1984 (7) TMI 150 - AT - Income Tax

Summary

Issues Involved:
1. Refusal to grant continuation of registration to the assessee-firm.
2. Alleged violation of Andhra Pradesh Excise Rules, 1969.
3. Applicability of legal precedents and interpretation of relevant rules.

Detailed Analysis:

1. Refusal to Grant Continuation of Registration:
The Income Tax Officer (ITO) refused the continuation of registration for the assessee-firm for the assessment year 1979-80, citing a violation of the Excise Rules. The assessee contended that the ITO should have passed a separate order under section 186 of the Income-tax Act, 1961, to cancel the original registration. The Commissioner (Appeals) held that the assessee did not violate the Andhra Pradesh Excise Rules and directed the ITO to grant continuation of registration. The Appellate Tribunal upheld this decision, noting that under section 184(7) of the Act, the ITO must continue the registration if the firm's constitution and profit-sharing ratios remain unchanged and a declaration in Form No. 12 is filed.

2. Alleged Violation of Andhra Pradesh Excise Rules, 1969:
The ITO argued that the firm violated rules 38 and 39 of the Andhra Pradesh Foreign Liquor and Indian Liquor Rules, which prohibit the formation of a partnership without the permission of excise authorities. Rule 38(1) prohibits the transfer of a licence without prior permission, and Rule 39 prohibits including or excluding partners without permission. The Commissioner (Appeals) and the Tribunal found that these rules do not render the partnership illegal if violated. They cited the Andhra Pradesh High Court's ruling in CIT v. Nalli Venkataramana, which held that a partnership formed for exploiting a licence does not constitute a transfer of the licence and is not illegal even if prior permission is not obtained.

3. Applicability of Legal Precedents and Interpretation of Relevant Rules:
The Tribunal considered multiple precedents, including the Andhra Pradesh High Court's decisions in CIT v. Badjanapara Salt Co. and Addl. CIT v. Chekka Ayyanna. These cases established that the ITO could inquire into the genuineness of a firm even for the continuation of registration. However, the Tribunal also noted that the Andhra Pradesh High Court in Nalli Venkataramana's case distinguished the Supreme Court's ruling in Govinda Rao v. Nathmal, stating that the latter involved a specific prohibition against using a partner's licence for a partnership. The Tribunal concluded that the firm's partnership agreement, which included dealing in other commodities, did not violate public policy or render the partnership illegal. The Tribunal dismissed the appeal, affirming that there was no transfer of the licence and no violation of the Andhra Pradesh Excise Rules.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision to grant continuation of registration to the assessee-firm, concluding that the firm did not violate the Andhra Pradesh Excise Rules. The Tribunal emphasized that the ITO must continue registration under section 184(7) if the firm's constitution remains unchanged and a proper declaration is filed. The Tribunal also clarified that violations of rules 38 and 39 do not render a partnership illegal and that the firm's partnership agreement did not violate public policy. Consequently, the department's appeal was dismissed.