Liquor business partnership with non-licensees may fail registration where it breaches licensing rules and lacks genuine firm status.

A partnership firm carrying on liquor business may be denied registration under the Income-tax Act where it is constituted by licensee partners together with non-licensee partners without permission under the liquor licensing law. The stated legal position is that, in breach of rule 7 of the Punjab Liquor Licence Rules, 1956, such an arrangement is not treated as a genuine firm for registration purposes because it conflicts with the licensing regime governing liquor vends. On that basis, registration is said to be rightly refused.

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Issues: Whether registration to an assessee-firm carrying on liquor business could be refused under section 185(1) of the Income-tax Act, 1961, where the firm was constituted by licensee partners along with non-licensee partners without permission under the liquor licensing law.

Analysis: The issue was answered by applying the earlier view that a partnership formed by a licensee with non-licensees for running a liquor business is not a genuine firm for the purpose of registration under section 185(1) of the Income-tax Act, 1961. The decisive consideration was the breach of rule 7 of the Punjab Liquor Licence Rules, 1956, because the firm was constituted in a manner contrary to the licensing regime governing liquor vends.

Conclusion: Registration was rightly refused. The question referred was answered in the negative, in favour of the Revenue and against the assessee.

Ratio Decidendi: A partnership firm formed for liquor by adding non-licensee partners in breach of the applicable liquor licence rules cannot be treated as a genuine firm entitled to registration under section 185(1) of the Income-tax Act, 1961.

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