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Issues Involved:
1. Entitlement of the assessee-firm to registration under section 26A of the Indian Income-tax Act, 1922, for the assessment year 1960-61. 2. Legality of the partnership in respect of the liquor business carried out under a license issued in the name of one partner. 3. Validity of the registration refusal by the Income-tax Officer based on public policy and lack of proper intimation to the Collector. Issue-wise Detailed Analysis: 1. Entitlement of the assessee-firm to registration under section 26A of the Indian Income-tax Act, 1922, for the assessment year 1960-61: The respondent-firm applied for registration under section 26A of the Indian Income-tax Act, 1922, for the assessment year 1960-61. The firm consisted of two partners, Sheonarayan and Umashanker, and carried on businesses in medicines and liquor. The liquor business was conducted under a license issued in the name of Umashanker. The Income-tax Officer refused registration, contending that the partnership regarding the liquor business was void as it opposed public policy. The Appellate Assistant Commissioner, however, allowed the registration by relying on a precedent that permitted partnerships even if the license was in the name of one partner. The Income-tax Appellate Tribunal upheld this decision, leading to the present reference. 2. Legality of the partnership in respect of the liquor business carried out under a license issued in the name of one partner: The court examined whether the partnership for the liquor business was valid under the law. The respondent-firm had intimated the Collector about the partnership, but the court noted that mere intimation was insufficient. Rule VI of the Madhya Pradesh Excise Rules required the Collector's written permission endorsed on the license for the partnership to be valid. Without this endorsement, the partnership was deemed illegal and void under section 23 of the Indian Contract Act. The court distinguished this case from Dayabhai & Co. v. Commissioner of Income-tax, which dealt with motor vehicle permits and did not involve the same stringent conditions as liquor licenses. 3. Validity of the registration refusal by the Income-tax Officer based on public policy and lack of proper intimation to the Collector: The court upheld the Income-tax Officer's refusal to register the partnership for the liquor business, as the necessary endorsement from the Collector was absent. The court referenced Commissioner of Income-tax v. Pagoda Hotel & Restaurant, where a similar partnership for a wine shop was deemed illegal without the requisite permission. The court also considered the Supreme Court's decision in Jer & Co. v. Commissioner of Income-tax, which did not apply here as the Madhya Pradesh Excise Rules explicitly prohibited partnerships without the Collector's endorsement. The court concluded that the partnership for the liquor business was void ab initio, affirming the Income-tax Officer's decision. Conclusion: The court answered the reference by stating that the assessee-firm was not entitled to registration for the liquor business for the assessment year 1960-61 under section 26A of the Indian Income-tax Act, 1922, although it might have been entitled to registration for the medicine business. The reference was returned to the Income-tax Appellate Tribunal for further steps in accordance with this answer, with no order as to the costs of the proceedings.
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