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Judgment
N. K. AGRAWAL, J. :
The following question has been referred to this Court by the Tribunal under S. 256(1) of the IT Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the partnership entered into by four partners for carrying on L-2 liquor business, licence for which was obtained by two of the partners only, is not violative of Punjab Excise Rules and is valid in law and entitled to registration under S. 185(1) of the IT Act, 1961 ?"
The assessee-firm, M/s G. R. Surinder Singh, 498-A, Green Avenue, Amritsar, did business in liquor during the previous year relevant to the asst. yr. 1978-79 and claimed registration of the firm under the IT Act. The ITO noticed that L-2 licence had been granted to Surinder Singh Arora for running the liquor shop at Karol Bagh, Delhi and to Gurdas Ram for liquor shop at Rani Jhansi Road, Delhi. There were four partners including Surinder Singh and Gurdas Ram in the firm as per the partnership deed dt. 23rd December, 1977. The ITO noticed that r. 7 of the Delhi Liquor Licence Rules laid down that a licence could be granted to a partnership firm and all the individuals forming the firm should be specified in the licence.
No one was allowed to sell liquor unless his name was approved by competent excise authority and his name was endorsed on the licence. Since the two partners in the firm were strangers and their names were not entered in the licence, the ITO refused registration to the firm.
The AAC dismissed the assessees appeal but the Tribunal allowed the appeal, taking the view that registration could not be refused to the firm under S. 185(1) of the IT Act.
The question which actually arises for consideration is whether registration can be refused to a partnership firm under S. 185(1) of the IT Act 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., 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 under S. 185(1) of the IT Act inasmuch as there was a breach of r. 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.