1968 (11) TMI 10 - HC - Income Tax

Whether there is any prohibition in the Bihar & Orissa Excise Act that a partnership cannot carry on the business of dealing in excisable articles, provided the person who actually carried on the business has a licence - Held, no - firm is entitled to registration

Summary

Issues:
- Whether the assessee firm was entitled to registration under section 26A of the Income-tax Act for the assessment years 1959-60 and 1960-61?

Analysis:
The judgment by the High Court of Patna involved two references under section 66(1) of the Indian Income-tax Act, 1922, addressing the entitlement of the assessee firm to registration under section 26A for the assessment years 1959-60 and 1960-61. The firm was constituted under a partnership deed dated December 4, 1958, with four partners sharing profits and losses equally. The partnership deed stated that the first party, Sri Nakul Chandra Mandal, had obtained licenses for pachwai shops, and it was agreed to carry on the business in partnership. The Income-tax Officer initially refused registration, citing a sub-lease due to the partnership formation. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal later allowed registration, emphasizing that there was no transfer or sub-letting of the license to other partners, and the management was assigned to Sri N. C. Mandal as per the partnership terms.

In Tax Case No. 50 of 1966, a fresh partnership deed was executed in June 1959, with similar clauses as the earlier deed, and registration for the assessment year 1960-61 was initially refused by the Income-tax Officer. The Appellate Assistant Commissioner reversed this decision, and the Income-tax Appellate Tribunal upheld the registration, stating that Sri N. C. Mandal was conducting the excise business for the benefit of all partners, and the partnership was not illegal. The judgment referenced previous cases and highlighted that the management of the business by Sri N. C. Mandal did not contravene the Excise Act. The court distinguished cases cited by the Commissioner of Income-tax, emphasizing that the licenses were not transferred or sub-let, and the partnership deeds did not violate the Excise Act.

The court rejected the argument that all four partners were licensees, stating that the formation of a firm for dealing in excisable commodities was not illegal under the Excise Act. The judgment concluded that the assessee firm was entitled to registration for the assessment years 1959-60 and 1960-61 under section 26A of the Indian Income-tax Act, ruling against the Commissioner of Income-tax and awarding costs to the applicant. Judge Kanhaiyaji concurred with the decision.