A firm engaged in illegal activity is not entitled to registration under Sections 184 and 185 of the Income Tax Act, 1961.

D.S.Tewatia, J.

1. Two persons, Hardit Singh and Pal Chand, had secured liquor licence from the Punjab excise authorities for wholesale vending at Sirhind and for retail vending at Sirhind Mandi, Sirhind City, Jalbehra and Madhaur, After securing the licence and the contract to carry on the aforesaid business the said two partners joined hands with eight other persons, namely, Vinod Singh, Mulkh Raj, Kamal Dev, Hardev Singh, Mehar Singh, Rehman Singh, Ramji Dass, Maharaj Krishan, and formed a partner ship-firm known as M/s. Hardit Singh Pal Chand & Co., Wine Contractors, Sirhind. The firm applied for registration with the income-tax authorities under Sections 184 and 185 of the I.T. Act, 1961 (hereinafter referred to as " the Act "). The ITO denied registration. On appeal, the Tribunal allowed the registration. The CIT sought the following question to be referred to this court, which the Tribunal did :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing registration to the firm ? "

2. As would be clear from the order of the Tribunal on the appeal of the respondent-assessee, it concluded the case against the revenue on the strength of the Supreme Court decision in Jer and Co. v. CIT [1971] 79 ITR 546. It would be clear from the following passage from its order :

" After hearing both the parties, we are of the view that the ratio laid down by their Lordships of the Supreme Court in Jer & Co.s case [1971] 79 ITR 546, quoted above fully cover the assessees case and when there is a judgment of the Supreme Court on an issue identical to the one before us, the judgment of the Supreme Court takes precedence over a judgment of the High Court because a judgment of the Supreme Court is the law of the land. With utmost respect to their Lordships of the Punjab and Haryana High Court for their views expressed in the two citations referred to above, we follow the judgment of their Lordships of the Supreme Court in Jer and Co.s case [1971] 79 ITR 546, and hold that the assessee-firm is entitled to registration. We, therefore, direct that the registration should be allowed. "

3. Learned counsel for the revenue, D. N. Awasthy, has canvassed that the Supreme Court decision in question is clearly distinguishable in that there the only question was as to whether Rule 322 framed under the U. P. Excise Act governed the licence granted to one of the partners of the assessee-company in Form F. L. 2 under the U.P. Excise Manual. It was held that the said rule did not govern the licence and the licence contained no condition which prohibited the holder thereof from entering into partnership with strangers. The condition referred to in the licence merely provided that the licence shall not be subject to transfer. It was held that since the licence carried no prohibition against the holder thereof entering into a partnership with strangers, the question whether the partnership was illegal did not arise.

4. It has been maintained by the learned counsel for the revenue that the provisions of the Excise Act and the Rules, which shall be presently mentioned, clearly prohibit the possession of liquor and its sale by any person other than a licensee and that the licence granted in Form L carries an express condition which provides that the licence is granted subject to the provisions of the Punjab Liquor Licence Rules, thus importing all the restrictions and prohibitions contained in the Rules into the conditions of the licence.

5. Section 24 of the Punjab Excise Act, 1914 (hereinafter referred to as the " Excise Act "), provides that no person shall have in bis possession any quantity of any intoxicant in excess of such quantity as the State Government has, under Section 5, declared to be the limit of retail sale, except under the authority and in accordance with the terms and conditions of a licence. Section 26, inter alia, provides that no intoxicant shall be sold except under the authority and subje