Illegality of liquor-business partnership defeats income-tax registration, while supported factual findings on partner participation remain undisturbed.

A partnership engaged in liquor business that is formed in breach of licence conditions and excise rules is treated as illegal for income-tax purposes and cannot claim registration as a valid firm. Applying that principle, the adverse orders cancelling registration for earlier years and refusing registration for later years were upheld. The objection that Shankarlal or Kamlabai did not actually participate in the licensed business was also rejected because the finding that Shankarlal was not a sleeping partner was treated as a factual determination supported by the record. The Tribunal's view was sustained and the questions were answered against the assessee.

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Issues: (i) Whether cancellation of registration granted to the assessee-firm for assessment years 1975-76 to 1978-79, and refusal of registration for assessment years 1979-80 and 1980-81, was justified on account of breach of the Excise Rules; (ii) Whether the contention that Shankarlal/Kamlabai did not actually participate in carrying on the licensed business was rightly rejected.

Issue (i): Whether cancellation of registration granted to the assessee-firm for assessment years 1975-76 to 1978-79, and refusal of registration for assessment years 1979-80 and 1980-81, was justified on account of breach of the Excise Rules.

Analysis: The governing principle applied was that a partnership formed in violation of the liquor licence conditions and the relevant excise rules is illegal for income-tax purposes and cannot claim registration as a valid firm. The court followed earlier binding decisions holding that where the licence prohibited such partnership, registration under the Income-tax Act could not be sustained. On that basis, the adverse orders for both the earlier and later assessment years were upheld.

Conclusion: The answer was against the assessee and in favour of the Revenue.

Issue (ii): Whether the contention that Shankarlal/Kamlabai did not actually participate in carrying on the licensed business was rightly rejected.

Analysis: The finding that Shankarlal was not a sleeping partner was treated as a finding of fact supported by the record. In view of that factual determination, the objection that he or Kamlabai did not ically participate in the business had no merit.

Conclusion: The answer was against the assessee and in favour of the Revenue.

Final Conclusion: All questions referred were answered in the negative so far as the assessee was concerned, and the Tribunal's view was sustained.

Ratio Decidendi: A partnership carrying on liquor business in violation of licence conditions and excise rules is not entitled to registration under the Income-tax Act, and a factual finding that a partner was not merely a sleeping partner will not be disturbed in reference jurisdiction when supported by the record.

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