TMI Blog1979 (11) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly as financing partner. The assessee firm made application for registration in form No. 11 on 8th March, 1973. ITO by his order under s. 185(1) (b) refused registration on the ground that the assessee firm had not been validly constituted as it was in contravention of the law of the State and was directly hit by s. 23 of the Indian Contract Act. On appeal the ld. AAC, however held that there was no contravention of the law, the firm was validly constituted and all the formalities for claiming registration had been duly observed and therefore, the firm was entitled to registration and he directed accordingly. Against the order of the ld. AAC the Revenue has come up in appeal. 3. Before the ITO it was stated that Shri Narendrakumar was the sole licensee and before forming the partnership with Smt. Pushpadevi he had written for permission to the concerned excise authorities but there was no reply to his letter. Evidence was filed before the ITO to confirm that the letters had been written in this connection to the excise authorities. It was urged that there was thus no conscious disregard of the Excise Law and that, being well conscious of the fact the prior permission of the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position is entirely different. Reference was made to the decision of the Hon'ble Allahabad High Court in the case of P.C. Kapoor vs. CIT (1), and it was urged on its authority that the assessee firm was validly constituted and was entitled to registration. The ld. AAC considered these submissions and for the reasons recorded in paragraph 4 of his order which is reproduced below the directed the ITO to grant registration to the assessee: "4. I have carefully heard the arguments of the counsel. The registration for the asst. yr. 1973-74 has been refused by the ITO on the ground that the formation of partnership firm is in violation of one of the conditions of the licence which was granted by the Excise Authorities to Sri Narendra Kumar, one of the partners. According to the ITO, the partnership agreement is in contravention of law of the state and is against the public policy and therefore the partnership was not validly formed in the eye of law. It has been argued by the ld. counsel before me that the contravention of the condition mentioned at S. No. 3 of the Licence was not wilful or deliberate as necessary application in writing had been made to the Excise Authorities. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cl. (3) of the licence, the ld. Deptl. Representative submitted, Shri Narendrakumar being the sole licence could not enter into partnership without obtaining the written permission of the Excise Authorities. Since he had failed to obtain such permission before the partnership was formed the firm was clearly invalid. As an authority for this proposition the ld. Deptl. Representative relied upon Supreme Court decision in the case of Jer Company (2), Reference was also made to the decision of the Jaipur Bench of the Tribunal in the case of M/s. Surajpole Gate Madira Karyalaya, Beawar (order dt. 4th March, 75 in ITA No. 1112 JP 73-74). The ld. Deptl. Representative mentioned an earlier decision of the same bench also which was in the case of M/s Motilal Chunnilal Bhanwarlal Tak, Bhilwara (3). 6. The ld. Counsel for the assessee urged vehemently that there was no violation at all of the provisions of the Rajasthan Excise Act, 1950 or of the licenced issue there under to Sri Narendra Kumar. cl. (3) of the Licence, the ld. counsel pleaded, did not prohibit the formation of the partnership. It merely stipulated that the licenced holder will not either transfer the licence or take any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f M/s. Surajpole Gate Madira Karyalaya,(4) was reconsidered in cases of M/s Rooplal Danchand and M/s. Bhopal Singh (5), and a contrary view was that the formation of the partnership in such circumstances was not in contravention of the law. Further ld. Counsel derived support from Allahabad High Court decision in the case of P.C. Kapoor vs. CIT (1), Patna High Court decisions in CIT vs. N.C. Mandal and Co(6). In Md. Warsat Hussain vs. CIT(7), and In CIT vs. Narpati Khan Co(8). Support was also derived from the Supreme Court decision in the case of Jer Co vs. CIT (2). 7. We have considered the facts and the rival submissions. We have also gone through the decision referred to on both sides. The question is whether the formation of the partnership in the present case was in order or whether it contravened the provisions of the Excise law of Rajasthan and was as such hit by s. 23 of the Indian Contract Act. The facts briefly are that Shri Narendra Kumar had obtained the licence for sale of country liquor in his own name. This licence was taken on or about 24th April, 1972. He entered into partnership with Smt. Pushpadevi who was to provide finance. The partnership commenced w.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Patna High Court decision in the case of Narpati Khan Co.(8) Their Lordships held in clear terms that where the licence for trading in liquor stood in the names of only some of the partners of a firm and was not transferred to the firm which carried on the business there was no illegality in the partnership and the firm was entitled to registration. In the Allahabad case, PC Kapoor vs. CIT (1). Their Lordships held that whenever there is an agreement between the parties that a business activity will be carried on by them acting for all it necessarily implies an agreement that the business activity would be done in a lawful manner. In that case the licence was in the names of two of the partners of the firm and all the 7 partners were actively engaged. Their Lordships took the view that when the various partners agreed to carry on the business of Excise Contract on the basis of a licence standing in the names of some of the partners, It necessarily implied an agreement or a contract to the effect that the sale of liquor will be carried on by the partners on behalf of all the partners in accordance with law i.e. the activity of sale would be carried on only by such partners i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior permission of the Excise Authorities before forming the partnership. In the present case, admittedly there was no transfer of the licence. The licence continued to be the property of Shri Narendra kumar. The business was managed by Sri Narendra kumar only. The other partner, Smt. Pushpadevi merely provided finance. Shri Narendra kumar, moreover, had written to the Excise Authorities for prior permission but no reply was given. The authorities, however did not take any adverse view inasmuch as neither any fine was imposed under s. 58 nor the licence was cancelled under s. 34. 10. Both sides have referred to Supreme Court decision in the case of Jer Co(2). We do not, however, think that in can help either side in the present case. In that case their Lordships upheld grant of registration because it was noticed that the licence had no clause prohibiting formation of the partnership. The ld. Counsel for the assessee has referred to the decision of the Jaipur Bench of the Tribunal in the case of M/s. Sumermal Daftry. In the case the licence had been taken under the Mining Concession Rules, 1960. The licence had not been transferred to the partnership and the mining part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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