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Registration of firm under section 185 of the Income-tax Act, 1961 based on the exploitation of a licence by the assessee-firm. Analysis: The judgment pertains to a reference under the Income-tax Act, 1961 for the assessment year 1962-63 involving an assessee-firm engaged in wholesale dealing of rice. The firm was constituted with partners by a partnership deed in 1961. The issue arose when the firm applied for registration under section 185 of the Income-tax Act, 1961, which was rejected by the Income-tax Officer on the grounds that the foodgrains licence was not transferable. The Appellate Assistant Commissioner upheld this decision citing provisions of the West Bengal Rice and Paddy Control Order, 1960, which prohibited exploitation of the licence by the firm without obtaining a fresh licence. However, the Appellate Tribunal disagreed, emphasizing that the firm was constituted for a lawful object and did not render itself liable to criminal action under the Control Order. The Tribunal held that the firm, though exploited a non-transferable licence, did not become illegal, and thus, allowed the appeal. The Tribunal referred a question to the High Court regarding the legality of the firm's exploitation of the licence and its entitlement to registration under section 185 of the Income-tax Act, 1961. The High Court analyzed various precedents, including decisions from the Supreme Court and other High Courts, to determine the legality of partnerships exploiting licences. The High Court noted that the Control Order in this case did not prohibit entering into a partnership or render the formation of a partnership illegal. Therefore, the High Court concluded that the constitution of the firm was legal, and the firm was entitled to registration under section 185 of the Income-tax Act, 1961. In conclusion, both judges agreed with the Tribunal's decision, affirming that the firm did not become illegal due to the exploitation of the licence and was entitled to registration under section 185 of the Income-tax Act, 1961. The High Court answered the referred question in the affirmative, in favor of the assessee. It is noteworthy that the assessee did not appear in the reference, and each party was ordered to bear its own costs.
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