B.R. ARORA, J.—The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law for the opinion of the is Court :-

Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled to registration ?"

2. M/s. Theka Sharab, Ajmeri Gate, Jaipur, consisting of two partners, was granted a liquor contract for Jaipur district. Sujan Khan, one of the partners in M/s. Theka Sharab, Ajmeri Gate, Jaipur, constituted a sub-partnership firm M/s. Sujankhan Laloo Khan, consisting of Sujankhan, Laloo Khan, Razaq Khan and Badroo Khan. This partnership was constituted with effect from 1.4.1974 by a deed, which was drawn on 26-2-1975. The names and shares in the profits and loss of the sub-partnership business, are stated to be as under :-

(1) Sujan Khan S/o Khaju Khan 30%

(2) Laloo Khan S/o Khaju Khan 40%

(3) Razaq Khan S/o Khaju Khan 15%

(4) Badroo Khan S/o Khaju Khan 15%

The main purpose of constituting this sub-partnership firm was to distribute the share income of Sujan Khan derived from or losses incurred to him in the business of M/s. Theka Sharab, Ajmeri Gate, Jaipur, amongst the partners of sub- partnership firm. According to this Sub-partnership, dead Sujan Khan became partner in the original firm on behalf of the assessee firm. The assessee M/s. Sujan Khan Laloo Khan applied for registration along with Form No. XI before the Income Tax Officer. The Income Tax Officer, by its order dated March 13,1978, refused to grant/the registration to the assessee on the grounds that (1) No business was carried on by the assessee firm during the Accounting year relating to the Assessment year 1975-76, and (2) The agreement contravenes the provisions of the Rajasthan Excise Act. After the refusal of the registration, the assessee preferred an appeal before the Appellate Assistant Commissioner, Income-tax, Jaipur, who, by his order dated May 9,1979, up-held the order of the Income Tax Officer and dismissed the appeal filed by the assessee by holding that the deed of partnership and the application did not bring into existence any genuine firm. In coming to this conclusion, the learned Appellate Assistant Commissioner took into account the facts that : (i) all the partners are close relatives ; (ii) no capita! was contributed by Laloo Khan and Razaq Khan though they were given 40% and 15% share (iii) no interest was paid to Jan Mohammed on an advance of Rs. 40,000/- while the Interest was paid to Shri Sujan Khan and Badroo Khan on the capital invested by them : and (iv) these partners never assisted in carrying over the business of the main partnership business.

3. Aggrieved with the order passed by the Appellate Assistant Commissioner, refusing to grant registration to the firm, M/s. Sujankhan Laloo Khan, preferred an appeal before the Income Tax Appellate Tribunal, Jaipur, and the Tribunal, by its order dated October 30,1990, allowed the appeal filed by the assessee and held that the assessee and held that the assessee firm, as a matter of fact, is a validly constituted partnership firm and, therefore, the firm is entitled for registration. The Tribunal, therefore, directed the Income Tax Officer to allow the registration to the assessee firm. Dissatisfied with the order passed by the Tribunal, the Revenue moved an application under Section 256(1) of the Income Tax Act, requesting the Tribunal to refer the question of law, mentioned in the application for the opinion of the High Court. The Tribunal, by its order dated March 25, 1981, referred the question of law, mentioned in para No. 1 above, for the opinion of this Court.

4. We have heard the learned counsel for the Revenue as well as the learned counsel for the assessee.

5. It has been contended by the learned counsel for the Revenue that the sub-partnership in the present case is illegal and void and is not genuine as it is not carrying on any business except in distribution the income of Sujan Khan in the main

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