1997 (12) TMI 76 - HC - Income Tax

Summary

Issues:
1. Transfer of license to partnership firm for running a bar.
2. Entitlement of the assessee to be treated as a registered firm under the Income-tax Act.

Analysis:

Issue 1: Transfer of license to partnership firm for running a bar
The case involved a partnership firm running a hotel and a bar, with the bar license granted to one of the partners. The firm's registration was refused due to the license not being in the firm's name. The Assessing Officer and Commissioner (Appeals) disagreed on the registration issue. The Department contended that the firm lacked the license required to run the business legally, citing the Full Bench decision in Narayanan and Co. v. CIT. The firm's counsel argued that the Full Bench decision did not apply as the firm was not seeking fresh registration and had multiple business activities. The court analyzed the Abkari Act, which prohibits license transfer without written consent, and noted the penal provisions for violations.

Issue 2: Entitlement to be treated as a registered firm under the Income-tax Act
The court referred to the Supreme Court's decision in Bihari Lal Jaisiwal v. CIT, emphasizing that illegal constitution could lead to registration refusal. The court highlighted the Full Bench's view that transferring liquor privileges to partners violates rules and is void under the Contract Act. The court rejected the argument that illegal parts of a contract can be severed, citing principles against rewriting contracts. It also discussed the Allahabad High Court's decision in Oudh Cocogem and Provision Stores v. CIT, where partial invalidity did not affect registration. The court concluded that the firm's liquor business, violating public policy, disqualified it from registration under the Income-tax Act.

In conclusion, the court held that the firm's operation of the liquor business with a license in a partner's name violated the Abkari Act and rules, rendering the partnership ineligible for registration. The court rejected the Tribunal's finding of no transfer, affirming that a transfer occurred and was prohibited. Both questions referred by the Tribunal were answered against the assessee, emphasizing the application of the Supreme Court and Full Bench decisions to the case.