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TMI Blog1984 (7) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court decision in the case of CIT v. Hardit Singh Pal Chand Co. [1979] 120 ITR 289, I refuse to grant continuation of registration to the firm for the assessment year 1979-80. Hence, the status of the assessee-firm is treated as 'unregistered firm'. Aggrieved, the assessee filed an appeal before the Commissioner (Appeals) contending that the ITO erred in refusing to grant continuation of registration and in case he wanted to treat it as an unregistered firm, he should have passed separate order under section 186 of the Income-tax Act, 1961 ('the Act'), cancelling the original registration. Further, it was contended that the ITO erred in holding that the assessee had violated the terms of the Andhra Pradesh Excise Rules, 1969. According to the assessee, the State Excise Rules prohibit only a transfer of licence and do not question the formation of a partnership by taking others as partners for providing funds or for enabling the effective running of the business. Reliance was also placed upon an earlier decision of the Tribunal in support of the contention put forward by the assessee. The Commissioner (Appeals) held that the contentions put forward by the assessee are well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. If one such declaration as per proviso (ii) to section 184(7) is filed, the ITO has no option except to continue the registration. Therefore, the Commissioner (Appeals) came to the conclusion that the ITO's order refusing to grant continuation of registration on the plea that there is contravention of Excise Rules and, therefore, no continuation should be granted is without jurisdiction. In other words, the Commissioner (Appeals) held that the ITO has no alternative but to grant continuation of registration under section 184(7). However, the learned departmental representative pointed out that where a firm was not constituted in accordance with the requirements of law, the firm is not entitled to the benefits of section 184(7) merely because registration was granted for the first year's assessment of the firm. He relied upon a decision of the Andhra Pradesh High Court in CIT v. Badjanapara Salt Co. 1974 Tax LR 19. In that case, the Andhra Pradesh High Court held that any registration that is erroneously granted to such a firm in the past cannot enure to its benefit for the subsequent assessment years under section 184(7) as, in such circumstances, there would be no firm at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self to all the conditions of licence and such other conditions as the Commissioner may impose in a particular case : Provided that instead of permitting a licence to be transferred, the Commissioner may require the transferee to take out a fresh licence on payment of fee. (2) In any case where a licence is transferred such transfer will not have the effect of extending the validity of the licence beyond the period for which it was originally granted. 39. No licensee shall, except with the prior permission of the licensing authority, get any other person included as a partner to his business, or get an existing partner excluded. " Rule 19 of the Andhra Pradesh Excise Rules reads as under : "19. (1) The licensee shall not transfer the licence for the sale of arrack or toddy to any other person. (2) Whereas licence is granted jointly, no licensee shall include or exclude any partner except with the previous permission of the licensing authority. Such permission may be granted by the licensing authority on an application made by the partners together with a fee equal to one per cent of the monthly rental of the shop or group of shops. On receipt of application the licensin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Andhra Pradesh High Court in Nalli Venkataramana's case that when a licensee enters into a partnership with others for sharing the profits and losses arising out of the use of the licence, in the eye of law there is no transfer of the licence. Consequently, there is no contravention of rule 38 under the Andhra Pradesh Excise Act. 9. So far as rule 39 is concerned, the learned departmental representative pointed out that this question was not before the Andhra Pradesh High Court while deciding the case of Nalli Venkataramana's case. He pointed out that the judgment of the Supreme Court in Govinda Rao v. Nathmal [Civil Appeal No. 30 of 1960, dated 11-4-1962] will be applicable insofar as matter relating to rule 39 is concerned. In Govinda Rao's case the Supreme Court laid emphasis on section 3(1) of the C.P. and Berar Food Grains Control Order, 1945, which prohibited any person to deal in foodgrains without a licence. The words 'deal in foodgrains' were defined as under : " To engage in the business of purchase, sale or storage for sale of foodgrains whether on one's own account or on account of or on any partnership.... " While considering the above said judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal. As between partners, it continues to be valid and entitled to registration under the Act. Further, we have also seen in the partnership deed, the object of the firm has been stated in clause (2). Clause (2) runs as under : " The object of the firm is to deal in the same business of all varieties of Indian and Foreign Liquor and any other commodities which they feel profitable or a bearing to the main line of the above trade. " Therefore, the partnership firm is formed not only for the sale of liquor but also to deal with other commodities which they feel profitable or a beating to the main line of the trade. This also supports the assessee's case that if rule 39 is violated that will not render the partnership illegal. It was also brought to our notice that the fact that the excise authorities have not exercised their power to cancel or sustaining the disallowance is also an important circumstance in favour of the assessee--P.C. Kapoor v. CIT [1973] 90 ITR 172 (All.) (FB) and A.D. Thiagaraja Pillai v. CIT [1965] 55 ITR 419 (Mad.). This view is also taken by the Andhra Pradesh High Court in Nalli Venkataramana's case. The ITO relied upon a decision of the Punjab and Har ..... 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