1992 (8) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the partnership's object.
2. Validity of the partnership's registration under Section 185 of the Income-tax Act, 1961.
3. Applicability of the Motor Vehicles Act provisions.
4. Impact of prior High Court judgment on the partnership's claim.

Issue-wise Detailed Analysis:

1. Legality of the Partnership's Object:
The primary issue was whether the partnership's object was illegal, thereby affecting its registration status. The Income-tax Officer initially refused registration, claiming the partnership's operation of buses under permits not in its name violated the Motor Vehicles Act. The Tribunal, however, concluded that the partnership was not illegal, referencing cases such as Dayabhai and Co. v. CIT and T. K. P. R. Ramanatha Chettiar and Bros. v. CIT, which held that operating buses on permits in another's name did not render the partnership illegal. The Tribunal emphasized that Section 31 of the Motor Vehicles Act does not prohibit the transfer of a vehicle but requires reporting the transfer to authorities.

2. Validity of the Partnership's Registration under Section 185 of the Income-tax Act, 1961:
The Tribunal directed the Income-tax Officer to grant continuance of registration for the assessment years 1966-67 to 1972-73. It held that the partnership was not illegal and that the declarations for continuance of registration were in order. The Tribunal's decision was based on the principle that illegality of acts done in the course of partnership business does not equate to the illegality of the partnership itself.

3. Applicability of the Motor Vehicles Act Provisions:
The Tribunal discussed the provisions of the Motor Vehicles Act, specifically Section 31, which requires reporting vehicle transfers to transport authorities. The Tribunal found no prohibition against a permit-holder forming a partnership to exploit the permit, provided the permit itself was not transferred. The Tribunal cited Madhya Pradesh and Madras High Court rulings, which supported the view that such partnerships were not illegal.

4. Impact of Prior High Court Judgment on the Partnership's Claim:
The High Court previously held that the agreements between the company and the Khannas were contracts for hire, not agency agreements, and that the ownership of the buses vested in the company. The Tribunal interpreted this to mean that the partnership did not involve an illegal transfer of permits. However, the current judgment disagreed, stating that the partnership's business was conducted in contravention of the Motor Vehicles Act, making the partnership and its object illegal.

Final Judgment:
The High Court concluded that the partnership's business was illegal as it violated the Motor Vehicles Act by using permits not issued to it. Consequently, the partnership agreement was void ab initio, and the Income-tax Officer was correct in refusing registration under Section 185 of the Income-tax Act, 1961. The question was answered in the negative, against the assessee and in favor of the Revenue, with no order as to costs.