COMMISSIONER OF Income Tax vs MOHAN LAL GUPTA RANJIT SINGH and CO.

N. K. AGRAWAL, J. :

The following question of law 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 was right in law in holding that the firm was validly constituted keeping in view the provisions of the Punjab Excise Rules/Act and was entitled to registration for the asst. yr. 1978-79 ?"

The assessee-firm was engaged in the business of purchase and sale of country liquor and beer under L-13 and L-14-A licences. The assessee-firm filed application for registration in Form No. 11 along with the partnership deed for the asst. yr. 1978-79. The partnership firm had been constituted by 13 partners. Licence had been granted in the names of two persons, namely, Mohan Lal Gupta and Ranjit Singh. Those two licencees in order to constitute the partnership firm, took 11 others as partners for carrying on the business in liquor. No approval of the concerned excise authority was obtained while taking in new partners in the firm. 11 partners were, thus, strangers to the licence. The AO refused registration to the firm under the IT Act and made assessment in the status of an unregistered firm. Assessees appeal was dismissed by the AAC. The Tribunal, however, allowed the assessees appeal, taking the view that registration to the firm was wrongly declined by the ITO under s. 185(1) of the IT Act.

The question which arises for determination is whether it is permissible to an individual who holds a liquor licence in his individual name to add a new person to his business as a partner whose name is not entered in the licence. Similarly, is it permissible for a group of persons or partners of a firm holding a liquor licence or licences to add a new person or a partner to their business or firm without the permission of the competent licensing authority. If such a firm is constituted or reconstituted, can it be denied registration on the ground that it is not a genuine firm under the IT Act.

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 licencee together with non-licencee partners to run a liquor business is not to be treated to be a genuine firm inasmuch as there was a violation of the Punjab Excise Act and the rules framed thereunder.

Following the aforesaid view, the question is answered in the negative i.e. in favour of the Department and against the assessee.