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    Shankar Cottons Case

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    Nikhila Katupalli
    1. The case involved a partnership firm called Shankar Cottons that applied for registration for the 1975-76 assessment year. 2. The partnership consisted of two partners and admitted three minors to shares of the partnership profits. One of the minors, Miss Gita, was actually an adult but deaf and dumb. 3. The tax authorities refused registration arguing the partnership was invalid since a major cannot be admitted. The appellate authorities granted registration, finding no such prohibition. 4. The court ultimately refused registration, holding that a major cannot be admitted to partnership benefits according to the Indian Partnership Act.

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    Shankar Cottons Case

    Uploaded by

    Nikhila Katupalli
    39 views2 pages
    1. The case involved a partnership firm called Shankar Cottons that applied for registration for the 1975-76 assessment year. 2. The partnership consisted of two partners and admitted three minors to shares of the partnership profits. One of the minors, Miss Gita, was actually an adult but deaf and dumb. 3. The tax authorities refused registration arguing the partnership was invalid since a major cannot be admitted. The appellate authorities granted registration, finding no such prohibition. 4. The court ultimately refused registration, holding that a major cannot be admitted to partnership benefits according to the Indian Partnership Act.

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    1. The case involved a partnership firm called Shankar Cottons that applied for registration for the 1975-76 assessment year. 2. The partnership consisted of two partners and admitted three minors to shares of the partnership profits. One of the minors, Miss Gita, was actually an adult but deaf and dumb. 3. The tax authorities refused registration arguing the partnership was invalid since a major cannot be admitted. The appellate authorities granted registration, finding no such prohibition. 4. The court ultimately refused registration, holding that a major cannot be admitted to partnership benefits according to the Indian Partnership Act.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    39 views2 pages

    Shankar Cottons Case

    Uploaded by

    Nikhila Katupalli
    1. The case involved a partnership firm called Shankar Cottons that applied for registration for the 1975-76 assessment year. 2. The partnership consisted of two partners and admitted three minors to shares of the partnership profits. One of the minors, Miss Gita, was actually an adult but deaf and dumb. 3. The tax authorities refused registration arguing the partnership was invalid since a major cannot be admitted. The appellate authorities granted registration, finding no such prohibition. 4. The court ultimately refused registration, holding that a major cannot be admitted to partnership benefits according to the Indian Partnership Act.

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    CASE ANALYSIS:

    Commissioner of income tax Vs Shankar cottons:


    Brief facts:
    The assessee is a partnership-firm, called Shankar Cottons, Coimbatore. The
    assessee filed an application for registration of the firm for the asst. yr. 1975-76.
    The partnership was constituted under a deed, dt. 21st April, 1974, to carry on
    the business in partnership as brokers and agents for textile mills and such other
    business as agreed upon between them mutually. The partnership firm consists
    of two partners, viz., P. S. Ramachandran and S. N. Ramachandran, each having
    12-1/2 per cent share in profit and 50 per cent in loss. Miss Gita, Master Ramani
    and Master Shankar were admitted to the benefits of the partnership with 25 per
    cent of share in profit for each of the minors. Miss A. Gita is aged about 21
    years. She has been treated as a minor because she was deaf and dumb person.
    Since a minor alone can be admitted to the benefits of the partnership, the ITO
    came to the conclusion that the partnership is invalid and, accordingly, he
    refused to grant registration and assessed the entity as an AOP.
    On appeal, the AAC held that the mere fact that the two partners, viz., P. S.
    Ramachandran and S. N. Ramachandran, by mutual consent agreeing to give a
    share in the profits to an adult, Miss Gita, who is incapable of entering into any
    contract would not make the partnership invalid and would not disentitle the
    partnership to the benefits of registration. Accordingly, direction was given to
    the ITO to grant registration.
    Aggrieved, the Department was in appeal before the Tribunal. The Tribunal
    agreed with the view taken by the AAC in granting registration to the assessee-
    firm, since, according to the Tribunal, there is no prohibition in the Indian
    Partnership Act, 1932, for admitting a major to the benefits of the partnership.

    Issues raised:
    1. Whether, on the facts and in the circumstances of the case, the Tribunal was
    right in holding that the admission of one Miss A. Gita, major, to the benefits of
    partnership would not make the partnership as 'illegal' or 'invalid' and, hence,
    the assessee's claim for registration of the firm cannot be denied by the ITO and
    2. Whether, on the facts and in the circumstances of the case, the Tribunal was
    right in law in overlooking the fact that the partnership deed and Form No. 11
    have not been signed either by the guardian of Miss Gita, or by Miss Gita
    herself even though she is a major and that this will vitiate the application for
    registration and sections 22(2) (i) and 22(5) of the IT Rules, 1962?

    Judgement:
    The court held that a major cannot be admitted to the benefits of a partnership
    and hence the registration of the partnership was refused on the ground that
    charity cannot be taken as a partner and that it would make the partnership
    invalid according to sections 30 and 6 of the Partnership Act, 1932.

    Ratio Decidendi:

    Sec. 6 of the Indian Partnership Act, 1932, particularly, Expln. 2 to s. 6 of the


    Partnership Act says that the receipt by a person of a share of the profits of a
    business, or of a payment contingent upon the earning of profits or varying with
    the profits earned by a business, does not of itself make him a partner along
    with the persons carrying on the business. It would mean that a major cannot be
    admitted to the benefits of partnership. Admitting a major as a partner to the
    benefits of partnership was impliedly prohibited under s. 30 of the Indian
    Partnership Act, 1932.

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