Registration of liquor business partnership upheld where all partners were existing licence-holders and no unlawful partner was introduced.

Cancellation of a firm's registration under section 186 of the Income-tax Act was held unjustified where all four partners were already recognised liquor licence-holders and the partnership merely pooled their existing licences to carry on the business. The applicable Punjab Liquor Licence Rules permitted a licence to be granted to a partnership and contemplated changes only by adding or removing partners; no unauthorised stranger was introduced and no new partner was unlawfully added. The cited contrary High Court decision was distinguished because, there, the inducted persons were not licencees. Mere association of licensed persons in partnership does not, by itself, render the firm non-genuine or unlawful for tax purposes.

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Issues: Whether the cancellation of registration of the firm under section 186 of the Income-tax Act, 1961 was justified on the ground that the partnership was invalid because the partners had pooled two liquor licences in alleged violation of the Punjab Liquor Licence Rules, 1956.

Analysis: The partnership consisted of four persons, each of whom was already a recognised licensee in respect of one of the two vends. The relevant rules permitted a licence to be granted to a partnership, required the persons comprising the firm to be specified in the licence, and provided a mechanism only for adding or removing partners. On the facts, no stranger was introduced as a partner and no new partner was added without authority. The Court distinguished the cited Punjab and Haryana High Court decision because there the persons inducted were not licencees, whereas here all four partners were licence-holders. It also relied on the principle that mere association of licensed persons in partnership for carrying on the liquor business does not, by itself, make the firm non-genuine or unlawful for income-tax purposes.

Conclusion: The cancellation of registration was erroneous, and the firm was entitled to registration.

Ratio Decidendi: A firm is not denied registration under section 186 of the Income-tax Act, 1961 merely because licensed persons, already authorised in relation to the liquor business, associate in partnership to carry on that business, unless the partnership itself is shown to be unlawful or contrary to the governing licence conditions.

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