COMMISSIONER OF INCOME TAX Vs. KRISHNA REDDY

JUDGEMENT

(1.) THE question that is referred to for our decision under section 66(2) of the Indian Income-tax Act is a follows :

(2.) FOR the purpose of dealing with the above question it is necessary to set out a few relevant facts. The assessee, G. Krishna Reddy, and D.D. Italia carried on Abkari business under the name and style of "M/s. G. Krishna Reddy and Din Sha-ji". The licence for carrying on the Abkari business under the Hyderabad Abkari Act was issued by the Government only in the name of G. Krishna Reddy. Without obtaining the prior approval of the Talukdar as required by section 14 of the Hyderabad Abkari Act, the partnership was entered into by the licensee with D.D. Italia. A return of O.S. Rs. 41,260 was made by the firm as the income liable to be assessed. G. Krishna Reddy also filed a return as an individual, showing half the income from the Abkari contracts as being the assessable income. The Income-tax Officer held that as the prior approval of the Talukdar was not obtained under section 14 of the Hyderabad Abkari Act, the firm had no legal existence and that G. Krishna Reddy was assessable to income-tax on the entire income made in respect of the Abkari contracts. On appeal to the appellate Assistant Commissioner, he took a different view. It was held that the assessee was liable to pay income-tax only on half the income earned from the Abkari contracts. When the matter was taken to the Appellate Tribunal, Hyderabad Bench, a statement was filed by D.D. Italia, where in the admitted his liability to be taxed for half of the profits from the excise contracts taken by the assessee, G. Krishna Reddy. Acting on the statement the Tribunal confirmed the conclusion reached by the Appellate Assistant Commissioner. The order is very laconic and is in the following terms :

(3.) IT is clear law that if the partnership was a valid one and was not registered under the provisions of section 26A of the Income-tax Act, the entire income earned by the unregistered partnership is liable to be assessed as a single unit. This position is made quite clear by the Supreme Court in Rao Bahadur Ravulu Subba Rao v. Commissioner of Income-tax. Venkatarama Ayyar J., dealing with the rights conferred by section 26A of the Income-tax Act, observed as follows :