Decided on April 01,1997


Cited Judgements :-



M. Srinivasan, C.J. - (1.)THE Tribunal has referred the following question :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in ordering that the claim of the assessee-firm for registration under Section 185 of the Income-tax Act, 1961, be accepted ?"

(2.)THE assessee in this case filed Form No. 12 seeking renewal of registration for the year under consideration, namely, 1980-81, on July 10, 1980. THE Income-tax Officer refused to renew the registration on the ground that the licence to vend liquor had been obtained only in the name of Shri P. C. Anand and he had entered into partnership with others in the assessee-firm. THE Income-tax Officer gave the following reasons for refusing the continuation of registration :
"(a) THE right of a licence is a right in person which authorised the licensee to do the thing for which it has been granted. THE licence granted to Shri P. C. Anand is not assignable.

(b) In the licence there is no transfer of interest.

(c) If other person who illegally shares the licence does some illegal act, the licensee has no right to sue strangers in his own name.

(d) THE Himachal Pradesh Liquor Licence Rules also prohibit a licensee from allowing any person to conduct sales on his behalf unless the name(s) of such person(s) has/have previously been approved by the competent excise authorities.

(e) THE learned judges of the Punjab and Haryana High Court have held in the judgment quoted in CIT v. Hardit Singh Pal Chand and Co. [1979] 120 ITR 289 that if a licensee of a liquor contract takes any person a partner or if the licensee is a firm, admits new partners in contravention of the provisions of the Excise Act, the firm will not be entitled to registration."

The Income-tax Officer did not, however, find as a fact whether the conditions of the licence prohibit formation of partnership by the licensee ; nor was there a finding of fact by him whether the other partners had indulged in the activities of purchase and sale of liquor while they were members of the partnership.

There was an appeal by the assessee before the Appellate Assistant Commissioner of Income-tax, Patiala Range. The Appellate Assistant Commissioner reversed the order of the Income-tax Officer and granted the prayer of the assessee. While doing so, the Appellate Assistant Commissioner placed reliance on the judgment of the Tribunal in Jagdish Rai Monga v. ITO, ITA No. 575 of 1981 and also the judgment of the Andhra Pradesh High Court in CIT v. Nalli Venhataramana and CIT v. P. Thirupathi Rao Co. [1984] 145 ITR 759. The Appellate Assistant Commissioner pointed out that the Income-tax Officer had nowhere held that the non-licence-holder partners have indulged in the purchase and sale of liquor in any way. The matter was taken on appeal to the Tribunal, The Tribunal simply followed its earlier judgment in Jagdish Rai Monga [1981] 14 TLR 856 and dismissed the appeal. Thereafter, the question was referred by the Tribunal at the instance of the Commissioner of Income-tax to this court.

(3.)THE position with regard to the partnership in the business of purchase and sale of liquor when the licence has been obtained by one of the partners has been considered in several cases. It is enough if we refer to the judgment of the Supreme Court in Jer and Co. v. CIT [1971] 79 ITR 546. THE appellant in that case was a firm with two partners, which was carrying on the business of wholesale merchants and in foreign liquor. THE licence was obtained and renewed every year by one of the partners under the provisions of the U. P. Excise Rules, 1910. THE licence contained no prohibition against entering into partnership for carrying on the business in foreign liquor by the holder of the licence. THE firm was registered under Section 26A of the Indian Income-tax Act, 1922, and it was also renewed for the assessment years 1958-59 and 1959-60. But the Commissioner, under Section 33B, cancelled the registration for those years. THE Appellate Tribunal, on appeal, held that the firm was entitled to be registered, as there was no subletting or transfer of the business covered by the licence in contravention of Clause 13 thereof. On a reference, the High Court held that the firm was not entitled to registration. On appeal, the Supreme Court reversed the decision of the High Court and held that the licence in Form FL-II did not prohibit the holder from entering into a partnership and it merely provided that the licence shall not be sublet or transferred. On that footing, the Supreme Court held that the firm was entitled to registration.
The question arose again before the Andhra Pradesh High Court in CIT v. Nalli Venkataramana [1984] 145 ITR 759. Following the reasoning of the Supreme Court in Jer and Co.'s case [1971] 79 ITR 546, the Andhra Pradesh High Court held that where an individual, who holds a licence to sell liquor, forms a partnership to run the liquor business, such a partnership would be entitled to registration, provided it fulfils the other conditions stipulated in Section 185 of the Income-tax Act. The court pointed out that the partnership agreement did not violate any public policy or offend the provisions of Section 23 of the Indian Contract Act. The main reasoning is that there was no prohibition in the rules or the conditions of the licence against the constitution of a partnership.

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