DWARKA PRASAD, J. - (1.) THIS is a reference by the Income -tax Appellate Tribunal, Jaipur Bench, Jaipur, by which the following questions of law were referred to this court for its opinion : '1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm was not valid and that the object of the agreement was of such a nature that, if permitted, it would defeat the public policy as contained in the provisions of the Rajasthan Excise Act, 1950 ? 2, If the answer to the above is in the affirmative, whether the Tribunal was justified in holding that the firm was not valid and, therefore, not entitled to registration under Section 185 of the Income -tax Act, 1961 ?'
(2.) THE Government of Rajasthan granted a licence for the retail sale of country liquor during the year 1966 -67 at Bhilwara including the shops situated at Bhupalganj, Gulmandi and Dhanmandi, in the joint names of Motilal, Chunnilal and Bhanwarlal, son of Motilal. It appears that with a view to carry on the aforesaid business of retail sale of country liquor, the aforesaid licensees entered into a partnership with five other persons and constituted the firm, M/s. Motilal Chunnilal, Bhilwara, consisting of the following eight partners : 1. Motilal, 2. Chunnilal, 3. Bhanwarlal, 4. Smt. Vijaylaxmi, wife of Satishchandra, 5. Poonamchand, son of Gangaram, 6. Bhuralal, son of Devilal, 7. Ram Nath, son of Magniram, and 8. Smt. Kamala, wife of Mangilal. On the basis of the deed of partnership dated August 8, 1966, entered into by the aforesaid eight persons, the assessee, M/s. Motilal Chunnilal, applied for registration of the firm. However, registration of the firm was refused by the Income -tax Officer on the ground that the partnership was not legal as it violated the provisions of Clause (3) of the terms of the licence issued by the Excise Department of the State. Clause (3) of the licence translated into English runs as under : 'The licence -holder shall not be entitled to transfer the licence of the shop to any person without the written permission of the officer granting the licence and shall not be entitled to take a partner and such permission shall not be given till such time as the licence -holder pays all dues outstanding against him.'
(3.) DURING the course of an enquiry, the Income -tax Officer found that the licence -holders had not obtained the permission in writing from the authorities of the Excise Department of the State for entering into a partnership with five other persons. Thus, the Income -tax Officer held that the failure on the part of the licence -holders to take permission inwriting from the excise authorities to form the partnership amounted to violation of the conditions of the licence and the provisions of the Rajasthan Excise Act, and, therefore, the contract of partnership was hit by Section 23 of the Indian Contract Act. The Appellate Assistant Commissioner of Income -tax confirmed on appeal the order passed by the Income -tax Officer. On further appeal by the assessee, the Income -tax Appellate Tribunal held that there was a clear prohibition in Clause (3) of the licence in respect of the formation of a partnership by the licence -holders without the prior permission of the excise authorities. Thus, the provisions of the excise law have been violated as there was public policy involved in the provisions of the Excise Act and the Rules and the agreement of partnership was entered into in violation of such public policy and should, therefore, be held to be invalid. The Tribunal thus dismissed the appeal and maintained the order of refusal of registration of the assessee -firm.;