1986 (2) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Contravention of the provisions of the Rajasthan Excise Act.
2. Validity of the partnership firm.
3. Entitlement to registration under the Income-tax Act.

Detailed Analysis:

1. Contravention of the Provisions of the Rajasthan Excise Act:
The primary issue was whether the formation of the partnership firm constituted a contravention of the Rajasthan Excise Act and the relevant rules. The Income-tax Officer argued that the assessee-firm had violated the provisions of the Excise Act by forming a partnership without obtaining prior permission from the excise authorities. Rule 72B of the Rajasthan Excise Rules was pivotal, which states, "Every licence shall be deemed to have been granted or renewed personally to the licensee and no licence shall be sold or transferred without obtaining previous permission in writing from the licensing authority." However, the Tribunal and the Appellate Assistant Commissioner found no such contravention, as the licence was not transferred but merely used by the partnership formed by Rooplal and others.

2. Validity of the Partnership Firm:
The validity of the partnership was questioned based on whether it was legally constituted under the Excise Act and the rules. The Tribunal, following its earlier decisions, opined that the partnership was validly constituted. The essentials for the formation of a partnership were met: agreement between persons, agreement for carrying on business, division of profits or losses, and engagement of all partners in the business. The Tribunal referenced several cases, including Umacharan Shaw & Bros. v. CIT and Jer & Co. v. CIT, which supported the view that the partnership was valid even if the licence was in the name of one partner, provided there was no explicit prohibition against forming a partnership.

3. Entitlement to Registration under the Income-tax Act:
The Income-tax Officer refused to register the firm, arguing that the partnership was illegal due to the alleged contravention of the Excise Act. However, the Appellate Assistant Commissioner and the Tribunal held that the firm was entitled to registration. The Income-tax Officer's jurisdiction was limited to verifying if the application conformed to the Act and rules and whether the firm was genuine. Since the partnership met all necessary conditions for registration under section 185 of the Income-tax Act-application conformity, evidence by an instrument of partnership, specification of individual shares, and actual existence in conformity with the partnership deed-the Tribunal upheld the registration.

Conclusion:
The Rajasthan High Court concluded that there was no contravention of the Rajasthan Excise Act, and the partnership formed by Rooplal was valid. The firm met all conditions for registration under section 185 of the Income-tax Act and was thus entitled to registration. The question referred by the Tribunal was answered in the affirmative, in favor of the assessee and against the Revenue.