Chuni Lal and Co. vs Commissioner of Income Tax

N.K. Agrawal, J.—The following question has been referred to this Court by the Tribunal u/s 256(1) of the income tax Act, 1961 (�the Act�) :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the AAC upholding the refusal of registration by the ITO on the ground that the partnership contravened rules 6 and 7 of the Punjab Liquor Licence Rules, 1956 ?"

The assessee-firm filed an application for registration in Form No. 11 for the assessment year 1975-76. Names of all the 18 partners were not found entered in the licence. The licence to run the business in liquor had been obtained in the names of 5 persons only. The ITO refused to grant registration u/s 185(1) of the Act on the ground that the firm was not genuine. The AAC dismissed the assessee�s appeal and the Tribunal also dismissed the appeal taking the view that registration was rightly refused to the firm.

The question which actually arises for consideration is whether registration can be refused to a partnership firm u/s 185(1) on the ground that the person or persons holding licence to run a business in liquor had constituted such a firm by adding more persons as partners without permission from the competent authority under the Punjab Excise Act and the rules framed thereunder.

A similar question was examined by this Court in CIT v. Jagdish Chand Walia & Co. [IT Reference No. 93 of 1984, dated 29-9-1997] and it has been held that a partnership firm constituted by a licensee together with non-licensee partners to run a liquor business cannot be treated to be a genuine firm u/s 185(1) inasmuch as there was a breach of rule 7 of the Punjab Liquor Licence Rules, 1956. Following the aforesaid view, the question is answered in the affirmative, i.e., in favour of the department and against the assessee.