TMI Blog2004 (5) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... dras and in which the late M.S.Viswambaran, the father of the first petitioner and husband of the second petitioner was also 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 1.1.1987, 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running of the factory and that 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 25.3.1988 in the name of Tvl.Methanath Agencies. Sales tax due for the assessment years upto 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.1069 7 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.84 of 1989, practically seeki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 Cases 523). There the assessee was carrying on the business of providing automatic machines, the use of which had been held to be illegal. It was claimed that the portion of profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ((1933) 18 Tax Cases 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, were so tainted with illegality and wrongdoing 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 enforce. I think it is plain that a contract of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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, 16 ITR 412, rejected such a contention. (c) In the case reported in 217 ITR 746 (Bihari Lal Jaiswal and Others v. Commissioner of Income-tax and others) 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 outstall 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. Application for grant of registration to the said firm under Sections 184 and 185 of the Income Tax Act, 1961 was made. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel appearing for the department would place reliance on the decision reported in AIR 1968 SC 317 (M.M.Ipoh and others v. The 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(2), 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(1) was allotted the business of the family at Rangoon and at Karaikudi and three rubber estates in Malaya. But even after the partition, M(1) continued to remain in management on behalf of himself and his two minor sons of all the properties and the businesses carried on by the family when it was joint. The houses and the three rubber estates allotted exclusively to M(I) wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 any substance in the submission made by the learned counsel for the petitioner that a minor cannot become a member of an association and that on that ground the writ petition has to be al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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