Write short notes on any two of the following:”(a) Minors admitted to the benefits of partnership(b) Sale by sample(c) Firm’s personality for tax purposes(d) Meaning of term goods

QUESTION 8

“Write short notes on any two of the following:”

(a) Minors admitted to the benefits of partnership
(b) Sale by sample
(c) Firm’s personality for tax purposes
(d) Meaning of term goods

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(a) Minors Admitted to the Benefits of Partnership

Relevant Law: Section 30, Indian Partnership Act, 1932

1. Who is a minor?

A minor is a person below 18 years.
A minor cannot become a partner, but may be admitted to the benefits of partnership.

2. Rights of minor admitted to benefits

• Right to share profits
  He can receive his agreed share of profits.
• Right to inspect accounts
  He can inspect books of account, but not other confidential documents.
• Right to sue for share
  On attaining majority, he may file a suit to claim his share of property.

3. Liability of the minor

• Only liable to the extent of his share in the firm, not personally liable.
• His personal property cannot be used to pay firm debts.

4. When minor becomes major

Within 6 months of attaining majority, he must choose:

• To become a partner, or
• To not become a partner

If he does not give a notice → law treats him as a partner.

5. Case Law

CIT v. Dwarkadas & Co. (1981)
Court held that a minor cannot become a full partner but can be admitted for benefits only.

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(b) Sale by Sample

Relevant Law: Section 17, Sale of Goods Act, 1930

1. Meaning

Sale by sample means the buyer examines a sample of goods, and the bulk supplied must match the sample in quality.

2. Implied Conditions in Sale by Sample

The law provides three important conditions:

1. Bulk corresponds with sample
   Goods delivered must be same quality as the sample shown.

2. Buyer has reasonable opportunity to compare
   Buyer must be allowed to check the goods with the sample.

3. Free from hidden defects
   Goods must not have hidden defects that make them unmerchantable, even if the sample does not show the defect.

Example

Sample of cloth is smooth, but bulk supplied has rough texture.
Buyer can reject the goods.

Case Law

Drummond & Sons v. Van Ingen (1887)
Court held that the seller must ensure the bulk matches the sample in quality.

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(c) Firm’s Personality for Tax Purposes

Concept under Income Tax Act, not under Partnership Act

1. Firm has a separate tax identity

Although a partnership firm has no separate legal personality under the Partnership Act,
for tax purposes, the firm is treated as a separate “person” under the Income Tax Act.

2. Firm pays its own tax

• Firm is assessed separately
• Partners also pay tax individually on their income

3. Benefits of separate tax personality

• Firm can claim deductions
• Firm files a separate return (ITR-5)
• Partners do not pay tax on:
  • Salary
  • Bonus
  • Commission
  • Share of profit (exempt for partners)

4. Case Law

CIT v. R.M. Chidambaram Pillai (1977)
Supreme Court held that a partnership firm has separate tax personality, though it is not a separate legal entity in general law.

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(d) Meaning of Term “Goods”

Relevant Law: Section 2(7), Sale of Goods Act, 1930

1. Definition

Goods means all movable property except:

• Actionable claims
• Money

2. Types of Goods

(a) Existing Goods

Goods that are already in existence.
Example: Car, mobile, stock.

(b) Future Goods

Goods to be manufactured or acquired later.
Example: Future crop.

(c) Contingent Goods

Goods whose acquisition depends on some event.
Example: Sale of fish depending on catch.

3. What is included?

• Growing crops
• Grass
• Things attached to land which can be severed
• Stocks and shares
• Raw materials
• Manufactured items

4. What is NOT included?

• Immovable property
• Money
• Actionable claims (e.g., debt)

Case Law

Satyabrata Ghose v. Mugneeram Bangur & Co. (1954)
Court clarified that goods include movable items but not immovable property.

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