Illegality in one business activity does not by itself defeat firm registration when a lawful business continues

A firm carrying on a lawful tyre retreading business could not be denied renewal of income-tax registration merely because one additional activity, plying buses, was alleged to be illegal. The court treated the legality of the ancillary activity as insufficient to invalidate the firm's constitution where the firm continued to conduct a lawful business. On that basis, the alleged illegality of one line of activity did not justify refusal of registration. The assessee was therefore entitled to renewal of registration, and the income-tax authorities' refusal was held unjustified.

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Issues: Whether renewal of registration of a firm could be refused because one of its business activities was alleged to be illegal, although the firm was admittedly carrying on another lawful business.

Analysis: The firm had been constituted for carrying on tyre retreading business, which was not challenged as unlawful. A later activity of plying buses was treated by the revenue authorities as illegal, and on that basis the benefit of registration was declined. The legal question was whether an illegal ancillary activity, if any, rendered the entire firm invalid for income-tax registration purposes. It was held that where a firm carries on more than one activity, the illegality of one activity does not by itself invalidate the constitution of the firm or justify refusal of registration when the firm continues to carry on a lawful business.

Conclusion: The question was answered in the negative. The assessee was entitled to renewal of registration and the refusal by the income-tax authorities was not justified.

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