TMI Blog2005 (5) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-firm and the assessee-firm did not hold the requisite license to carry on the liquor business and the firm was exploiting the license which was in the name of one of the partners and doing the business. The Assessing Officer was of the view that the assessee-firm has violated the provisions of Kerala Abkari Act and the relevant Rules. After considering the decision of the Hon'ble Kerala High Court in the case of Narayanan Co. v. CIT [1997] 223 ITR 209 (FE), the Assessing Officer was of the opinion that the transfer of Abkari licence is illegal, and in such circumstances it cannot be considered that the assessee-firm was in existence. He accordingly completed the assessment of the assessee under section 143(3) read with section 147 of the Income-tax Act, treating the assessee-firm as an AOP, and in consequence he disallowed the salary and remuneration paid to the partners while determining the total income of the assessee. While completing the assessment of the assessee-firm in the status of an AOP, the Assessing Officer applied the maximum marginal rate to the total income computed and in addition to the tax, he also charged interest under section 234A and section 234B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by your petitioner. 4. Provisions for assessment of the partnership firm has changed radically by the Finance Act, 1992 with effect from 1993-94 and the Act clearly state the provision under which the firm is to be assessed as a firm. 5. There was no default committed by your petitioner to come under the provisions of section 186 to be assessed as an AOP and refusal of registration of the firms started only in the Kerala High Court decision of Narayanan Co. which was subsequently confirmed by the Apex Court. But a recount decision in a SLP the Apex Court had admitted the petition on the question of registration on the same point. As such the merits as well as on a legal issue the CIT(Appeals) went wrong in taking the status as AOP. 6. Other grounds that may be allowed at the time of hearing." 5. The only issue involved for our adjudication is, whether on the facts and circumstances of the case, the assessee is entitled to be assessed as a firm as such. 6. We have heard the learned A.R. for the assessee and the ld. D.R. for the revenue at length. The ld. A.R. has filed a Hearing Note as well as copy of an unreported decision of the Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls). 7. We have considered the facts of the case as per record before us. Sections 184 and 185, which regulates the assessment of the assessee, have undergone major changes by the Finance Act, 1992, which are applicable from the assessment year 1993-94. From the assessment year 1993-94, a firm is taxed as a separate entity. The distinction between the registered and unregistered firm has been done away with. As per the amended provisions of sections 184 and 185 of the Income-tax Act, with which we are concerned, the firm is assessed as a firm, if the three basic conditions are fulfilled, namely (1) the firm is evidenced by instrument, (2) the individual shares of the partners are specified in that instrument, and (3) a certified copy of the instrument of partnership shall accompany the return of income of the previous year relevant to the assessment year 1993-94, or subsequent year in respect of which the assessment of the firm is first time sought. Apart from the fulfilment of the above basic conditions, there are some additional conditions which a firm has to satisfy to get the status of partnership firm as such, which are (1) whenever during the previous year a change has take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose circumstances were not in existence for treating the assessee-firm as an AOP. Moreover, section 185 of the Act bars the assessee to be assessed as a firm if the conditions mentioned in section 184 have not been complied with. Hence, in our considered opinion, there is very limited scope for Assessing Officer to treat the firm as an AOP, save in the circumstances specified in section 184(5), read with section 144 of the Act, or section 185 of the Act. In the old provisions, the Assessing Officer had to determine the genuineness of the firm and the conditions requisite were also totally different. In case the Assessing Officer was satisfied, then he has to pass an order granting registration to the firm and treating it as a registered firm, and if he is not satisfied regarding the genuineness of the firm, then he used to assess the firm as an the unregistered firm. That was the legal position under the old provisions of sections 184 and 185. Considering the newly inserted provisions of sections 184 and 185, and also the circular by the Central Board of Direct Taxes (Circular No. 636 dated 31-8-1992) explaining the provisions of taxation of income of the firm, more particularly pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that forming a partnership by an abkari licensee and exploiting the licence making the business of the firm illegal? 4. Whether, on the facts and in the circumstances of the case, the firm was entitled to registration under section 185(1)(a) of the Income-tax Act, 1961, for the assessment years 1980-81, 1981-82 and 1982-83? 11. It is clear from the facts of the case before the Hon'ble High Court that the issue was relating to registration of the firm under the old section 185(1)(a) of the Income-tax Act and whether forming a partnership by an abkari licensee and exploiting the licence amount to transfer of licence, making the business of the firm illegal. The short facts involved in the said case were that there were two different assessee-firms. During the accounting period relevant to the assessment year 1981-82, the said firms carried on abkari business exploiting the licence granted in the name of one of the partners of the said firm. The said firms applied for registration under section 184 of the Act. The ITO was of the view that there was transfer of the licence obtained in the name of one the partners when the firm was allowed to exploit the licence. The ITO refused to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement by licence-holder would not amount to transfer of the licence, thereby violating the conditions on which the licence is granted. It is further held that as held in the case of Jer Co. v. CIT [1971] 79 ITR 546 (SC) the word "transfer" did not amount to an express prohibition of the entry by the holder of the licence into partnership. At the same time the said decision did not hold that the entry into partnership by licence-holder may not amount to transfer in certain circumstances. A condition expressly prohibiting the entry into a partnership by licence-holder would operate even if there were no transfer in fact. But when all that is forbidden is a transfer, that must be factually established. The Hon'ble Apex Court further held that "apart from the fact of mere utilization of the licence, nothing further has been recorded by the High Court to come to the conclusion that there has been a transfer of the licence or any rights thereunder to the appellant-firm, Neither the partnership deed nor any other facts have been brought on record which would show that the liquor licence and the privileges thereunder were brought in by the licence-holder by way of his capital contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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