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Issues:
Registration of partnership firm for income tax purposes under sections 184 and 185 of the Income Tax Act, 1961 - Interpretation of Supreme Court decision in Jer and Co. v. CIT [1971] 79 ITR 546 - Compliance with Punjab Excise Act and Rules regarding liquor licensing - Prohibition on possessing and selling liquor without a license - Conditions for partnership firms obtaining liquor licenses. Analysis: The case involved two individuals who obtained a liquor license for wholesale and retail vending, later forming a partnership firm with eight other individuals. The firm applied for income tax registration, which was initially denied by the Income Tax Officer (ITO) but later allowed by the Tribunal. The Central Board of Direct Taxes (CBDT) sought a reference to the High Court questioning the Tribunal's decision on allowing registration to the firm. The Tribunal based its decision on the Supreme Court judgment in Jer and Co. v. CIT [1971] 79 ITR 546, stating that a Supreme Court judgment takes precedence over a High Court judgment. The Revenue argued that the conditions of the liquor license, governed by the Punjab Excise Act and Rules, prohibited possession and sale of liquor by unauthorized persons, including partnership firms not complying with licensing regulations. The Punjab Excise Act, 1914, and the Punjab Liquor Licence Rules, 1956, impose strict regulations on liquor licensing, including restrictions on possession and sale of intoxicants without a license. The Rules specify conditions for granting licenses to individuals and partnership firms, requiring all partners to be specified on the license and prohibiting sales by unauthorized persons. The High Court distinguished the present case from Jer and Co.'s case, emphasizing that the license conditions in this case prohibited the partnership firm from engaging in liquor sales without all partners being endorsed on the license. The Court referenced previous decisions such as CIT v. Benarsi Das and Co. [1962] 44 ITR 835 and Lalchand Mohan Lal Fazilka v. CIT [1967] 65 ITR 418, which were deemed applicable to the current scenario. Additionally, the Court discussed the Division Bench decision in CIT v. Gian Chand & Co. [1973] 87 ITR 113, highlighting the relevance of license conditions in determining the legality of partnership firms in specific contexts. The Court ultimately ruled against the assessee, upholding the restrictions imposed by the Excise Act and Rules on liquor licensing, thereby denying registration to the partnership firm for income tax purposes. In conclusion, the judgment underscores the importance of compliance with licensing regulations under the Punjab Excise Act and Rules for partnership firms engaged in liquor vending activities. The Court's decision reaffirms the legal principles governing liquor licensing and partnership formations, emphasizing the need for strict adherence to regulatory requirements to ensure legality and entitlement to income tax registration.
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