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Commissioner of Income-tax Vs. Sham Lal Kewal Krishan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Case No. 28 of 1977
Judge
Reported in(1986)54CTR(P& H)266; [1986]159ITR330(P& H)
ActsIncome Tax Act, 1961 - Sections 184; Punjab Excise Act; Punjab Excise Rules
AppellantCommissioner of Income-tax
RespondentSham Lal Kewal Krishan
Advocates: Ashok Bhan and; Ajay Mittal, Advs.
Excerpt:
.....filing an appeal would commence from the date when the parties concerned acquire knowledge of passing of the said order. - the appellate assistant commissioner held that it had come into existence and the tribunal endorsed that view. ,is clearly distinguishable, as the activity had been carried on by a reconstituted firm whose very existence at the outset was not recognised under the rules framed under the punjab excise act, yet the business of possessing and selling liquor was carried on by the firm in violation of the provisions of the punjab excise act and the rules framed thereunder, as also the conditions of the licence, right from its inception......assistant commissioner of income-tax to the income-tax officer to grant registration to the assessee-firm for the assessment year 1971-72 (and in the other case 1972-73)?' pertaining to two succeeding assessment years said to arise out of the orders of the income-tax appellate tribunal in the case of the respondent-firm. these are the subject matters of income-tax case no. 28 of 1977 and income-tax case no. 1 of 1978, respectively. 2. the assessee-firm was constituted with effect from april 1, 1970. a partnership deed in regard thereto was executed on april 6, 1970. the object of the firm was to run a liquor contract under licences obtained from the government. under those licences, the assessee could undertake wholesale vending as also retail sale within the specified areas. the.....
Judgment:

M.M. Punchhi, J.

1. By two separate applications under Section 256(2) of the Income-tax Act, 1961 (for short, 'the Act'), the Commissioner of Income-tax, Patiala, has raised the following question of law :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the direction of the Appellate Assistant Commissioner of Income-tax to the Income-tax Officer to grant registration to the assessee-firm for the assessment year 1971-72 (and in the other case 1972-73)?'

pertaining to two succeeding assessment years said to arise out of the orders of the Income-tax Appellate Tribunal in the case of the respondent-firm. These are the subject matters of Income-tax Case No. 28 of 1977 and Income-tax Case No. 1 of 1978, respectively.

2. The assessee-firm was constituted with effect from April 1, 1970. A partnership deed in regard thereto was executed on April 6, 1970. The object of the firm was to run a liquor contract under licences obtained from the Government. Under those licences, the assessee could undertake wholesale vending as also retail sale within the specified areas. The assessee applied for registration of the firm under Section 184 of the Act, specifying therein the individual shares of the partners as allocated in the instrument of partnership, which was appended aloagwith. During the financial year 1970-71 relevant to the assessment year 1971-72, the business premises of the assessee were searched on November 29, 1970. Books of account for the period from April 1, 1970, till the date of search were seized. During the course of the proceedings under Section 132(5) of the Act, the assessee produced a second set of accounts called set No. 2, wherein were recorded certain transactions not finding any place in the books of accounts seized on November 29, 1970, referred to as set No. 1. Those accounts disclosed that the assessee had violated the provisions of the Punjab Excise Act and the Rules made thereunder. The Income-tax Officer recorded the statement of one of the partners of the assessee-firm to come to such conclusion. The assessee, though assessed in the status of a firm, was denied the benefit of registration. The Appellate Assistant Commissioner, however, reversed that view, holding that the contract of partnership as such between the partners was not illegal and that there was no intention to disobey the law or to commit any illegal act at the time when the partnership was entered into. The appeal of the Revenue was dismissed by the Tribunal holding as follows :

'13. The assessment in the case has been completed on the basis of the activities of the respondent-partnership firm which impliedly means acceptance, on the part of the Revenue, the existence of a firm as indicated in the instrument of partnership dated 6-4-1970. There is no controversy in this case that any of the requirements as laid down under Section 184 were lacking in the case. On the contrary, the partnership firm for which the assessee claimed registration benefit of Section 185, is evidenced by a regular deed in which the individual shares of the partners are specified and further the allocation has been made in accordance with the partnership agreement. Since the application under rules was also made by the firm in time and when the genuineness of the partnership was not doubted, there was absolutely no justification for the taxing authorities to haveattempted to take support from the Indian Contract Act and the violations of the Punjab Excise Act to deny Section 185 benefit to the respondent-firm. On the facts before us, we hold that the partnership agreement on the basis of which registration was sought was not formed for any unlawful purpose. On the contrary, the purpose of the partnership was lawful activities and such activities, in fact, were carried out. May be that some violations were committed by the firm or its partners against the Punjab Excise Act but the provisions of such Act were sufficient to take care of any violation under that particular statute and the Income-tax Act, 1961, could not and should not be brought into play for those violations.

14. The ingredient of mutual agency which is vital to the partnership agreement is also not challenged by the Revenue and, as a matter of fact, the statement of one of the partners having been relied on by the income-tax authorities, gave a clear indication that such element of mutual agency was very much there in running the partnership affairs of the respondent-firm.'

3. The Tribunal has found as a fact that the partnership had legally and factually come into existence. There was a partnsrship deed in evidence thereof. The purpose of the partnership was to carry on licensed activities. The mere fact that some activity out of several activities turned out to be illegal did not reader the constitution of the firm illegal or disentitle it to registration and, in the suceeding year, renewal thereof. It had to be ascertained by the authorities, and rightly, whether, in fact, the registered firm had taken birth as envisaged under Section 184 of the Act. The Appellate Assistant Commissioner held that it had come into existence and the Tribunal endorsed that view. The advisory jurisdiction of this court cannot be invoked to correct any errors of fact or even of inferences in respect of a given set of facts. This court in CIT v. Suraj Bhan & Co. , in somewhat similar circumstances, declined such a prayer when the assessee-firm therein was additionally found to indulge in speculation business, an activity unlawful, which did not debar the Income-tax Tribunal to hold as a fact that the subsistence of the partnership instrument evidencing the creation of the firm and the element of mutual agency, justified the registration of the firm. The case cited by the Revenue in CIT v. Hardit Singh Pal Chand & Co. , is clearly distinguishable, as the activity had been carried on by a reconstituted firm whose very existence at the outset was not recognised under the rules framed under the Punjab Excise Act, yet the business of possessing and selling liquor was carried on by the firm in violation of the provisions of the Punjab Excise Act and the Rules framed thereunder, as also the conditions of the licence, right from its inception.

4. The upshot of the above discussion in that those are not cases for the issuance of mandamus as asked for. Accordingly, the prayer is declined. No costs.


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