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TMI Blog1973 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... led. The aforesaid firm would hereinafter be referred to as " the assessee ". The assessee is a dealer in country liquor and runs five shops where distillation and sales of liquor are carried on. Licences for the shops in question stand in the names of three of the partners, whereas the partnership is constituted of seven persons, four of them being non-licensees under the Bihar and Orissa Excise Act. In the assessment years 1958-59, the licence for one of the liquor shops was in the name of one of the partners, Narpati Khan, and the other four shops were run under the licences obtained in the names of Nakul Chandra Khan and Surendra Nath Mandal. In the assessment year 1959-60 also, there were five shops and seven partners. The partners were the same as in the earlier assessment year, except that Kartik Chandra Mandal was introduced in this year in place of Nakul Chandra Khan. The licence for one of the shops was again in the name of Narpati Khan, and in respect of the other four shops, in the names of Kartik Chandra Mandal and Surendra Nath Mandal. The assessee-firm applied for registration of the firm which was refused in the first instance by the Income-tax Officer. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership business, but as the licence was only in the names of only a few of them, the others could manage the liquor business as insignificant employees. The Appellate Assistant Commissioner while hearing the appeals on remand, after taking into consideration the report and the findings recorded by the Income-tax Officer, did not accept the report of the assessing officer with regard to the management of the business. He held that, according to the partnership deed, each partner was entitled to take part in the management of the business. He also held that the non-licensee partners were not merely working partners, but they had contributed their shares of capital as well. He, however, accepted the finiding recorded by the Income-tax Officer that the licence was not transferred in the name of the firm. Having thus held, the Appellate Assistant Commissioner allowed the appeals before him and directed the Income-tax Officer to register the firm under the provisions of section 26A. The judgment of the Appellate Assistant Commissioner aforesaid after remand has been marked annexure E "to the statement of the case. The revenue, thereafter, went up An appeals to the Income-tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting such an agreement, the partnership agreement cannot be said to be void. As has been pointed out in the case of Dayabhai & Co. v. Commissioner of Income-tax: "The question of illegality of a partnership must be distinguished from illegality of any acts done in the course of its business by the firm or some or all of its members." Cases have drawn a clear distinction between such partnership agreements as are void ab initio and such other agreements which, though they are not void at their inception, yet in the course of the conduct of business some individual members of the partnership firm do something which may be termed to be illegal. In the first category of case, registration can certainly be refused as the agreement itself is illegal. But where that is not the case, registration cannot be refused under section 26A of the Act merely on the ground that in the course of the conduct of the business some of the partners may be said to have committed some illegalities or irregularities. I may refer in this connection to some of the decisions cited by Mr. Vishundeo Narayan on behalf of the assessee. A Division Bench decision of this court in Commissioner of Income-tax v. K. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the meaning of section 23 of the Bihar and Orissa Excise Act, 1915, and the management of the business would not mean handling or being in possession of the excisable commodities, and since there was no evidence to show that the partners (non-licensees) handled or were in possession of such commodities, registration could not be refused. Now, referring to the cases relied upon by learned counsel for the revenue, the case in D. Mohideen Sahib & Co. v. Commissioner of Income-tax seems to have proceeded upon the assumption that there had been a transfer of the licence which was not permitted by law. The Madras High Court in express terms held that the carrying on of business in that case " involves a transfer of the licence " in contravention of rule 27 of the Abkari Rules and, therefore, the agreement was void ab initio. The decision in Commissioner of Income-tax v. Union Tobacco Co., relied upon by Mr. Tarkeshwar Prasad, has followed the decision in D. Mohideen Sahib & Co. v. Commissioner of Income-tax . It may be mentioned that the correctness of both these decisions, apart from their distinguishing features on facts, was doubted in the case of Dayabhai & Co. v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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