Judgment:
S.K. Kulshrestha, J.
1. On an application having been made under Section 256(2) of the Income-tax Act, 1961, by the Commissioner of Income-tax, Jabalpur, seeking reference of the question arising out of order dated September 30,1983, of the Income-tax Appellate Tribunal, Nagpur, in R. A. No. 81/Nag. of 1983, a direction was made by this court to refer the said question and, accordingly, the following question has been referred by the Tribunal for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in reversing that order of the Income-tax Officer, whereby the registration of the assessee was cancelled ?'
2. The assessee claimed the status of a registered firm for the year relevant to the assessment year 1976-77 but the Income-tax Officer treated the assessee as an unregistered firm. The assessee had filed Form No. 12 on July 30, 1976, as required by Section 184(7), as it stood in the relevant year. The Assessing Officer took due note of the fact that though the assessee in the assessment year in question had obtained excise contracts in the name of its individual partners, Shri Nageshwar Prasad Gupta and Shri Bindeshwar Prasad Gupta, but as in contravention of Rule VI of the general conditions of the licence framed under Section 62 of the M. P. Excise Act, 1915, providing that no privilege of supply or sale shall be sold,transferred or sub-leased nor shall the holder of such privilege enter into partnership in working of such privilege without the written permission of the Collector, had executed the contract in the name of the firm, the firm was not entitled to registration. The Assessing Officer also considered the fact that even though the assessee claimed to have made an application to the Collector for execution of the contract in the name of the partnership, no endorsement was made on the licence granted under the said Excise Act, which indicated that the request had been turned down. Thus, relying on the decisions in CIT v. Pagoda Hotel and Restaurant : [1974]93ITR271(MP) and CIT v. Sheonarayan Hamarayan 0065/1972 : [1975]100ITR213(MP) , the said conclusion was reached by the Income-tax Officer.
3. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals), Jabalpur, but did not appear to pursue the same before him and, therefore, it was dismissed by ex parte order dated July 13, 1981. The Commissioner of Income-tax (Appeals) also took into consideration the fact that the statement of the District Excise Officer had also been recorded by the Income-tax Officer, who had clearly stated that the said excise contracts granted in favour of the individuals were granted personally to the licensees named therein.
4. The assessee carried the matter in appeal before the Tribunal. The Accountant Member of the Tribunal held that the Income-tax Officer had not followed the procedure prescribed under Section 186(1) as he had not sought previous approval of the Inspecting Assistant Commissioner and, therefore, the order passed by the Income-tax Officer under Section 186(1) was irregular. The Judicial Member, however, held that the order was ab initio void and was not curable and, accordingly, on this difference of opinion, the matter was referred to the Third Member. The Third Member, however, remitted the matter back to the Bench which initially heard the appeal for decision as to whether Section 186(1) of the Act at all applied to the case. Ultimately, the Tribunal held that before the Income-tax Officer the question was as to whether the status of the assessee was that of a firm or an association of persons. According to the Tribunal, when the Income-tax Officer refuses registration, he does not change the status. It remains that of a firm. Hence, the question of status was one which was primarily to be determined in the assessment under Section 143 or 144 of the Act. The Tribunal held that if the status was determined as a firm, the order under Section 185 will determine as to how it was to be taxed. Thus, disagreeing with the Income-tax Officer that the order under Section 186 itself determines the status as an association of persons, the Tribunalheld that the order passed by the Income-tax Officer was not valid and allowed the appeal.
5. Against the order of the Tribunal, the Revenue preferred an application under Section 256(1) for reference of the question arising therefrom to this court, which was dismissed but on an application having been made under Section 256(2) of the Act to this court, a statement of the case was called for and hence the above question has been referred for the opinion of this court.
6. The core question that arises for determination in the present case is the effect of the excise licence having been obtained by two partners of the firm vis-a-vis the status of the firm and whether on this ground, the continuance of registration could have been declined. In CIT v. Pagoda Hotel and Restaurant : [1974]93ITR271(MP) , it was held that since the privilege obtained in the name of individuals could not be transferred without permission of the Collector as required, partnership to the extent of the said business under the privilege was illegal but the partnership with regard to the other business, namely, running of hotel, was not affected and there was no reason why partnership with regard to the other business could not be registered under the Income-tax Act. Likewise, in CIT v. Sheonarayan Harnarayan 0065/1972 : [1975]100ITR213(MP) , this court held that since there cannot be any partnership for the working of such a privilege of supply or sale of liquor granted to individuals unless there was a written permission of the Collector, duly endorsed on the licence, the partnership firm in contravention of this provision was void ab initio. It was further held by this court in the said case that mere intimation of partnership under Rule VI of the M. P. Excise Rules was not enough and the partnership was void in so far as it related to the liquor business and licence granted to the individuals, and was not entitled to registration thereof.
7. In the case in hand, it is admitted that the partnership was already in existence and declaration in Form No. 12, as required by Sub-section (7) of Section 184, had duly been furnished. There was no allegation that there was any change in the constitution of the firm or the shares of the partners. Under these circumstances, it could not be said that any firm was constituted for acquiring a licence under the Excise Act with a view to transfer the privilege conferred by the licence to the firm without permission of the Collector. Once registration had been effected under Section 184, it could enure to the benefit of the firm for every subsequent assessment year, as provided in Section 184(7) unless refusal for any year was recorded, as required by Sub-section (3) of Section 185. For the purposesof Section 186(1) of the Act, the Assessing Officer had to come to a conclusion that there was no genuine firm in existence as was registered or deemed to have been registered or had the effect of registration under Section 184(7), Thus, even as per the ratio of the cases of Sheonarayan Harnarayan 0065/1972 : [1975]100ITR213(MP) and Pagoda Hotel and Restaurant : [1974]93ITR271(MP) , the genuineness of the firm, in so far as it related to its other activities which are not clear from the record before us, could not have been doubted,
8. A similar question arose before the Indore Bench of this court in M. C. C. No. 186 of 1988 ; CIT v. Omprakash Premchand and Co. : [1997]227ITR590(MP) with the only difference in the factual matrix that the licence had been granted by the Excise Department in the name of the firm itself and this court upheld the order of the Tribunal directing assessment of the firm as a registered firm. In the present case, however, it is clear that licence had been granted in the names of the two partners of an existing firm and no endorsement was made on the licence about transfer of the privilege in favour of the firm. The said business activity, therefore, could not have been taken as activity of the firm and to that extent, it could not be considered to be the business of the firm. However, as held in CIT v. Pagoda Hotel and Restaurant : [1974]93ITR271(MP) , the partnership was not void with regard to its other business, if any, as the said partnership had not been formed after obtaining of the licence in the names of the individuals but was a pre-existing firm. In this view of the matter we find ourselves in complete agreement with the order of the Tribunal reversing the order of the Income-tax Officer and answer the reference ' against the Revenue and in favour of the assessee.