TMI Blog2004 (5) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... a partner and some arrears of sales tax was stated to be due. As per the provisions of the Act and conditions of licence, the licensee S. Sewak is not supposed to form a partnership to carry on the said business of arrack blending and such a partnership is an illegal one. That apart, it was also contended that none of the petitioners are partners in the said business and after the death of those two persons, viz., S. Sewak and Viswambaran, the tax liability was shifted on the legal heirs of Viswambaran, which is untenable because there is no valid partnership business. 2.. On behalf of the department it was contended that the arrack blending unit had been functioning under the name and style of Methanath Agencies and the sales tax authorities are collecting tax regularly. But however, after the introduction of partial prohibition, that is from January 1, 1987, there was some difficulty in payment of the tax and the cheques tendered for a sum of Rs. 18 lakhs bounced. The revenue contended that the licence was granted to run the arrack blending unit only to S. Sewak, who secretly constituted a partnership in and by the said partnership, Sewak had been allotted only 5 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the event of there being any loss, the same shall be borne by them in equal shares. 6.. The assessment order for the year 1986-1987 was passed on March 25, 1988 in the name of Tvl. Methanath Agencies. Sales tax due for the assessment years up to 1985-86 (from 1981-82) were paid by the firm. When recovery proceedings were initiated for non-payment of tax due for the assessment year 1986-87, late M.S. Viswambaran filed W.P. No. 10697 of 1987 on the file of this Court on the ground that he was not a partner or proprietor of the firm and that he has been extending only financial assistance to the concern. The High Court disposed of the said writ petition directing the party to present a petition to the Commercial Tax Officer, who was directed to enquire into the same and pass appropriate orders. The Commercial Tax Officer conducted detailed enquiry and came to the conclusion that even though licence was granted in the name of S. Sewak, the business was conducted in the name of Methanath Agencies and that in fact M.S. Viswambaran was a partner of the said firm. Again when the recovery notices were issued, M.S. Viswambaran filed W.P. No. 84 of 1989, practically seeking the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to arrack and toddy shops was prohibited by Abkari Law without the previous permission of the District Collector. The firm was assessed as an association of persons but the assessee contended that as there was no lawful partnership, assessment could be made only upon each individual lessee. The division Bench of Madras High Court ruled that the assessee was an association of persons within the meaning of section 3 and so long as its object was to carry on for gain a business which was not unlawful the object being to sell arrack or toddy, as the case may be, under the authority of a licence duly granted by the Government the supervening circumstance of the formation of a partnership in contravention of the Abkari Law did not render the income, profits and gains of the association immune from taxation. We hereunder extract certain paragraphs found in that judgment, which in our opinion are very relevant and interesting: The whole position has been put in the most telling manner by Rowlatt, J., in Mann v. Nash (1932) 16 Tax Cas 523. There the assessee was carrying on the business of providing automatic machines, the use of which had been held to be illegal. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to certain facts. They are not partners; they are not principals in the illegality, or sharers in the illegality; they are merely taxing a man in respect of those resources. I think it is only rhetoric to say that they are sharing in his profits, and a piece of rhetoric which is perfectly useless for the solution of the question which I have to decide.' The court after referring to the facts of the case in Lindsay, Woodward and Hiscox v. Commissioners of Inland Revenue (1932) 18 Tax Cas 43, quoted a paragraph in the said judgment which reads as under: The Lord President (Clyde), made certain observations which are apposite to the present case. Considering the question whether the transactions were in the nature of trade, his Lordship observed: 'This point cannot be dissociated from another, namely, whether the trading transactions, if such they were, so tainted with illegality and wrong doing that the profits made by means of them fall outside the profits of trade which are assessable to income-tax under the Act of 1918..... There are many transactions which are illegal in the sense that the obligations upon which they depend are not such as the law will enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the petitioner. The petitioner filed writ petition praying the court to quash the order of the Income-tax Officer making demands for payment of tax raising several contentions and one among them being that there could be no legal and valid partnership in respect of abkari business, the assessment itself was illegal. The argument was, the Income-tax Officer has no jurisdiction to treat an illegal partnership as if it were a legal association. A division Bench of this Court, following the earlier ruling referred supra, i.e., Mohamad Abdul Kareen Co. v. Commissioner of Income-tax [1948] 16 ITR 412, rejected such a contention. (c) In the case reported in [1996] 217 ITR 746 (SC) (Bihari Lal Jaiswal v. Commissioner of Income-tax) a licence for retail sale of country spirit was issued under the Madhya Pradesh Excise Rules, 1960 to one Biharilal Jaiswal in respect of twenty-two out-stall shops in a particular district in the public auction held in January, 1968. The licence was effective for the period commencing on April 1, 1968, and ending with March 31, 1969. The said licensee Biharilal Jaiswal entered into a partnership with ten other persons to conduct the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of the association of persons and that being so, in any event, at least as against him the department cannot proceed with the recovery of taxes due. The learned counsel appearing for the department would place reliance on the decision reported in [1968] 67 ITR 106 (SC); AIR 1968 SC 317 (M.M. Ipoh v. Commissioner of Income-tax, Madras) and submit that there is nothing in the Act which would indicate that a minor cannot become a member of the association of persons for the purpose of the Act and hence there is no substance whatsoever in this submission made on behalf of the first petitioner. In that case, one M(I) was the husband of A and they had two sons C and M(II), both minors in the year 1940. The Hindu undivided family traded in the name of M.S.M.M. . The family carried on extensive business in money-lending, rubber plantations, and in real estates in Malaya, Burma and India. In February, 1940, the property of the family was divided between three male members and M(I) was allotted the business of the family at Rangoon and at Karaikudi and three rubber estates in Malaya. But even after the partition, M(I) continued to remain in management on behalf of himself and his two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the basis of the above ruling, we have no hesitation to hold that there is no substance in the submission made by the learned counsel for the petitioners. 11.. We are also inclined to point out three other circumstances in this case. Firstly, in the affidavit filed, the first petitioner has nowhere claimed that before or even after obtaining majority he was not paid any amount representing the profit in the business. That being so, the first petitioner cannot escape by merely saying that he was not aware about the business. The other aspect is that the petitioner in the affidavit filed in support of the writ petition in ground (C) has made a pleading to the effect that his father has not joined in any partnership business, which would only show that he would go to any extent to escape from his liability and also help others. Thirdly, from the records we find that the petitioners as well as the late Viswambaran, who is the father of the first petitioner and husband of the second petitioner had been living in the very same house till the death of Viswambaran and even thereafter these petitioners continue to live in the same house. 12.. To sum up, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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