Roop Chand and Co. vs Commissioner of Income Tax

N.K. Agrawal, J.—The following questions have been referred at the instance of the assessee u/s 256(1) of the Income Tax Act :--"Assessment year 1974-75 :

Whether, on the facts and in the circumstances of the case, the assessee-firm is entitled to registration u/s 185 of the Income Tax Act, 1961, for the assessment year 1974-75 ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Appellate Assistant Commissioner of Income Tax has committed error in law and facts to direct the Income Tax Officer to grant registration to the firm for the assessment year 1974-75 ? Assessment year 1980-81 :

Whether, on the facts and in the circumstances of the case, the assessee-firm is entitled to continuation of registration for the purposes of the Income Tax Act relating to the assessment year 1980-81 ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Appellate Assistant Commissioner of Income Tax has committed error in law and facts to direct the Income Tax Officer to allow continuation of registration to the firm for the assessment year 1980-81 ? Assessment year 1981-82 :

Whether, on the facts and in the circumstances of the case, the assessee-firm is entitled to continuation of registration for the purposes of the Income Tax Act relating to the assessment year 1981-82 ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the Appellate Commissioner of Income Tax has committed error in law and facts to direct the Income Tax Officer to allow continuation of registration to the firm for the assessment year 1981-82 ?"

The assessee-firm was constituted under the partnership deed dated September 1, 1973, with effect from the same date with five partners to carry on the business in liquor. The business of the firm related to English wine and beer at Roshan Road, Hoshiarpur. A licence was obtained by a partner, Roop Chand, in individual capacity. The Income Tax Officer noticed, while examining the assessee''s application seeking registration of the firm for the assessment year 1974-75 , that the remaining four partners were permitted to join the firm engaged in the sale of liquor and beer without permission from the licensing authority. There was further nothing on record to indicate that the non-licensee partners were not connected with the affairs of the firm. The Income Tax Officer, therefore, cancelled the registration granted to the firm.

For the assessment year 1980-81, the Income Tax Officer treated the firm to be an unregistered firm while framing the assessment, following the cancellation of registration for the assessment year 1974-75.

For the assessment year 1981-82, the assessee-firm filed application in Form No. 12 for continuation of registration. Since registration was cancelled for the assessment year 1974-75, the assessee-firm filed another application in Form No. 11 for grant of registration. That form was, however, not accompanied by the partnership deed. It had also been filed after the expiry of the period of limitation. The Income Tax Officer refused to grant registration and treated the assessee-firm as an unregistered firm for the purposes of assessment.

The Appellate Assistant Commissioner allowed the assessee''s appeal for all the three years.

The Income Tax Appellate Tribunal, in the Department''s appeal, following the decision of this court in Commissioner of Income Tax Vs. Hardit Singh Pal Chand and Co., upheld the orders passed by the Income Tax Officer, refusing registration to the assessee-firm.

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 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, 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 Income Tax Act inasmuch as there was a breach of Rule 7 of the Punjab Liquor Licence Rules, 1956.

Following the aforesaid view, question No. 1 is answered in the negative and question No. 2 in the affirmative, i.e., in favour of the Department and against the assess in all the three years.