Our firm consisting of 3 partners and a minor was constituted 5 years ago. The minor attained majority in March 2007. We have not executed a new partnership deed to admit the minor as a full fledged partner. For the assessment 2008-09, the AO wants to deny us the benefit of firm status for the reason that a deed effecting the change in constitution was not executed nor filed as per section 184. Is the AO correct?
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A deed of partnership is to be executed when there is a change in constitution of the firm. When a minor on attaining majority does not decline to continue to as a partner then after the expiry of 6 months from the date of attaining majority, he would become a partner on automatic basis, thus liable for losses also. Hence, if the minor has tacitly accepted to continue as a partner, as per the Partnership Act, 1932 no adverse consequences would follow.
ReplyDeleteFor income-tax purpose, a minor attaining majority and becoming a full fledged partner would result in change in constitution of the firm, is to be decided.
In Vijoy Cloth Stores v. CIT (1989) 176 ITR 50 (Patna) it was held that no fresh partnership deed need to be executed on minor attaining majority as it does not amount to change in constitution of the firm. Similar decisions could be found in Jagivandas Govindji & Co v. CBDT (1981) 132 ITR 769 (Bom) ; Vaish Pharmacy v. CIT (1982) 138 ITR 624 (All.). Hence you may draw the attention of the AO to these decisions and accordingly proceed further.