1. Dorab Patel J.-The respondents in both these petitions were firms registered under the Partnership Act, 1932 and the respondents, M/s. Kashmir Art, had applied to the Income Tax Officer concerned for its registration under section 26-A of the Income Tax Act for the assessment year 1970-71, whilst, the respondent in the other petition- had merely sought the renewal of its registration under section 26-A for the assessm ent year 190-61; In both the cases the Income "Tax Officer rejected the applications of the respondents because the partners of both the respondents included a minor and, therefore, the learned Income Tax Officer was of the view that the respondents were not genuine firms within the meaning of sub-section (3) of Section 26-A of the Income Tax Act and were, therefore, not entitled to registration. The respondents challenged the rejection of their applications under section 26-A before the appellate Assistant Commissioner, who allowed them.
2. Therefore, in due course, the department challenged the orders of the Appellate Assistant Commissioner in appeals before the Income Tax Appellate Tribunal, but the appeals were dismissed on different dates, because of a judgment of a Full Bench of the Lahore High Court in Messrs Ithad Textile Mills Multan vs. The Commissioner of Income Tax West Pakistan Lahore (PLD 1969 Lahore 751).
3. The facts of this case are on all fours with those in these petitions, and Faruqui, J., who pronounced the judgment of the Full Bench observed: "Where a partnership is constituted by partners who are adults the inclusion of a minor as a partner does not invalidate the partnership and the correct construction of such a document would be to treat the minor as having been admitted to the benefits of partnership. In that view of the matter, unless the genuineness of the firm is doubted the registration of the firm under section 26-A cannot be refused upon the ground that there was technical defect in the document whereby the expression used with regard to the minor was a partner and not that he has been admitted to the benefits of the partnership."
4. The petitioner, therefore, filed applications in the Lahore High Court under section 66 (1) of the Income Tax Act in both these cases. In the events that happened, these applications came up for hearing before two different Division Benches of the Lahore High Court, but as both the Division Benches agreed with the view of Faruqui, J., they rejected the reference and held that the Tribunal had rightly ordered the registration of the respondents under section 26-A of the Income Tax Act.
5. The petitioner has, therefore, filed these petitions before us in order to test the validity of the view taken by Faruqui, J., in the Ithad Textile Mills's case and Mr. Abdul Haq submitted that a partnership could only be created by a contract but as a minor was not competent to enter-into a contract, a partnership with a minor was void and illegal and, therefore, a firm which included a minor was not a genuine firm within the meaning of section 26-A of the income Tax Act and such a firm could not be registered.
6. Now, Section 5 of the Partnership Act clarifies that "the relationship of partnership arises from contract" and, similarly, as submitted by learned council, a minor is not competent to contract in view of Section 11 of the contract Act. But does this mean that an agreement f partnership with a minor is void and illegal? After all Section 11 was enacted for the benefit of minors. Secondly, Section 2 (6B) of the Income Tax Act states in terms that the expression partner "includes any person who being a minor has been admitted to the benefits of Partner", whilst Section 30 of the Partnership Act states that a minor shall be entitled to the benefits of partnership, and defines in detail the rights and liabilities of a minor, who is admitted to the benefits of a partnership. But what is void in law cannot create any legal consequences, therefore, in view of Section 30 of the partnership Act it is clear that the Legislature which imposed a liability on minors also conferred rights on them, therefore, the words "void" and "illegal" are misconceived, when used with reference to partnership agreements by minors That is why Chagla C. J., held in Dwarkadas Khetan & Co Bombay vs. C.1 T.
7. Bombay (AIR 1956 Bombay 321) that a partnership firm, which included a minor, could be a genuine firm within the meaning of Section 26-A of the Income Tax Act and he further held that the rights of a minor in such a case would be governed not by the terms of the agreement by the partnership, but by the mandatory provisions of Section 30 of the Partnership Act. The judgement was, however, challenged in an appeal which was allowed by the Indian Supreme Court in C-I.T. Bombay vs. M/s. Dwarkadas Khetan "Registration can only be granted of a document between persons who are parties to it and on the conveners set aside in it. If the Income-Tax Authorities register the partnership as between the adults only contrary to the terms of the documents, in substance a new contract is made out. It is not open to the income- tax authorities to register a document which is different from the one actually executed and asked to be registered."
8. This argument was repeated before us by Mr. Abdul Haq, who further submitted that the Calcutta, Allahabad and Punjab High Courts had dissented from the view of Chagla, C.J,, on the ground that an agreement by a minor could not, by definition, amount to a contract, because a minor was not competent to enter into a contract. Faruqui, J. distinguished the judgment in Hoosen Kassan Dada vs. C.I.T. Bengal (1937-5 I.T.R. 182) and the judgment of the Punjab High Court in Banka Mall Lajja Ram & Co. vs. C.I.T. (1953) 24 I.T.R. 150 on the facts. Wish all respect to the learned Judge, although the judgments were distinguishable on the facts their ratio was inconsistent with the view taken by Chagla, CJ., in Dwarkadas Khetan's case. On the other hand, the view of Chagla, C.J., was in accordance with the view of the Madras High Court in Jakka Devayya & Sons vs. C.I.T.(AIR 1953 Mad.
9. 315) and in Vincent vs. C.I.T. (AIR 1953 Mad. 336) and of the Punjab High Court in Sahai Brothers vs. C.I.T. (AIR 1958 Pat. 177).
10. A section which has led to such a sharp cleavage of opinion, is obviously ambigous and needs careful examination, but before we examine it, it would be convienient to refer to its history.
11. Act XV of 1866 was the first statute about the law of partnership in India and it consisted of only five sections. It did not attempt to define how a partnership could be formed, this question could only be determined by the medley of laws which regulated the field of civil law before the enactment of the civil codes. Tn the situation, as pointed out by the Privy Council in Verdan Seth Sam vs. Luckpathy Noyjee Lallah [(1863) 9 Moore Ind. App. 303, 320] the Courts "are directed to proceed generally, according to justice, equity and good conscience," and the principles of justice, equity and good conscience in the words of Lord Hobhnuse in Waghela Rajsonji vs. Sheikh Masludin [ (1887)
14. Ind. App. 89,96], could be "Interpreted to mean the rules of English law if found applicable to Indian society and circumstances". And, in English law, according to Lindley on the Law of Partnership, thirteenth Edition, p. 53.
12. "An infant, that is, a person under the age of eighteen may be a partner. But, speaking generally, whilst he is an infant he incurs no liability and is not responsible for the debts of the firm and when he comes of age, or even before he may, if he chooses, disaffirm past transactions. His partners, however, have the right to apply the whole of the partnership property in payment of the partnership debts, and a creditor of the firm who has obtained judgement against the firm in the proper form may levy execution against the partnership property though not against the separate property of the infant partner".
13. Prior to the enactment of the Contract Act, this principle of English law was applicable to those communities of the sub-continent, whose personal law did not contain any provision on the power of a minor to enter into partnership. Now, section 3 of the Partnership Act of 1866 read;- "No person being the widow or child of the deceased partner of a trader, and receiving by way of annuity, a portion of the profits made by such trader in his business, shall, by reason only of such receipt, be deemed to be a partner of or to be subject to any liabilities incurred by such trader".
14. It is obvious that this section was enacted to protect minors, and it could not have been construed by any stretch of imagination to mean that a minor's agreement to enter into a partnership was necessarily void.
15. The Partnership Act of 1866 was repealed by the Contract Act of 1872 and Chapter XI of the Contract Act dealt with the law of partnership. Whilst Sections 247 and 248 dealt with the rights and liabilities of minor partners. These sections read "247. Minor partner not personally liable but his share is.-A person who is under the age of majority according to the law to which he is subject may be admitted to the benefits of partnership but cannot be made personally liable for any obligation of the firm; but the share of such minor in the property of the firm is liable for the obligations of the firm.
248. Liability of minor partner on attaining majority.-A person who has been admitted to the benefits of partnership under the age of majority becomes, on attaining that age, liable for all obligations incurred by the partnership since he was so admitted, unless he gives public notice, within a reasonable time, of his repudiation of the partnership."
16. Was Section 247 enacted in order to regulate a situation in which a minor had entered into a partnership, or did the section relate only to an agreement to confer on him the benefits of partnership? The Section is ambiguous and is capable of both constructions. But the latter construction would have led to great hardship, because a minor who had failed to disclaim the partnership on attaining majority would have been liable for the debts incurred by the firm during the period of his minority and this would suggest that a libera] construction would be more in consonance with the objects of the sections, the more so, as the marginal notes expressly use the words "minor partner". Further, as was explained, before the promulgation of the Contract Act, there were communities, which were governed by the common law, and a minor could enter into a contract of partnership under the common law. Now, if the Legislature had intended to abolish this principle of the common law it would have manifested its intention in clear language. As observed by Maxwell in his Interpretation of Statutes". Twelfth edition, page 116:- "Few principles of statutory interpretation are applied as frequently as the presumption against alterations in the common law. It is presumed that the legislature does not intend to make any change in the existing law beyond that which is expressly stated in, or follows by necessary implication from the language of the statute in question. It is thought to be in the highest degree probable that Parliament would depart from the general system of law without expressing its intention with irresistible clearness, and to give any such effect to general words merely because this would be their widest, usual, natural or literal meaning, would be to place on them a construction other than that which Parliament must be supposed to have intended. If the arguments on a question of interpretation are "fairly evenly balanced, that interpretation should be chosen which involves the least alteration of the existing law "
17. Clearly, therefore, the liberal construction of Section 247 would be preferable provided an agreement by a minor was voidable and not void.
18. Now, Section 10 states in terms that an agreement is a contract only if it is made by a person competent to contract and according to Section 11, a minor is not competent to contract. Does this mean that an agreement by a minor is void, or, does it mean that an agreement by a minor is voidable. These sections could have, but did not state in terms that an agreement by a minor is void, therefore, for almost a generation after the promulgation of the Contract Act, there was conflict of opinion in the High Court of the sub-continent on the precise effect of agreement executed by a minor. The learned author of Mulla's Contract Act, (ninth edition 1972), observed on the effect of section 11 that- "...there was never any authority for saying that infants were absolutely incompetent to contract.
19. The literal construction of the present section requires being of the age of majority according to one's personal law as a necessary element of contractual capacity. Since, however, the Act, as a whole, purports to consolidate the English law of contracts, with only such alteration as local circumstances require, and there is no trace in the report prefixed to the original draft, or any other relative document, of any intention to make a new rule as to the contracts of minors, the Indian High Courts endeavoured to avoid a construction involving so wide a departure from the law to which they had been accustomed "
20. This reluctance of the High Courts to make a sweeping departure from the earlier law was in consonance with the settled principles for the construction of statutes.
21. However, in Mohori Bibee and another vs. Dhurnodas Ghose (1902 L.R. 30 Ind. Ap. 114), the Privy Council held that a contract of mortgage by a minor was void and not voidable, therefore, as this judgment became the law declared, it would be difficult to place a liberal construction on Section 247 although the narrower construction of that section must have caused great hardship, if Snot injustice to minors. But the remedy for injustice is the Legislature and in its own time, the Legislature rectified the situation.
22. Chapter XI of the Contract Act was repealed by the Partnership Act, which came into force on the 1st of October, 1932 and Sections 247 and 248 of the Contract Act were substituted by the far more elaborate provisions of Section 30 of the Partnership Act. This section reads: * * * * * * Does this section render invalid a firm which includes a minor, or does it mean that the constitution of such a firm is modified in the manner prescribed in the section? It is true that an agreement with a minor is void, but the Legislature is the ultimate authority for determining what will be and what will not be void and it was for the Legislature to decide the extent to which effect was to be given to the judgment in Mohori Bibee's case, therefore, if it had intended to apply that judgment to partnership agreements it could have clarified the position by enacting that a partnership agreement with a minor was invalid or void. It has done so, and, on the other hand, the first clause of Section 30 prescribes that a minor can be admitted to the benefits of a partnership only with the consent of all the other partners.
23. Now, if the scope of the section is limited to an agreement which confers on a minor only the benefits of partnership then these rights would be part of the agreement with the partners and the question of obtaining their consent would not arise. But, redundancy is not to be attributed lightly to the Legislature. On the other hand if the section refers to firms, otherwise valid which include a minor, as held by Faruqui, J., the effect of the section is to modify by operation of law the terms of the partnership, but as agreement is the essence of partnership, the section prescribes that this alteration in the agreement between the partners and the minor shall not be effected without the consent of all the partners.
24. Clause (5) of the section also throws light on the scope of the section. It entitles a minor, on attaining majority to "give public notice that he has elected to become or that he has elected not to become a partner in the firm." Now if the section refers only to an agreement conferring the benefits of partnership on a minor these rights would automatically cease to exist on the minor's attaining majority and the provision for a public notice disclaiming the partnership would be unnecessary. But, on the other hand, if the section refers to a situation in which a minor has been made a partner, a! belt irregularly, then a notice that he has elected not to become a partner, is necessary. Additionally, a firm can only be created by an agreement and generally a person can be a partner only by agreement. Yet the section confers on the minor, who attains majority, the right to become a partner by a unilateral decision regardless of the wishes of the other partners.
25. But the section neither states nor implies that it should have effect, notwithstanding any other provisions in the Partnership Act, therefore, as a person can become a partner only with the consent of all the partners, this right to elect unilaterally to become a partner on attaining majority implies that the person exercising this right of election, was a partner, otherwise the consent of all the other partners would not be necessary for his becoming a partner. And, it is not irrelevant to point out here that the unilateral right conferred by this clause is in sharp contrast with the provision in the first clause of the section that a minor can be admitted to the benefits of partnership only with the consent of all the partners. Therefore, in our humble opinion, the construction placed on section 30 by Faruqui, T, was correct and in his words "where a partnership is constituted by partners who are adults the inclusion of a minor as a partner-does not invalidate the partnership and the correct construction of such document would be to treat the minor as having been admitted to the benefits of partnership."
26. Accordingly, as we agree with the view of Faruqui, J., the petitions are dismissed.