The central legal point established in the judgment is that the legality of the partnership and the element of mutual agency justified the registration of the firm, emphasizing the lawful purpose of the partnership and the sufficiency of other statutes to address any violations.

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 have attempted 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