Law: Income Tax Act, 1961

Section: 186

Income-tax----Firm, registration of ---Assessee firm consisted of 17 major partners and 4 minor partners who had been admitted to the benefits of partnership---Firm was registered and assessed as such for the previous two assessment years--¬Income-tax Officer, however, cancelled the registration of firm subsequently on the ground that firm consisted of more than 20 persons which was in contravention of the relevant provisions of Companies Act and guardians of minors had not signed the deed of partnership---Held, partnership being the result of a contract between the partners and a minor being incompetent to enter into a contract, only adult persons were to be taken into consideration for finding out whether a partnership consisted of more than 20 persons---Minors being not partners thus, could not be taken into account for the purposes of bar provided in the Companies Act. The assessee-firm, consisting of 17 major partners and 4 minors who were admitted to the benefits of partnership, was constituted, and was duly registered. It was assessed for the assessment years 1966-67 and 1967-68, in the status of a registered firm. The Income-tax Officer, however, in exercise of his powers under section 186(1) of the Indian Income-tax Act, 1961, cancelled the registration, on the ground that the assessee-firm consisted of more than 20 partners which is in contravention of section 11(2) of the Indian Companies Act, and the partnership deed was not signed by the guardian of the minors. The Appellate Tribunal found that a minor could not become a partner although, with the consent of adult partners, he could be admitted to the benefits of the partnership and as such minors could be taken into consideration for finding out whether there had been contravention of section 11(2) of the Companies Act. The Appellate Tribunal had referred the aforesaid two questions at the instance of the Department for the opinion of High Court. Section 11(2) of the Companies Act prohibited the formation of a company, association or partnership consisting of more than 20 persons for the purpose of carrying on any business for gain unless it was registered as a company. Partnership being the…

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