Partnership using one partner's liquor licence did not amount to illegal transfer, so registration could not be refused.

Continuation of registration under section 184(7) depends on compliance with the statutory conditions, and the tax authority may still examine under section 185 whether the firm is genuine and constituted as shown in the partnership deed. Earlier registration does not bar that enquiry. On the facts, the firm was held to be a genuine partnership, so continuation of registration was justified. The excise-law objection also failed: a partnership using a liquor licence standing in one partner's name does not amount to a legal transfer of the licence, and absence of prior permission under rules 38 and 39 of the Andhra Pradesh Foreign Liquor and Indian Liquor Rules did not make the partnership illegal or disentitle it to registration.

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Issues: (i) Whether the assessee-firm was entitled to continuation of registration under section 184(7) of the Income-tax Act, 1961 notwithstanding the Revenue's objection based on the alleged lack of a genuine firm and the excise-law objection; (ii) Whether formation of the partnership and use of the liquor licence standing in the name of one partner violated rules 38 and 39 of the Andhra Pradesh Foreign Liquor and Indian Liquor Rules so as to disentitle the firm to registration.

Issue (i): Whether the assessee-firm was entitled to continuation of registration under section 184(7) of the Income-tax Act, 1961 notwithstanding the Revenue's objection based on the alleged lack of a genuine firm and the excise-law objection.

Analysis: Section 184(7) gives continuing effect to registration where the conditions prescribed therein are satisfied, but the authority is still entitled to enquire under section 185 whether a genuine firm existed and whether its constitution matched the instrument of partnership. The fact that registration had been granted in earlier years did not foreclose such enquiry. On the facts, however, the firm was found to be a genuine partnership carrying on business in the manner disclosed by the deed, and the Revenue's objection failed once the excise-law contention was rejected.

Conclusion: The assessee was entitled to continuation of registration; the Revenue's objection on this issue failed.

Issue (ii): Whether formation of the partnership and use of the liquor licence standing in the name of one partner violated rules 38 and 39 of the Andhra Pradesh Foreign Liquor and Indian Liquor Rules so as to disentitle the firm to registration.

Analysis: Rule 38 prohibits transfer of licence, while rule 39 requires prior permission for inclusion or exclusion of partners. The governing principle applied was that where a licensee enters into a partnership for sharing profits and losses from the use of the licence, there is no transfer of licence in the eye of law, and the absence of prior permission does not render the partnership illegal. The partnership therefore remained valid inter se and was not hit by public policy or section 23 of the Indian Contract Act, 1872. On the facts, the licence was only exploited by the firm through one partner and there was no legal transfer of the licence.

Conclusion: There was no contravention of rules 38 and 39, and the firm was not disentitled to registration on that basis.

Final Conclusion: The departmental appeal failed because the firm's use of the licence did not amount to an illegal transfer or illegal partnership, and the continuation of registration could not be refused on the excise-law objections raised.

Ratio Decidendi: A partnership formed to exploit a licence standing in the name of one partner does not amount to a transfer of licence, and breach of a permission requirement under excise rules does not by itself render the partnership illegal or deny registration under the Income-tax Act unless the governing rule expressly so provides.

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