S.K. Mal Lodha, J. - (1.)THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short " the Tribunal " herein), has referred the following questions for our decision :
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that on account of violation by the partners of the firm of Sub-rule (4) of Rule 63 of the Rajasthan Excise Rules, 1956, a firm valid in law has not come into existence in view of the provisions of Section 23 the Indian Contract Act, 1872 ?

(2.)IF the answer to the aforesaid question is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the benefit of continuation of registration granted to the applicant firm earlier by the Income-tax Officer could be cancelled by him under Section 186 of the Income-tax Act, 1961, in respect of assessment year 1967-68 ?
Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that on account of violation by the partners of the firm of Sub-rule (4) of Rule 63 of the Rajasthan Excise Rules, 1956, a firm valid in law has not come into existence in view of the provisions of Section 23 of the Indian Contract Act, 1872, and that, therefore, the benefit of continuation of registration could not be allowed to it in respect of the assessment year 1968-69?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the excise licence obtained in respect of the financial year 1968-69 corresponding to the assessment year 1969-70 was obtained by a fraudulent representation by the two major partners and the minor partner of the firm and that any agreement entered into with a view to share the gains of such a contract would be void, even though the minor had become major during the course of the year and a new partnership deed has been executed on October 29, 1968, on the minor attaining majority ?

If the answer to the aforesaid question is in the affirmative, whether the Tribunal is justified in holding that the benefit of registration could not be granted to the assessee-firm in respect of the assessment year 1969-70?"

2. The assessee, M/s Malu Khan Lalu Khan, was a partnership firm. For the assessment years 1967-68, 1968-69 and 1969-70, the accounting period for the aforesaid assessment years ended on March 31, 1967, March 31, 1968, and March 31, 1969, respectively. The assessee-firm was constituted by means of a partnership deed dated July 1, 1965. The preamble of that partnership deed dated July 1, 1965, is as follows:

"This deed of partnership made this 1st day of July, in the year of Christ one thousand nine hundred and sixty-five between Malu Khan s/o Mehtab Khan, aged 39 years, resident of Bikaner, party hereto of the FIRST PART, Mohamdu Khan s/o Chimankhan, aged 40 years, resident of Bikaner, party hereto of the SECOND PART, whereas the parties hereto of the FIRST and SECOND parts have taken a contract for the sale of country liquor for Alaksagar well, Bikaner, and whereas they have agreed to admit one Shri Lalu Khan, son of Hussain Khan, a minor below the age of 18 years to the benefits of the partnership and have since April 1, 1965, been carrying on the said business under the name and style of M/s. Malu Khan Lalu Khan along with a minor, Shri Lalu Khan, admitted to the benefits of the partnership and whereas to avoid future differences, the parties hereto have agreed to reduce the terms of the partnership into writing and now this indenture witnesseth that they have agreed as under :"

3. Clause 3 of the partnership deed is as under :

" 3. The partnership business shall be that of acting as dealer, contractor and supplier in country liquor in the area known as Alaksagar well Bikaner as per the tender and agreement with the Government of Rajasthan."

4. It was provided therein that Lalu Khan shall be entitled to profits of 49 np, in a rupee and in the case of loss the same shall be borne by the two partners, Mohd. Khan and Malu Khan, half and half. The partnership business was for a period of one year ending on March 31, 1966, as per the terms of the contract with the Government of Rajasthan or for such further period as may be extended by the Government. The minor, Lalu Khan, became major on August 2, 1968, and a new partnership deed dated October 29, 1968, was executed on his attaining majority making Lalu Khan a full-fledged partner of the partnership firm. The preamble of that partnership deed runs as under :

" This deed of partnership made this 29th day of October in the year of Christ one thousand nine hundred sixty-eight between Malu Khan s/o. Mehtab Khan, aged 43 years, resident of Bikaner, party hereto of the FIRST PART, Mohamdu Khan s/o Chimankhan, aged 44 years, resident of Bikaner, party hereto of the SECOND PART and Lalu Khan s/o Hussain Khan, aged 19 years, resident of Bikaner, party hereto of the THIRD PART, whereas the parties hereto of the FIRST AND SECOND parts along with the party hereto of the third part as minor being admitted to the benefits of partnership were carrying on a partnership business under the name and style of M/s. Malu Khan Lalu Khan under an instrument of partnership dated October 18, 1966, whereas the party hereto of the third part, namely, Shri Lalu Khan, has become major and has opted to continue as partner in the said firm from August 2, 1968, when he attained the age of majority, the parties hereto have been carrying on the said business in partnership with all existing liabilities, assets and rights in partnership and whereas to avoid future differences, the parties hereto have agreed to reduce the terms of the partnership into writing and now this indenture witnesseth that they have agreed as under : "

5. Clause 3 of the partnership deed dated October 29, 1968, is as follows :

" 3. The partnership business shall be that of acting as dealer, contractor and supplier in country liquor as per the tender and agreement with the Government."

The partnership firm was granted registration on the basis of the partnership deed dated July 1, 1965, in respect of the assessment year 1966-67 in terms of Section 185 of the Income-tax Act (No. XLIII of 1961) (for short " the Act" herein). The benefit of continuation of registration was also granted in respect of the assessment year 1967-68. It appears that the Income-tax Officer on an enquiry from the excise authorities came to know that even the minor, Lalu Khan, had given the bid in the auction to obtain the licence of the said country liquor contract at Alaksagar well and, as such, the narration in the partnership deed that only Malu Khan and Mohamdu Khan had obtained the contract for the sale of country liquor for Alaksagar well, Bikaner, was not correct. According to the Income-tax Officer, Lalu Khan, who had also given a joint bid along with the other partners, was not capable to give the bid, he being a minor. The Income-tax Officer, of course, noted that Sub-rule (4) of Rule 63 was inserted by the notification dated October 14, 1965, but expressed the opinion that earlier also minors were not allowed either to bid or to take liquor contract because they have to enter into an agreement and an agreement with a minor cannot be considered valid. He, therefore, gave a notice to the assessee-firm in terms of Section 186 of the Act and asked it to show cause as to why the registration, initially granted to it, should not be withdrawn from the said firm in accordance with Section 186(1) of the Act. In the reply, it was admitted that Lalu Khan has been shown as a major before the excise authorities but contended that that does not imply that he was not actually a minor. It was reiterated that Lalu Khan was rightly shown as a minor who was admitted to the benefits of partnership. It was submitted by the assessee-firm that the Income-tax Officer was not legally authorised to cancel the registration of the firm, which according to it, was rightly allowed by the Income-tax Officer to begin with. The Income-tax Officer was of the opinion that the firm formed by the persons to secure wine contract, which they were not legally entitled to, is invalid as well as non-genuine. He, therefore, cancelled the registration granted in respect of the assessment year 1966-67 and also cancelled the benefit of continuation of registration granted regarding the assessment year 1967-68. When the question of continuation of registration for the assessment year 1968-69 came up, the Income-tax Officer refused to extend the facility of registration to the firm on the ground that in the earlier years, the registration had been cancelled and, therefore, according to the Income-tax Officer, he could not grant the renewal of registration to the assessee-firm in respect of the assessment year 1968-69. The registration application for the assessment year 1969-70 filed in Form No. 11A was also rejected and registration was refused to the firm by the Income-tax Officer for the same reasons as given by him in his order under Section 186 of the Act for the assessment year 1966-67. An appeal was taken by the assessee and the Appellate Assistant Commissioner by his order, annexure I, dated February 13, 1974, negatived the assessee's claim for registration. The assessee filed appeals before the Tribunal and it, after examining the contentions that were raised before it on behalf of the assessee and the Department, was of the opinion that the provisions of Section 186(1) could be invoked by the Income-tax Officer not only in a case where the firm is found to be bogus but even in a case where the firm is not found to have come into existence in law and that when the firm had not come into existence in law, there is no firm at all and, therefore, there is no object to which registration could have been granted. It, therefore, opined that when once such a finding is reached by the Income-tax Officer, he has no option but to have recourse to the provisions of Sub-section (1) of Section 186 of the Act and to cancel the registration which was erroneously granted earlier. It also took into consideration Sub-rule (4) of Rule 63 of the Excise Rules and opined that it had come into effect from October 14, 1965, and so the bidding by the minor Lalu Khan in respect of the accounting period corresponding to the assessment year 1967-68 was definitely in violation of Sub-rule (4) of Rule 63 of the Excise Rules. It will be relevant here to refer to the following observations of the Tribunal :

" When a minor holds himself out as a major, knowing that he is a minor and his father joins him in representing him to be a major, in order to obtain the excise contract, it is, in our opinion, a fraudulent action and the obtaining of the licence in such manner would be said to have been done fraudulently. The object of the partnership deed was to carry out the contract so obtained."

(3.)THE Tribunal by its order (annexure-J) dated August 16, 1975, dismissed the appeal in respect of the assessment years 1967-68, 1968-69 and 1969-70. On these facts, the aforesaid questions have been referred to this court.
We have heard Mr. Guru Prakash for the petitioner-assessee and Mr. M.K. Trivedi for Mr. J.P. Joshi for the Revenue.

Re : Question No. 1:

The Income-tax Officer cancelled the benefit of continuation of registration granted to the assessee-firm in respect of the assessment year 1967-68, vide order annexure F-2, dated March 13, 1972. This he did so on the basis of the order dated March 13, 1972, passed under Section 186(1) of the Act. In the order relating to cancellation of registration dated March 13, 1972, he has given reasons for cancelling the registration of the assessee-firm for the assessment year 1966-67. It appears that the Income-tax Officer made a reference to the District Excise Officer, Bikaner, for clarification regarding the age of Lalu Khan, the partner of the assessee-firm. Vide letter dated December 1, 1971, he intimated the following particulars : JUDGEMENT_457_ITR157_1986Html1.htm