Liquor licence breach defeats firm registration where non-licensee partners are admitted without required permission.

A partnership firm formed to run a liquor business, where the licence stood in the name of one partner and the other partners were admitted without permission from the licensing authority, was treated as contrary to the Punjab liquor licence rules. Because the non-licensee partners were not shown to be excluded from the business affairs, the firm could not be regarded as a genuine firm for registration purposes under section 185(1) of the Income-tax Act, 1961. Registration and continuation of registration were therefore refused.

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Issues: Whether a partnership firm carrying on liquor business, constituted by a licensee with non-licensee partners without permission from the competent authority under the Punjab Excise Act and the Rules, was entitled to registration or continuation of registration under section 185(1) of the Income-tax Act, 1961.

Analysis: The firm was formed for carrying on liquor business, but the licence stood in the name of one partner in his individual capacity. The remaining partners were admitted without permission from the licensing authority, and there was nothing to show that they were excluded from the affairs of the business. In view of the earlier binding view that such a firm breaches rule 7 of the Punjab Liquor Licence Rules, 1956, it cannot be treated as a genuine firm for the purposes of registration under section 185(1) of the Income-tax Act, 1961.

Conclusion: Registration and continuation of registration were rightly refused, and the issue is answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A partnership firm formed for liquor by a licence-holder with non-licensee partners, in breach of the liquor licence rules and without required permission, is not entitled to registration under section 185(1) of the Income-tax Act, 1961.

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