National Roadways vs Commissioner of Income Tax

Ramaswami, J.—The assessee is a firm of partnership carrying on bus transport business under the name and style of National Roadways.

The firm was constituted by an instrument of partnership executed by 14 individuals as partners. The partnership came to be constituted under the

following circumstances. All these 14 partners had individually advanced moneys to the total extent of Rs. 77,000 to one Sena Munuswamy

Mudaliar who was operating two buses on two different routes. He was unable to repay the debt, nor any interest thereon. Therefore, he desired

to make over these two buses with the route permits in consideration of a sum of Rs. 60,000 and also consented to repay the balance of Rs.

17,000 with interest. The 14 creditors considering that they cannot take over the buses individually formed into a partnership to carry on the bus

transport in partnership. They executed the partnership deed on April 1, 1963. On the same day Sena Munuswamy Mudaliar executed an

agreement in favour of the 14 partners agreeing to make over the said buses with their route permits. He had also undertaken in that agreement to

apply to the motor vehicles authorities concerned for the transfer of the route permits in favour of the 14 partners. Thereafter, the assessee applied

u/s 184 of the Income Tax Act, 1961, to the Income Tax Officer, Kanchee-puram, for registration of the firm. The Income Tax Officer considered

that the firm was exploiting the route permit granted to Sena Munuswamy Mudaliar in an illegal manner without getting the route permit transferred

in its name. In this view, he refused registration. But the Appellate Assistant Commissioner held that the firm was a genuine one, that the

partnership firm were really owners of the buses and that running of buses by the assessee-firm or the business carried on by it on the permit

standing in the name of another person was not illegal. He also pointed out that the Regional Transport Authority had also not objected to the

running of the buses by the assessee-firm. The department preferred an appeal to the Appellate Tribunal. The Tribunal considered that the transfer

of route permits without the necessary orders of the motor vehicles authorities was illegal, that it was not open for a person to ply buses without a

valid permit issued by the authorities concerned and that any partnership entered into for the purpose of conducting a business in transport when

the licence granted to ply the buses was in the name of a third party was ab initio void and punishable under the rules. In this view, the Tribunal

held that the partnership itself was illegal and, therefore, not entitled to the benefit of registration u/s 185 of the Act. At the instance of the assessee

the following question has been referred :

Whether, on the facts and in the circumstances of the case, the assessee-firm is not entitled to the benefit of registration u/s 185 of the Income

Tax Act, 1961 ?

The point arising in this case is directly covered by a decision of this court in T.K.P.R. Ramanatha Chettiar and Brothers and Another Vs.

Commissioner of Income Tax, . In that case also a partnership firm was carrying on business in lorry transport. But the permits were standing in the

name of the original owners. The permits were not transferred to the firm under the provisions of the Motor Vehicles Act. The Tribunal was of

opinion that inasmuch as the firm operated the lorries without a valid permit, which was prohibited by Section 42 of the Motor Vehicles Act, the

firm was engaged in an unlawful activity of running the lorries without a valid permit and, therefore, it was not entitled to registration u/s 26A of the

Indian Income Tax Act, 1922, corresponding to Section 185 of the Income Tax Act, 1961. This court took the view that though the firm was the

owner of the lorries and operating them, the partnership cannot be regarded as illegal merely because the permits in regard to them stood in the

names of their original owners and had not been transferred to the firm. The learned counsel for the revenue sought to distinguish this case on the

ground that in this case there was a transfer of the two buses with their route permits under the deed dated April 1, 1963, executed by Sena

Munuswamy Mudaliar. Since the transfer was without the sanction of the transport authorities it was illegal. Apart from the fact that this distinction

has no bearing on the right of the firm to get itself registered, we are unable to agree with the learned counsel on facts that there was any such

transfer under the deed dated April 1, 1963. Though the deed is styled as a release deed, under that document the said Sena Munuswamy

Mudaliar only agreed to make over the two buses with their route permits for a consideration of Rs. 60,000. There was in fact no valid transfer

under that agreement itself. It might be in part performance of that agreement the said Sena Munuswamy Mudaliar handed over possession of the

vehicles to the assessee. But that does not mean that there is actually a transfer effected. So long as there is no transfer of the certificate in the name

of the firm, in law there was no valid transfer. The decisions relied on by the Tribunal were, therefore, not applicable. The objection for the

registration, therefore, fails. In the result, we hold that the firm is entitled to the benefit of registration u/s 185 of the Act and answer the reference

accordingly. The assessee will be entitled to its costs. Counsel''s fee, Rs. 250.