M.C.DESAI, J. - (1.) THIS a statement of a case submitted by the Income-tax Appellate Tribunal, Bombay Bench "A", at the instance of the Commissioner of Income-tax, U.P., inviting this court to answer the following question : "Whether in the facts and circumstances of this case, the assessee-firm was entitled to registration under section 26A of the Indian Income-tax Act, 1922, for the assessment years 1958-59 and 1959-60 ?"
(2.) THE previous years relevant to the assessment years 1958-59 and 1959-60 are financial years April 1, 1957 -March 31, 1958 and April 1, 1958 - March 31, 1959. THE assessee is a partnership constituted on July 21, 1945, of two partners (1) Dady and (2) Minoo, who are brothers. THE partners had been carrying on wholesale business in wines under the name and style of Jer and Company at Agra since October 1, 1944, but the partnership was constituted by a written document on July 21, 1945. THE material terms of the deed of partnership are as follows : THE partnership business will continue to be carried on under the name and style of Jer and Company. THE duration of the partnership will be at will. THE shares of the two brothers in the profits will be half and half. THEy will contribute towards the capital of the business equally and will be entitled to interest at a certain rate on their investment. THE net profits will be determined after deducting all business expenses including depreciation, interest on investment, loans, taxes etc. THE partners will devote their whole time and attention to the partnership business and will not enter into or carry on any business either alone or in partnership which is of a competitive nature. THE partnership will maintain an account with a bank and it will be operated upon by either of the partners. Neither of the partners is at liberty to assign his share, right, title or interest or part of it, without the consent of the other. Account books will be kept at the place of business and each partner will be entitled to inspect them. The Excise Commissioner has been granting Dady a licence in form F.L. 2 for wholesale vending of foreign liquor at Agra since 1945. Section 24 of the U.P. Excise Act has authorized the Excise Commissioner to grant licences for wholesale vending liquor. Under section 31 every licence granted under the Act is subject to such restrictions and conditions and to be in such form as may be prescribed. Form F.L. 2 is the prescribed form of a licence for wholesale vending of foreign liquor. Clause 13 of it is to the effect that "the business covered by this licence shall not be sublet or transferred", clause 14 is to the effect that there should be a signboard mentioning the vendors name at the door of the premises and clause 16 is to the effect that the licence should not allow any person other than the authorizes salesman to conduct sales. The Excise Commissioner is authorised to cancel or suspend a l for a breach by the holder of the licence or as permitted by the conditions of the licence. Under section 41(e), the Excise Commissioner may make rules, with the previous consent of the State Government, prescribing the restrictions under, and the conditions on, which any licence may be granted, including provision for the following matters : ".... (viii) the regulation of the transfer of the licences." Rule 322 of the Excise Manual lays down that an excise licence is personal to the licence to whom it is granted and a Collector should not allow a transfer or sublease or partnership of an excise licence without the prior approval of the Excise Commissioner. Rule 333 prohibits the grant of a licence to a firm unless it is a registered joint stock company and directs that instead a licence should be granted in the names of the partners of a firm as individuals. If a licensee desires to take a person into partnership with him the licensing authority can permit it only in certain circumstances mentioned in rule 344. One circumstances is that the shop cannot well be managed by a single licensee aided by one or more salesmen. The rule further provides that when a licence in partnership is granted, the partnership should not consist of more than two partners, that both must be jointly and severally responsible for the conduct of the shop and that a licensee taking into partnership in his excise business any person in a manner other than that prescribed in the rule will render himself liable to the cancellation of the licence. Rule 362 is about the licence in form F.L. 2. Under section 64 a licensee can be prosecuted for disobedience of a direction contained in a licence or for disobeying a rule made under the Act should be published in the Gazette. Section 40 requires pre-publication.
(3.) DADY held the licence during the two assessment years also but the business of wholesale vending of foreign liquor at Agra was done by the partnership under the name and style of Jer and Company and not by DADY. Jer and Company had engaged an authorized salesman named Mohammad Ismail to do the actual vending. Jer and Company never obtained a licence from the Excise Commissioner for the wholesale vending of foreign liquor. The partnership was registered under section 26A of the Income-tax Act in 1945-46 and the registration was renewed from year to year up to end of the assessment year 1950-60. The registration was renewed for the assessment year 1958-59 on September 8, 1958, and for the assessment year 1959-60 on July 10, 1959. On September 3, 1960, the Commissioner of Income-tax acting under section 33a of the Income-tax Act cancelled the renewal for the two assessment years after the necessary formalities because in his opinion the object of the partnership was illegal, it being to carry on the business of selling foreign liquor contrary to the rules framed by the Government under the Excise Act. The partnership filed an appeal which was allowed by the Tribunal. The gist of its findings is given below : "The question is whether the business covered by the licence had been sublet or transferred and it must be answered in the negative because the business of vending liquor continues to be carried on by DADY as well. Clause 13 of the licence has not been contravened and the licence could not be, and has not been, cancelled on the ground of the contravention of any condition of the licence. There is no absolute prohibition against the forming of a partnership to carry on the business of vending foreign liquor under a licence. Both DADY and Minoo have been carrying on the business of wholesale vending of foreign liquor and the partnership is not only for sharing the profits. The business is being carried on by the partnership on the licence issued to DADY and within the knowledge of the excise authorities. There is no illegality in the partnership agreement and consequently the partnership is entitled to registration." Subsequently, at the instance of the Commissioner of Income-tax, U.P., the Tribunal has submitted this statement to this court. Under section 26A renewal of registration of a partnership may be refused or cancelled. The Government have framed Registration of partnership Rules regarding the applications for registration and renewal of registration. Rule 4 deals with an application for registration and rule 6 with renewal of registration. Before a partnership is registered the Income-tax Officer must be satisfied that a partnership constituted as shown in the instrument of partnership exists. Under rule 6B registration or renewal of registration may be cancelled on the ground that the partnership was registered "without there being a genuine form in existence." It has been found by the Tribunal that a genuine partnership constituted by Dady and Minoo as shown by the instrument of partnership dated July 21, 1945, was in existence during the assessment years. It has been further found that the licence to carry on the business was issued in the name of Dady alone and that the business of vending liquor was carried on by the assessee. There is no licence obtained by the assessee to carry on the business and it is prohibited by law from carrying it on. A partnership is nothing but the partners taken collectively; the assessee is Dady and Minoo taken together. But there is a distinction between Dady alone and Dady and Minoo taken collectively as a partnership; Dady alone cannot be said to be identical completely with Dady and Minoo. The business is carried on by the assessee by virtue of the licence issued in the name of Dady; it is not its case that it is carrying it on without any licence. It relies upon the licence issued to Dady as the authority for its carrying it on. Dady himself has permitted the business to be carried on by it. Lastly, the licensed business had to be carried on. These facts established beyond any doubt that he has transferred the licence to the assessee. He himself has allowed the assessee to use the licence and if this does not mean that he has transferred it to the assessee I do not know what else it means. The only object behind transfer of a licence by the licensee to another person is to enable the other person to carry on the business on the authority of the licence; so if a person other than the licensee carries on the business on its authority and with the approval of the licensee it must mean that the licence has been transferred to him. ;