Law:

Section:

Section 185 of the income-tax act, 1961, read with rajasthan excise act, 1959-Firm - Registration-Legality of partnership-Four licences were issued under rajasthan excise act, authorising sale of country liquor, in joint names of four persons-these four persons formed a partnership firm with eleven other non-licensees-firm applied for registration-ito denied same, holding that having formed said firm licensees had committed breach of restriction imposed upon them by term of licence itself, which provided that before licensees enter into any such agreement prior permission should be obtained from licencing authority-rajasthan excise act did not put any direct prohibition on licensees from entering into partnership-whether firm was not entitled to registration because partnership agreement was of such a nature that if permitted, it would defeat provisions of rajasthan excise act-held, on facts, no Facts Four licences were issued under the Rajasthan Excise Act authorising the sale of company liquor, in the joint names of the four persons. These four persons joined with eleven other non-licensees so as to form assessee-firm. The assessee carried on the business of selling country liquor for the whole year and no objection was raised by the excise department. Later on, the assessee applied before the ITO for registration. The ITO denied the same on the ground that having formed the said firm, the licensees had committed breach of the restriction imposed upon them under one of the clauses of the licence, which prohibited licensees from transferring the licences and entering into the partnership with outsiders without the specific written permission of the licensing authority. He, therefore, opined that the firm had violated the provisions of section 23 of the Indian Contract Act. The AAC held that the assessee was entitled to registration because there was no subletting or transfer of the licence. On appeal by the revenue, the Tribunal held that the firm was not genuine because the partnership agreement was void ab initio and, therefore, the Tribunal set aside the AAC's order. On reference: Held It was an admitted fact, that neither the Rajasthan Excise Act nor the…

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