1988 (8) TMI 71 - HC - Income Tax

Summary

Issues:
1. Cancellation of registration for breach of M. P. Excise Rules for assessment years 1975-76, 1976-77, 1977-78, and 1978-79.
2. Refusal of registration for breach of M. P. Excise Rules for assessment years 1979-80 and 1980-81.
3. Participation of Shankarlal/Kamlabai in the business of the assessee.

Analysis:

The High Court of Madhya Pradesh was presented with a reference under section 256(2) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Indore Bench, regarding the cancellation and refusal of registration to the assessee firm for various assessment years due to breaches of the M. P. Excise Rules. The assessee, a partnership firm engaged in the liquor business, had its registration cancelled by the Income-tax Officer for the specified assessment years as one of the partners obtained the excise license in his individual capacity, contravening rule 6 of the Madhya Pradesh Excise Rules. The Appellate Assistant Commissioner and the Tribunal upheld the cancellation and refusal of registration, leading to the reference before the High Court.

In addressing the first and second questions raised, the court relied on precedents such as CIT v. Pagoda Hotel and Restaurant, CIT v. Sheonarayan Harnarayan, and Narsaiya and Co. v. CIT. These cases established that partnerships in liquor shops were illegal under the relevant excise rules, rendering the partnership firm ineligible for registration under the Income-tax Act. Given the consistent legal position outlined in the aforementioned decisions, the High Court affirmed the Tribunal's decision to uphold the cancellation of registration for the specified assessment years and the refusal of registration for the subsequent years due to breaches of the M. P. Excise Rules.

Regarding the third question on the participation of Shankarlal/Kamlabai in the business of the assessee, the Tribunal found that Shankarlal was actively involved in the business and not merely a sleeping partner, based on the evidence on record. Consequently, the High Court concurred with the Tribunal's determination, rejecting the assessee's contention that Shankarlal/Kamlabai did not contribute to the operations of the business.

In conclusion, the High Court provided affirmative answers to all three questions referred by the Tribunal, ruling against the assessee. The parties were directed to bear their own costs in the reference proceedings.