TMI Blog1971 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with effect from January 1, 1952, under the name and style of Liakat Hussain and a fresh partnership deed was executed on May 21, 1952, according to which Liakat Hussain held eight annas share and the two sons of Rahmat Ali, namely, Mohammad Warasat Hussain and Sheikh Hefazat Ali, 3 annas 6 pies each and Mosammat Bibi Majidan, widow of Rahmat Ali, held one anna share. Under the provisions of the Bihar and Orissa Excise Act, 1915, the licences held under the name of Rahmat Ali were transferred by the excise department to Mohammad Warasat Hussain and Sheikh Hefazat Ali, sons of Rahmat Ali, in their names and, as such, Bibi Majidan, one of the partners of the firm, did not hold any licence in her own name. The newly constituted firm carried on the said excise business in partnership and registration of the firm was again allowed by the income-tax department under section 26A of the Income-tax Act for the assessment year 1952-53 for the accounting year January to March, 1952. Renewal of the registration of the partnership firm was allowed by the department for the subsequent assessment years 1953-54 and 1954-55. Liakat Hussain died on August 7, 1953, and in his place his two sons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective shares as set forth in paragraph 5 above. 9. That in the event of death of any of the partners the partnership business shall not stand dissolved but shall be carried on by the surviving partners and the next heir or legal representative of the deceased partner if the surviving partners so agree to admit into the partnership such heir or legal representative of the deceased partner." The said reconstituted firm of Mohammad Warasat Hussain and others was registered by the income-tax department under section 26A for the assessment year 1954-55 and renewal of the registration was granted for the assessment year 1955-56. During the assessment year 1956-57, the firm applied for the renewal of the registration, but the Income-tax Officer, Special Circle, Patna, refused the renewal of the registration on the ground that the partnership was illegal and it violated the provisions of the Bihar and Orissa Excise Act, 1915, and the rules made thereunder, by his order dated October 30, 1956, inasmuch as, though the two ladies, Bibi Majidan and Bibi Aliman, had no excise licences in their names but in terms of the partnership deed they are to carry on excise business without obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; whereas under the partnership deed these two ladies had control over possession and sale of intoxicants which was not permissible under the Act and, as such, the partnership deed was void under sections 19 and 20 of the Contract Act. On behalf of the assessee it was urged that there was no such finding that the two ladies were ever in possession or had any hand in the sale of the intoxicants. The simple case before the Tribunal was that the partnership deed amounted to the transfer of the licences in favour of the two ladies who held no licence from before. From the statement of facts it is clear that the four male partners held licences in their names for various shops and the business of all the licensed shops were duly carried on under the responsibility of the -lcensees, vis-a-vis, the licence department, but the business was financed and carried on by the partners of the firm who contributed their capital to the partnership in proportion to their respective shares. The profit or loss in the business was shared in proportion to their shares. From this statement of fact it is clear that there was no case before the Tribunal nor was there any finding to the effect that the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which dealt in excisable commodities and his further contention was that the formation of partnership by persons who held licences with persons who held no licence amounted to transfer of the licences in favour of those partners who held no licence and, as such, the partnership contravened the provisions of section 23 of the Act. Therefore, according to him, the partnership is void under sections 19 and 20 of the Contract Act. In order to appreciate the points raised before us, sections 22 and 23 of the Bihar and Orissa Excise Act may be quoted here : " 22. Grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs.--(1) The State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege-- (a) of manufacturing or supplying wholesale, or (b) of manufacturing and supplying wholesale, or (c) of selling, wholesale or retail, or (d) of manufacturing or supplying wholesale and selling retail, or (e) of manufacturing and supplying wholesale and selling retail, any country liquor or intoxicating drug within any specified local area : Provided that public notice shall be given of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners ever carried on the business of the licensed shops. Their only case was that they contributed the capital and received proportionate amounts of profits of the business. Mr. Ugra Singh drew our attention to paragraph 6 of the partnership deed which provides that the management of the business shall be in the hands of the partners and, therefore, he contended that the partnership deed gave control and possession, though constructive, to the two ladies over the excisable commodities for which they held no licence. Under section 47 of the Act, possession of excisable articles without permit or licence is an offence. Therefore, the partnership must be held invalid in law. It is difficult for us to accept this contention. In view of the fact that there is no evidence to show that the two ladies ever handled the excisable commodities, it cannot be said merely from paragraph 6 of the partnership deed that the two ladies could be deemed to be in possession of the excisable articles within the meaning of section 47 of the Act. The management of the business, as provided in paragraph 6 of the partnership deed, does not mean handling of the excisable commodities. The unlicensed part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was applied by this court in Commissioner of Income-tax v. N. C. Mandal and Co. In that case, a person holding a licence under the Excise Act took three other persons as partners who had no such licence for carrying on the business of Pachwai shops. It was held in that case that as there was nothing in the Excise Act prohibiting formation of a firm for running a business of excisable commodities, the formation of the partnership firm could not be held to be illegal. The main ground for refusal of the registration by the department is that the formation of partnership by some persons who held licences with persons who held no licence amounted to the transfer of the privilege or licence granted for the purpose of carrying on business in excisable articles and for this reliance was placed on a decision of the Madras High Court in D. Mohideen Sahib Co. v. Commissioner of Income-tax, where a similar view was taken by the Madras High Court and on that ground registration under section 26A was refused. Learned counsel for the department relied on the aforesaid decision of the Madras High Court as well as on a decision of the Orissa High Court in Mohapatra Bhandar v. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, the partnership was held to be illegal as it contravened the provisions of the Bihar Orissa Excise Act and the rules framed thereunder. Therefore, the principles laid down in that case cannot be applied to the facts of the present case. A similar matter came up for consideration before this court in Commissioner of Income-tax v. Prakash Ram Gupta. In that case Prakash Ram Gupta held licence for four country liquor shops. In respect of two liquor shops he took one Mahadeo Ram as his partner. According to the partnership deed, the management of the two liquor shops was entrusted to Mahadeo Ram. The Appellate Tribunal allowed the registration of the firm under section 26A of the Act. Hence, the matter was referred to this court under section 66(1) of the Income-tax Act. This court, on a review of the authorities, held that the formation of such a partnership was not illegal as it did not amount to the transfer of the privilege or licence and did not contravene any provision of the Act and the rules made under it. In that case a reference was also made to the Bombay case in Champsey Dossa v. Gordhandas Kessowji, where some members of the family who held no licence were taken ..... X X X X Extracts X X X X X X X X Extracts X X X X
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