Law:

Section:

Section 184 of the Income-tax Act, 1961 - Firm - Assessed as such - Assessment year 1999-2000 - Assessee-firm was carrying on business in trading of Indian made foreign liquor having obtained a licence from Andhra Pradesh Excise Department in name of one of partners, in his individual status - It filed a return which was processed under section 143(1) - Thereafter ITO, relying on rule 39 of A.P. Indian and Foreign Liquor Rules, 1970, reopened assessment on ground that there was escapement of income in form of remuneration to partners and interest on partners' capital - He held that since assessee had not obtained permission from Excise Department before entering into partnership, such a partnership was prohibited under A.P. Excise Act and, therefore, status of assessee could not be treated as a firm - As a result, remuneration paid to partners and interest on capital was added to total income of assessee - It was undisputed that licence was granted only in favour of an individual and it was only he who was entitled to carry on business in purchase and sale of intoxicating liquor and, as provided for in rule 39 no partnership firm could carry on such business save with prior permission of Commissioner of Prohibition and Excise - Whether in absence of such prior permission being obtained, partnership firm, which had been formed to carry on business of trading in intoxicating liquor, would be an illegal partnership both under Partnership Act, 1932 and A.P. Excise Act - Held, yes - Whether, therefore, impugned order passed by Assessing Officer was to be upheld - Held, yes [In favour of revenue] FACTS The assessee-firm was carrying on business in trading of Indian made foreign liquor having obtained a licence from the Andhra Pradesh Excise Department in the name of one of the partners, in his individual status. A return was filed in the status of a partnership firm, admitting to an income of Rs. 10,130. An order of assessment, under section 143(1), was passed. Thereafter the ITO, relying on rule 39 of the AP Indian and Foreign Liquor Rules, 1970, reopened the assessment on the ground that there was escapement of income in the form of remuneration to partners and…

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