Registration u/s 184/185 in light of Punjab & Haryana high court decision. - Income Tax - 1398/CBDT

INSTRUCTION NO. 1398/CBDT Dated: June 7, 1981 Attention is invited to the judgement of the Punjab and Harayana High court in the case of CIT Vs. Hardit Singh Palchand and others(1979) 120. ITR.289 upholding the departments pleas that the firms M/s. Hardit Singh Palchand and others was not entitled to registration u/s.184/185 of the I.T.Act. In that case 2 persons had secured a licence for the sale of liquor in certain areas from the Punjab Excise authorities. After securing the licence, the said two partners joined hands with 8 other persons and a partnership firm. Since the names of other 8 persons were not endorsed on the licence, the ITO refused to grant registration to the firm. The tribunal decided the appeal in favour of the assessee and the Department went up to the High court in reference. After examining the provisions of Punjab liquor License Rules, 1956 the High court came to the conclusion that the firm was carrying on business in violation of the sub-rule 26 of rule 37 of the Punjab liquor license rules, 1956 which prohibited a license from allowing any person to conduct sales on his behalf unless the name of such person has been previously submitted to the collector for approval and endorsed by him on the licence. While holding that the registration had been rightly refused the High court observed as under:- The sum and substance of provisions of the Excise Act and the rules extracted above is that no person shall possess beyond permissible quantity of intoxicant. If the licensee is a firm it is prohibited from taking new partner without the approval of the concerned authorities. The rules also prohibits anybody to sell on behalf of the licensee unless name of such a person is approved and endorsed on the licence. By virtue of the conditions in the license to the effect that the licence is granted subject to the provisions of the rules, the aforesaid provision of the rules stands incorporated as conditions in the licence. There is the clear finding by the Tribunal that the names of 8 persons stranger to the licence were not endorsed on the license in terms Rule 37 sub-rule 26. In such a situation the partners may have been complied with all the requisites under the Partnership Act or the provision of the contract Act for the purpose of entering into a valid contract of partnership but the same was not entitled to be registered for the purpose of Income-tax under sections 184 and 185 as it carried on the business of possessing and selling liquor in violation of provisions of the Punjab Excise Act and rules framed thereunder as also of the conditions of the licence. 2. The decision referred to above, was given on facts which according to the High court were distinguishable from the facts present in the case of Jerr co. where the supreme court had decided the matter in favour of the assessee. The high court took note of the fact that in the case before the supreme court the licence issued in favour of the assessee did not carry the kind of conditions like those present in the case of Hardit Singh Palchan and others. 3. You are requested to bring the above decision to the notice of all the officers working in your charge, who may be advised to examine throughly the provision of local/liquor licence rules before granting registration u/s.185/184 of the firms engaged in the sale of liquor.