a particular period, no deed of partnership can be deemed to be in existence for that period. The minor could not have even be admitted to the benefits of the partnership for the earlier period unless there was a valid agreement between the two partners. Such is the case where a minor admitted to the benefits of partnership becomes major and up to become a partner cannot be applied to this case. The registration of the firm for the period upto the execution of the partnership deed cannot, therefore, be allowed. However, for the period when there was a valid partnership deed where the partners have actually carried on business and have shared profits in specified proportions, there would be no justification for denying registration. This is precisely the direction of the Chandigarh Bench in the case referred to above. The counsel for the assessee made a specific plea that in any case the registration should not be denied for the later period, as there was a valid partnership deed. Accepting the above contention, we direct that the Income Tax Officer should grant registration for the period following after 7-4-1978. For this purpose the Income Tax Officer may determine the income for this period and assess that income in the hands of the registered firm. The Income Tax Officer may also take appropriate action in assessing the income for the earlier period when there was no firm in existence but business was carried on by determining the status as well as the income for the period. These directions are corollaries to our direction for the grant of registration of the firm for a part of the period. The order of the Appellate Assistant Commissioner, is, therefore, modified by us to that extent."
We have heard learned counsel for the revisionist and learned counsel appearing on behalf of respondent assessee.
4. It is not in dispute that the partnership deed was executed on 17-4-1978 when both the parties to the deed with majors. Thus, the parties were competent to enter partnership on that date. The partnership deed has rightly been confined with effect from 17-4-1978 and the firm has been directed to be granted registration. There is no illegality in the order of the Tribunal.
4. It is not in dispute that the partnership deed was executed on 17-4-1978 when both the parties to the deed with majors. Thus, the parties were competent to enter partnership on that date. The partnership deed has rightly been confined with effect from 17-4-1978 and the firm has been directed to be granted registration. There is no illegality in the order of the Tribunal.
5. In view of the foregoing discussion, we answer the question of law referred to us in the negative, i.e., in favour of the assessee and against the revenue. There is no order as to costs.
5. In view of the foregoing discussion, we answer the question of law referred to us in the negative, i.e., in favour of the assessee and against the revenue. There is no order as to costs.