Partnership assessment under income tax law turns on statutory compliance; mere use of a partner's liquor licence is insufficient to treat it as an AOP.

After the 1993-94 amendments to sections 184 and 185 of the Income-tax Act, a partnership is assessed as a firm when the deed, individual shares and filing requirements are satisfied, and assessment as an Association of Persons is confined to the specific statutory exceptions. The record did not show any factual transfer of the liquor licence or its privileges from the partner to the firm, and mere use of the licence in the firm's business was not enough to invalidate the partnership for tax purposes. The assessment as an Association of Persons was therefore set aside, and the assessee had to be assessed in the status of a firm.

---

---

Issues: Whether the assessee-firm, carrying on liquor business through a licence standing in the name of one partner, was liable to be assessed as a firm or as an Association of Persons for the assessment years 1993-94 to 1996-97.

Analysis: Under the amended scheme of sections 184 and 185 of the Income-tax Act, 1961, applicable from assessment year 1993-94, a firm is to be assessed as such if the statutory conditions regarding an instrument of partnership, specification of individual shares, and filing of the requisite copy of the deed are satisfied. The provision for assessment as an Association of Persons is confined to the limited situations contemplated by section 184(5) and section 185, particularly where the default consequences of section 144 operate or the statutory requirements are not met. The material on record did not establish any factual transfer of the liquor licence or its privileges by the partner to the firm. Mere use of the licence by the firm, without more, was insufficient to treat the partnership as invalid for income-tax purposes.

Conclusion: The assessee was entitled to be assessed as a firm and not as an Association of Persons.

Final Conclusion: The assessment orders treating the assessee as an Association of Persons were set aside and the Assessing Officer was directed to assess the assessee in the status of a firm.

Ratio Decidendi: After the 1993-94 amendments, a partnership fulfilling the statutory requirements must be assessed as a firm unless the specific statutory exceptions apply, and mere exploitation of a liquor licence in the name of a partner does not by itself prove transfer of the licence or justify assessment as an Association of Persons.

---