COMMISSIONER OF INCOME TAX Vs. PAGODA HOTEL AND RESTAURANT

JUDGEMENT

(1.) THIS is a reference at the instance of the Commissioner of Income-tax, M. P., under Section 66(1) of the Indian Income-tax Act, 1922. The question referred is:

(2.) THE question for consideration, therefore, is whether the firm was illegal in the circumstances. THE findings of the Tribunal on which the opinion has to be expressed may be shortly stated as follows. Four persons, viz., Ramlal Sethi, Ramlal Anand, Sukardutt Anand and Vikramajit Sethi, were carrying on business, in partnership and were running a hotel and restaurant in the name of Pagoda Hotel. Partner No. 1, Ramlal Sethi, was, in his personal capacity, running a shop for selling foreign liquor and had a licence for the same. He was running the shop in the name of M/s. Sethi Wine Stores. Another partner, Sukardutt Anand, was also running a foreign liquor shop in the name of Anand Wine Stores. He also had a licence in his own name for the purpose. From 1st April, 1959, these shops were also handed over to the partnership firm and along with the hotel the partnership started running both these shops as a firm. All the partners had equal shares in all the businesses. THE wine shops were, however, managed by managers employed separately in each shop and the transactions and business of these shops were carried on separately against each other as also against the restaurant. THE remaining two partners, who previously had no interest in the wine shops, did not take actual part in the running of the wine shops even after they had been made partners of the firm's business. THE partners entered into a written agreement of partnership on 21st May, 1959. It has been recited in this document that parties Nos. 1 and 3 have invited parties Nos. 2 and 4 to join them and "to work with them in partnership in their individual liquor shops and parties Nos. 2 and 4 have agreed to it". It was also recited :

(3.) THIS rule, therefore, not only prevents transfer or sub-lease of the privilege but also prevents any privilege holder from entering into a partnership for the working of such privilege. Since the privilege is to be in an individual name, the partnership could only be entered into in the working of that privilege and consequently this has been prohibited. In order to make it further clear that this prohibition of entering into a partnership is absolute and not limited in any way, the further phrase "in any way or manner" has also been added.