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Issues Involved:
1. Cancellation of registration of the firm under Section 186 of the Income Tax Act. 2. Validity of the partnership under the Punjab Excise Act, 1914 and Punjab Liquor Licence Rules, 1956. Issue-wise Detailed Analysis: 1. Cancellation of Registration of the Firm under Section 186 of the Income Tax Act: The appeal was filed against the order passed by the Income Tax Officer (ITO) under Section 186 of the Income Tax Act, which cancelled the registration previously granted to the firm. The ITO's decision was confirmed by the Appellate Assistant Commissioner (AAC). The firm, constituted by an Instrument of Partnership dated 1st April 1978, was initially granted registration by the ITO on 24th December 1979 after verifying that all legal formalities were completed and the partnership was genuine. However, another ITO later observed that the partnership was not validly constituted as per the Punjab Excise Act, 1914, and the Punjab Liquor Licence Rules, 1956, leading to the cancellation of registration. 2. Validity of the Partnership under the Punjab Excise Act, 1914 and Punjab Liquor Licence Rules, 1956: The firm was constituted to carry on the business in country liquor under two licenses obtained in the names of two sets of partners. The ITO argued that the partnership violated the Punjab Liquor Licence Rules, 1956, as all four partners' names were not incorporated in the licenses. The ITO relied on the Punjab High Court decision in CIT vs. Hardit Singh Pal Chand & Co., which held that a firm carrying on business in violation of the Excise Rules was not entitled to registration under the Income Tax Act. The AAC agreed with the ITO's conclusion, leading to the present appeal. The assessee argued that all partners were recognized licensees, albeit for two separate vends, and their partnership did not violate any rules. They cited the Andhra Pradesh High Court decision in CIT vs. Nalli Venkataramana and Ors., which held that a licensee entering into a partnership for sharing profits and losses does not transfer the license and does not violate Excise Rules. The assessee also relied on the Punjab and Haryana High Court decision in CIT vs. Suraj Bhan & Co., which stated that a firm indulging in speculative business does not become non-genuine, dis-entitling it to registration under Section 185 of the Income Tax Act. The Tribunal examined the relevant rules (Rules 5, 7, 8, and 9) of the Punjab Liquor Licence Rules, 1956. Rule 5 allows licenses to be granted to individuals, bodies incorporated under the Companies Act, societies registered under the Punjab Co-op. Societies Act, and partnerships or firms. Rule 7 requires all individuals comprising the partnership to be specified in the license. Rule 8 deals with the admission of new partners, and Rule 9 with the removal of partners. The Tribunal noted that all four partners were recognized licensees and there was no addition or removal of partners, thus no violation of rules. The Tribunal found that the ITO's reliance on the Punjab High Court decision was misplaced as the facts differed. In the present case, all partners were licensees, and their partnership did not violate Excise Rules. The Tribunal also noted that the ITO's assessment of the firm as an unregistered firm contradicted his assertion that no genuine firm existed. The Tribunal cited the Delhi Bench 'B' decision in Prem Prakash & Co. vs. ITO, which held that a firm with partners for finance purposes does not violate Excise Rules and is entitled to registration. Conclusion: The Tribunal concluded that the registration was erroneously canceled by the Revenue and directed that the firm should be granted registration. The appeal was allowed.
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