Badri Vishal Jariya and Co. vs Commissioner of Income Tax

D.M. Dharmadhikari, J.—This reference has been made u/s 256(1) of the income tax Act, 1961. The following question has been referred to for decision:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that assessee''s application for registration u/s 185 of the income tax Act, 1961, was rightly rejected?

The question referred arises on the following facts. The reference relates to the assessment for the period 1972-73. In the aforesaid period Badri Vishal Jariya had obtained a licence for dealing in country liquor under the provisions of M.P. Excise Act. Soon after grant of licence in his favour for dealing in country liquor a partnership firm was constituted by deed dated 1-1-1971 consisting of Badri Vishal Jariya himself as a partner with 6 other partners. The business of country liquor was transferred by Badri Vishal Jariya to the firm. On 9-4-1971, an application was made to the District Excise Officer for permission to transfer the licence in favour of the partnership firm. The matter was duly forwarded by the District Excise Officer on 17-12-1971 to the Excise Commissioner, Gwalior. An application was made to the ITO, Sagar, on 29-3-1972 u/s 185 of the Act for registration of the firm. The ITO by order dated 10-2-1976 refused to grant registration to the firm on the ground that the Collector had not permitted transfer of the licence in favour of the firm in accordance with provisions contained in M.P. Excise Act and Rules framed thereunder. The AAC also by order dated 4-11-1977 maintained the order of the ITO rejecting the registration of the firm. The petitioner took up the matter in second appeal before the Tribunal, Jabalpur Bench. In the meantime, by communication dated 2-2-1979, the Collector granted the necessary permission for transfer of licence in favour of the partnership firm. The aforesaid fact was brought to the notice of the Tribunal, yet the learned Members of Tribunal by order dated 14-2-1979 refused to grant registration to the firm under the provisions of section 185. It is against the aforesaid order of the Tribunal that this reference has been made at the instance of the assessee.

The learned counsel for the assessee submits that the point involved is squarely covered by a Division Bench decision of this Court in Commissioner of Income Tax Vs. Shantilal Mehta and Co.,

We have also heard the learned counsel Shri V.K. Tankha appearing for the department who made an attempt to distinguish that decision on the ground that on the date the registration was claimed and rejected both by the ITO and the appellate authority, there did not exist any permission of the Excise Department for transfer of liquor licence. It is argued that the grant of permission subsequently can be of no avail to claim registration at the stage of the case in the Tribunal.

Having considered the submissions made by the learned counsel for parties and having gone through the judgment of the Division Bench in case of Shantilal Mehta & Co. (supra), we are of the view that this reference deserves to be answered in favour of the assessee, since the point involved is covered by the above decision of the Division Bench. A similar argument advanced on behalf of the department in that case on similar facts was answered in the following words:

... We are unable to accept the contention of the learned standing counsel for the Department that as the partnership entered into, in breach of rule VI, was illegal and void, it could not be validated by the grant of a subsequent permission. The whole thing depends upon the construction of rule VI. As, in our opinion, rule VI, on a reasonable construction, empowers the grant of a retrospective permission, we find no difficulty in holding the partnership valid from the very beginning.... (p. 314)

Relying on the aforesaid decision (supra), the reference is answered in favour of the assessee, thus:

The Tribunal was not right in holding that the assessees application for registration u/s 185 was rightly rejected.

There shall be no order as to costs.