Liquor licence terms permitting partnership but barring transfer do not make the firm illegal for tax registration.

A liquor licence in Form FL II under the U.P. Excise Rules did not bar the licensee from entering into a partnership; it only prohibited sub-letting or transfer. On that basis, the partnership was not illegal, and the refusal of registration under section 26A of the Indian Income-tax Act, 1922 rested on an incorrect assumption about the applicable excise rule. The firm was therefore entitled to registration, and the referred question was answered in favour of the assessee.

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Issues: Whether the firm was entitled to registration under section 26A of the Indian Income-tax Act, 1922 when the liquor licence did not prohibit partnership but only prohibited sub-letting or transfer.

Analysis: The licence was issued in Form FL II under the U.P. Excise Rules and did not contain any restriction against the licensee entering into partnership. It merely barred sub-letting or transfer of the licence. Since the partnership was not prohibited by the licence terms, the question of illegality of the partnership did not arise. The order refusing registration had proceeded on an incorrect assumption that a different excise rule applied.

Conclusion: The firm was entitled to registration under section 26A of the Indian Income-tax Act, 1922 and the answer to the referred question was in the affirmative, in favour of the assessee.

Final Conclusion: The appeals succeeded and the refusal of registration was set aside.

Ratio Decidendi: Where a liquor licence does not prohibit the licensee from entering into partnership and only forbids sub-letting or transfer, the partnership is not illegal for purposes of registration under the Income-tax Act.

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