JUDGMENT Om Prakash, J.
1. Following the direction given by this court under Section 256(2) of the Income-tax Act, 1961 (briefly, the Act), the Income-tax Appellate Tribunal referred the following questions relating to the assessment year 1976-77 for the opinion of this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the evidence and material other than the partnership deed dated January 20, 1973, could be considered for ascertaining the shares of partners in profits and losses on the minor becoming major ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that Instruction No. 1161, dated April 4, 1973, issued by the Central Board of Direct Taxes was binding on the Commissioner of Income-tax while passing the order under Section 263 ?
3. Whether, on the facts and in the circumstances of the case in view of the Allahabad High Court decision in Badri Narain Kashi Prasad v. Addl CIT [19781 115 ITR 858, the Tribunal was legally correct in modifying the order of the Commissioner of Income-tax dated September 7, 1978, under Section 263 and in directing the Income-tax Officer to make enquiry whether there was a change in the shares of the partners as evidenced by the partnership deed dated February 20, 1973, on the lines indicated in the Board's instructions and to decide the issue of continuance of registration afresh ?"
The undisputed facts are that for the assessment year 1973-74, the assessee-firm was granted registration, vide order dated October 30, 1973. The assessment on the assessee-firm for the assessment year 1976-77 came to be completed on September 14, 1976, and on the basis of a declaration filed under Section 184(7) of the Act, the continuation of registration was allowed. In the said declaration one Munawar Hussain, a minor, who was admitted to the benefits of the partnership, was declared as a partner.
2. During the scrutiny of the case for the assessment year 1977-78, the Income-tax Officer noticed that Munawar Hussain was shown as major. It came to the notice of the Income-tax Officer that Munawar Hussain had attained majority on June 13, 1975, that is, during the previous year ending March 31, 1976, relevant to the assessment year 1976-77.
3. Following the decision of a Division Bench of this court in the case of Ganesh Lal Laxmi Narain v. CIT [1968] 68 ITR 696, the Commissioner of Income-tax took the view that when the minor admitted to the benefits of the partnership, attained majority and elected to continue as a partner in the firm, there was a change in the constitution of the firm within the meaning of Section 184(7)(i) of the Act, which according to the Commissioner of Income-tax should have been evidenced by a fresh partnership deed.
4. The Commissioner of Income-tax being of the view that the grant of continuation of registration on the basis of the declaration furnished by the assessee, was erroneous, in so far as that was prejudicial to the interests of the Revenue, initiated proceedings under Section 263 of the Act. Relying on the Full Bench decision of this court in the case of Badri Narain Kashi Prasad v. Addl CIT [1978] 115 ITR 858, the Commissioner of Income-tax was of the view that "The redistribution of the shares in the loss on the minor attaining majority has also to be ascertained". He further held as follows (paragraph 6, page 16, of the paper book) :
"Applying the ratio of the Full Bench, referred to above, it is, therefore, clear that the partnership deed dated 20th January, 1973, did not provide as to how the profits or losses would be divided amongst the partners after any of the partners becomes major. In this case, therefore, there was a change in the constitution of the firm when Sri Munavvar Hussain (minor) attained majority and, therefore, the assessee was not entitled to continuation of registration under Section 184(7)." (underlining by the court) This is how the Commissioner of Income-tax held that the Income-tax Officer's order granting continuation of registration is erroneous and prejudicial to the interests of the Revenue, He thus cancelled the order of the Income-tax Officer granting continuation of registration for the assessment year 1976-77 and directed the Income-tax Officer to treat the assessee in the status of unregistered firm for the purposes of assessment for the assessment year 1976-77.
5. The Appellate Tribunal relying on the Full Bench decision in the case of Badri Narain Kashi Prasad [1978] 115 ITR 858 (All) held that when the minor admitted to the benefits of the partnership, attained majority and elected to continue as a partner of the firm that did not amount to a change in the constitution of the firm and, therefore, the assessee-firm was entitled to the grant of continuation of registration on the basis of the declaration, provided the Assessing Officer was satisfied in view of Instruction No. 1082 dated August 4, 1977, issued by the Central Board of Direct Taxes that the minor upon attaining majority did not agree to share the losses and the major partners of the assessee-firm continued to share the losses the same way, as they agreed to share the losses before the minor attained majority. The Appellate Tribunal, in view of the aforesaid instruction, was of the view that it was the duty of the Assessing Officer to make inquiry into the fact whether the minor upon attaining majority agreed to share the losses and if so, whether the shares in losses as agreed upon in the original partnership deed, have undergone a change and that if upon such inquiry the Assessing Officer comes to the conclusion that the minor upon attaining majority did not agree to share the losses and the liability to share the losses of the major partners as evidenced by the original partnership deed, remained unaltered, then no fresh partnership deed was required to be executed. The Appellate Tribunal taking the view that the aforesaid instruction of the Central Board of Direct Taxes was binding on the departmental authorities, modified the order of the Commissioner of Income-tax and directed the Income-tax Officer "to hold an inquiry as to whether there has been a change in the shares of the partners as evidenced by the instrument of the partnership . . . and then decide the issue of continuance of registration afresh in accordance with law."
6. The clear finding recorded by the Commissioner of Income-tax is that "there was a change in the constitution of the firm, when Munawar Hussain 'minor' attained majority and, therefore, the assessee was not entitled to the continuation of registration under Section 184(7) ". Such finding was given by the Commissioner of Income-tax, because one of the minors admitted to the benefits of the partnership, attained majority during the previous year relevant to the assessment year 1976-77. The Appellate Tribunal was clearly of the view that on the facts and in the circumstances of the case, there was no change in the constitution of the firm. However, the Appellate Tribunal relying on Instruction No. 1082 dated August 4, 1977, issued by the Central Board of Direct Taxes was of the view that it was the duty of the Assessing Officer to satisfy himself whether the minor upon attaining majority agreed to share the losses and if so whether the shares in losses as evidenced in the original partnership deed, has undergone change. The Tribunal was of the view that if the minor after attaining majority agreed to share the losses with other partners then there would be a change in the share ratio of losses and that would require to be evidenced by a fresh partnership deed.
7. The first question for consideration is whether, on the facts and circumstances of the case there was a change in the constitution of the firm.
8. In Badri Narain Kashi Prasad [1978] 115 ITR 858 (All), the Full Bench enunciated the legal position as follows (page 862) :
"The phrase 'constitution of the firm', or for the matter of that 'the shares of the partners' has not been defined by the Income-tax Act. In the context, the phrase 'constitution of the firm' refers to the identity of the partners of the firm. Thus, the identity of the partners as well as their shares ought to be such as is evidenced by the instrument of partnership. If for any subsequent year there is a change either in the constitution of the firm or the shares of the partners and such change is not evidenced by the instrument, the original registration shall not have effect. But if it is found that the constitution of the firm or the shares of the partners continues to be evidenced by the instrument, then it will be a case where the conclusion will be that there has been no change.
9. A change in the constitution, that is, in the identity of the partners, may take place when a person is introduced as a partner, or a partner retires, or is expelled, or ceases to be a partner on his becoming insolvent, or dies or a minor becomes major. . .
10. Under Section 30(1) and (2) of the Indian Partnership Act, a minor cannot be a partner. He can be admitted to the benefits of the partnership. On attaining majority, if he so elects, he, under Section 30(5), becomes a partner. His share is the same to which he was entitled as a minor, vide Section 30(7)(b). He shares in losses also.
11. When the partners agree to admit a minor to the benefits of a partnership, they are deemed to agree that if the minor on attaining majority so elects, he will become a partner, without a fresh agreement. That is why no fresh agreement or instrument is needed.
12. The Income-tax Act makes a departure in the treatment of minors qua partnership. Section 2(23) of the Act says ;
'2. (23) "firm" , "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (IX of 1932) ; but the expression "partner" shall also include any person who, being a minor, has been admitted to the benefits of partnership.' For purposes of the I.T. Act a minor admitted to the benefits of the partnership is to be deemed to be a partner, entitled to all the benefits conferred on a partner by the Act. . . When a minor becomes major, and on his opting becomes a partner within the meaning of the Indian Partnership Act, no change occurs in the constitution of the firm under the IT. Act. The instrument of partnership evidences the same number and identity of partners as before. . .
In view of the fact that the I.T. Act deems a minor to be a partner, there can be no change in the constitution of the firm by the mere fact of his attaining majority and electing to remain a partner. He was already a partner, and he continues as a partner." (underlining* by the court) The Full Bench concluding said (page 864) :
"The important thing is not that there should be no change at all, but that if there is a change, it must be evidenced by the original instrument."
From the above reproduced findings of the Full Bench, it is amply clear that upon the minor attaining majority no change occurred in the constitution of the firm, because the number of partners remained the same as before. The minor attained majority and he opted to continue as a partner in the firm. Where there was no change in the constitution of the firm upon the minor attaining majority, no fresh deed was required to be executed. The Appellate Tribunal in coming to the conclusion that there was no change in the constitution of the firm, fully relied upon the Full Bench decision, which has to be respectfully followed.
13. The Appellate Tribunal then relied upon Instruction No. 1082 dated August 4, 1977, issued by the Central Board of Direct Taxes, modified the order of the Commissioner of Income-tax and directed the Income-tax Officer to make inquiry into the fact whether the minor upon attaining majority agreed to share the losses and whether for that reason, the share ratio in losses as evidenced by the original partnership deed, stood altered, and, if so, whether that was evidenced by a fresh partnership deed.
14. The law requires that when there is a change in the constitution of the firm or in the share ratio of the profit and loss then that change should be evidenced by a fresh partnership deed. But if there is no change in either of the two, no fresh deed is required to be executed and the continuation of registration will be granted merely on the basis of the declaration, furnished by an assessee that there was neither a change in the constitution of the firm nor in the share ratio of the profit/loss.
15. There are two stages in a case in which a minor is -admitted to the benefits of the partnership. The first stage is pre-attaining majority and the second stage is post-attaining majority. In the instant case, we are not concerned with the pre-attaining majority stage, because at that stage, the Assessing Officer under the original partnership deed continued to grant continuation of registration on the basis of declaration given to the effect that there was no change in the constitution of the firm and in the share ratio of profit/loss of the partners.
16. Coming to the stage of post-attaining majority, the question for consideration was whether there was change in the share ratio of profit and loss. The possibility of change in the constitution of the firm has to be ruled out in the situation when a minor attains majority in view of the Full Bench decision. Section 30(7)(b) of the Partnership Act says that where a minor becomes a partner, his share in the property and profits of the firm shall be the share to which he was entitled as a minor. The share of the minor in the original partnership deed is well defined. Under the original partnership deed, the major partners agreed to share the entire losses. The law is that every partner is not required to share the loss and some of the partners only can agree to share the loss. Thus the share ratio in profit and loss is well defined under the original partnership deed. The only question for consideration was whether the minor upon attaining majority agreed to share the losses. If the minor agrees to share the losses after attaining majority, then the ratio to share the losses as evidenced in the original partnership deed, will certainly undergo change and that requires to be evidenced by a fresh partnership deed. To take care of such a situation, the Central Board of Direct Taxes stated in Instruction No. 1082 dated August 4, 1977, as follows :
"However, if it is decided among the partners that the minor on attaining majority should share in losses also, then and only then a fresh deed of partnership effecting the change would be necessary. Therefore, before the firm is allowed continuance of registration for the relevant assessment year, the Income-tax Officer should satisfy himself on the basis of either an affidavit of the partner who attained majority or his statement on oath that he is not sharing in losses and that the shares in profits and losses as specified in the instrument of partnership admitting him to the benefits of the partnership earlier remained unchanged." (emphasis* supplied).
The Appellate Tribunal was not concerned with the stage of pre-attaining majority in this case, because the view taken by the Commissioner of Income-tax is that there was a change in the constitution of the firm when the minor attained majority. The question before the Appellate Tribunal was whether the assessee was entitled to continuation of registration on the basis of the declaration after the minor attained majority and it is in this context the Appellate Tribunal following Instruction No. 1082 dated August 4, 1977, directed the Assessing Officer to satisfy himself and record a clear finding whether the minor upon attaining majority agreed to share the losses. If a fresh agreement is made upon attaining majority, then that would disturb the share ratio of losses, as evidenced by the original partnership deed. It is in that backdrop, the Appellate Tribunal following the instruction issued by the Central Board of Direct Taxes observed as under :
"The Partnership Act, 1932, nowhere lays down that a minor on attaining majority must share in losses. It depends on the terms agreed between the partners at the time the minor attains majority and becomes a full-fledged partner. There is no bar to the partners agreeing amongst themselves to share the losses amongst the earlier adult partners only. Therefore, the second part of the enquiry as to whether there has been a change in the shares of the partners, as evidenced by the instrument of partnership is not restricted to the partnership deed, but has to be on the basis of the totality of the circumstances of the case, (emphasis* ours) So it is with regard to the post-attaining majority stage that the Appellate Tribunal held that the enquiry at that stage will not confine to the original partnership deed alone, but other relevant materials may also be looked into.
17. Question No. 1 is, therefore, answered against the Revenue.
18. Then the question is whether the Appellate Tribunal was right in holding that the aforesaid instruction of the Central Board of Direct Taxes was binding on the Commissioner of Income-tax. It is trite that instructions issued by the Central Board of Direct Taxes unless they are held contrary to the statute, are binding upon the Departmental authorities. There is nothing on the record to show that the aforesaid instruction issued by the Central Board of Direct Taxes that at the post-attaining majority stage, the Assessing Officer should satisfy himself whether the partner who attained majority, agreed to share the losses and whether the shares in losses as evidenced by the original partnership have undergone change, is contrary to the provisions of the Act. Rather, such inquiry is to safeguard the public interest. If there is a change in the share ratio then also continuation of registration as per the declaration cannot be granted and, therefore, it is but necessary to make inquiry into the fact whether the share ratio remained intact upon the minor attaining majority. This being so, the instructions are binding on the Departmental authorities.
19. There is no conflict in the view taken by the Appellate Tribunal and the decision rendered in Badri Narain Kashi Prasad v. Addl. CIT [1978] 115 ITR 858 (All) [FB] and, therefore, the Tribunal was right in modifying the order of the Commissioner of Income-tax and in directing the Income-tax Officer to make inquiry whether upon attaining majority, the minor who elected to continue as a partner, agreed to share the losses.
20. We, therefore, answer questions Nos. 2 and 3 against the Revenue.