TMI Blog1997 (11) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... alidly constituted 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?" The facts of the case as stated by the High Court are as under : "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 sons of Motilal. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 in writing 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, 1872. The Appellate Assistant Commissioner of Income-tax confirmed on appeal the order of the Income-tax Officer and the Tribunal on further appeal 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 aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership while dealing with the question of registration under the Income-tax Act. In the instant case, it was necessary for the licence-holder to take prior permission of the licensing officer before entering into any partnership agreement. This was made a condition of the excise licence in order to ensure collection of the dues of the excise department. The licence holder cannot claim the benefit of registration of a firm formed in violation of an express condition of the licence. It will clearly be against public policy to grant benefit of registration to a firm under the provisions of the Income-tax Act when the firm was set up in violation of an express condition of the excise licence, specially when the condition was inserted to ensur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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