Commissioner of Income Tax vs Brij Mohan Singh

N.K. Agrawal, J.—The following question has been referred to this court by the Income Tax Appellate Tribunal (for short, "the Tribunal") u/s 256(1) of the Income Tax Act, 1961 (for short, "the Act") :

"Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in allowing registration to the assessee-firm ?"

The assessee-firm was engaged in the business of liquor. An application, seeking registration of the firm for the assessment year 1978-79 was filed in Form No. 12. The Income Tax Officer noticed that there were 13 persons in the firm as partners and out of them seven persons were not licensees for the liquor vends. The contract for different liquor vends had been obtained by different persons and not by the firm. The licensees brought in some more persons to run the business and to exploit the licence. The renewal of registration was refused by the Income Tax Officer on the ground that seven partners of the firm were not licensees entitled to run the business in liquor.

The Commissioner of Income Tax dismissed the appeal filed by the assessee. The Tribunal, however, allowed the assessee''s second appeal on the ground that there was no finding that the seven partners whose names had not been entered in the licences were ever engaged in the act of possessing or selling liquor.

The question which actually arises for consideration is whether registration can be refused to a partnership firm u/s 185(1) of the Income Tax Act, 1961, on the ground that the person or persons holding licence to run a business in liquor had constituted such 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 Commissioner of Income Tax Vs. Jagdish Chand Walia and Co., (I. T. R. No. 93 of 1984) decided on September 29, 1997 (supra), 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) of the Act 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 negative, i.e., in favour of the Department and against the assessee.