Orissa High Court
Commissioner Of Income-Tax vs Wine Chamber on 22 November, 1991
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. At the instance of the Revenue, the following question has been referred by the Income-tax Appellate Tribunal, Cuttack Bench (in short "the Tribunal"), under Section 256(1) of the Income-tax Act, 1961 (in short "the Act"), to this court for opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Income-tax Officer to grant registration to the firm for the assessment year 1980-81?"
2. The background facts are that the assessee filed an application for registration claiming that it is entitled to registration in terms of Section 185 of the Act. The application was considered by the Income-tax Officer, Keonjhar Circle (hereinafter referred to as "the Assessing Officer"). The assessee's claim was that it was a firm consisting of two partners, viz, Shri Ramesh Chotolal Thacker and Sri Trilochan Singh, each having 50% share in the profit and loss of the firm. The Assessing Officer found that the business carried on by the assessee was sale of foreign liquor. He noticed that the name of Trilochan Singh was not endorsed in the licence issued for carrying on the business. He held that the licence was one issued under rule 118 of the Orissa Excise Rules, 1965 (in short "the Rules"), and refused registration on the ground that the name of Trilochan Singh was not endorsed in the licence. In support of his view, reliance was placed on a decision of the Punjab and Haryana High Court in CIT v. Hardit Singh Pal Chand and Co. [1979] 120 ITR 289. In the appeal preferred by the assessee, the order of the Assessing Officer was confirmed by the Appellate Assistant Commissioner of Income-tax, Cuttack Range, Cuttack. The assessee assailed the order of the first appellate authority before the Tribunal. The assessee's appeal was accepted as the Tribunal held that the refusal was not justified because the registration was to be granted notwithstanding the fact that the licence for selling liquor was issued to only one partner. The Tribunal relied on a decision of the Madhya Pradesh High Court in CIT v. Kondra Durgaiya [1983] 143 ITR 315, and a decision of the apex court in Jer and Co. v. CIT [1971] 79 ITR 546.
3. Mr. R. P. Kar, learned counsel appearing for the Revenue, has submitted that the reference to rule 118 of the Orissa Excise Rules was a mistake, and in fact what was referred to by the Assessing Officer and the first appellate authority was rule 118 of the Board's Excise Rules, 1965 (in short "the Board's Rules"), framed in exercise of the powers conferred by Section 90 of the Bihar and Orissa Excise Act, 1915. According to him, though there was no specific prohibition in either the Rules or the Board's Rules for a licensee to take a partner, yet the very fact that the licence did not contain the name of Trilochan Singh clearly established that he was in no way connected with the functioning of the business. Reliance is placed on the preamble to the deed of partnership 4ated July 2, 1978, wherein it has been stated that Ramesh Chotolal Thacker, having obtained a licence to sell foreign liquor at Barbil, found himself unable to manage the affairs individually for want of capital and working hand and, therefore, approached Trilochan Singh to do business with him as a partner. It is stressed that, in the absence of the name of Trilochan Singh in the licence, so far as the management of business is concerned, non-genuineness of the partnership is established. According to him, rule 117 of the Board's Rules stipulates that all licences granted under the Act shall be subject to the conditions specified in the form of general conditions of a licence. Reference is made to rule 122(2) of the said Rules, wherein it is stated that not more than four salesmen at a time can be appointed without the previous sanction of the superintendent, and no salesman whose name is already entered in the licence shall be changed without the previous permission in writing of the superintendent. Elaborating, it is stated that where restriction is imposed on the appointment of a salesman, it is clear that the rule prohibits anybody from doing business in 'liquor on behalf of the licensee unless the name of such person is approved and endorsed on the licence.
4. Mr. S. Ray, learned counsel for the assessee, "however, submits that there is no restriction imposed by any statute prohibiting a licensee from entering into partnership arrangements, and, therefore, the decision of the Tribunal directing grant of licence is in order.
5. Similar questions had come up for consideration before different High Courts and also before the Supreme Court. The Revenue seeks sustenance from the decision of the Punjab and Haryana High Court in Hardit Singh's case [1979] 120 ITR 289. On a perusal of the decision, we find that the provisions of the Punjab Excise Act, 1914, and the Punjab Liquor Licence Rules, 1956, were referred to by the High Court. Rule 6 of the Punjab Liquor Licence Rules provided that, when a licence is granted to a partnership or firm not incorporated under any Act, all the individuals comprising the partnership or firm should be specified on the licence. Rule 7 enabled the original partners to take a new partner provided the proposed partner was eligible under the Punjab Intoxicants Licence and Sale Order or the Punjab Liquor Licence Rules. Rule 4 thereof provides that a licence may be granted to an individual, a partnership or a firm amongst others. The rules specifically provided that if the licensee is a firm, no new partner could be taken without the approval of the concerned authorities. The rules also prohibited anybody to sell liquor on behalf of the licensee, unless the name of such person was approved and endorsed on the licence.
6. On a perusal of the Rules and the Board's Rules, we do not find any provision similar to those contained in the Punjab Rules relating to prohibition on the admission of new partners. Rule 122(2) deals with restrictions on the appointment of salesmen, and it cannot be stressed to rule out entry into partnership arrangements. The object of a partnership is always to carry on a business. The expression "business" engulfs several activities, of which sale is one. Therefore, the Punjab decision is of no assistance to the Revenue. On the contrary, the decision of the apex court in Jer and Co.'s case [1971] 79 ITR 546 is an authority for the proposition that, where there is no prohibition for the holder of licence from entering into partnership arrangements, he can validly enter into partnership, and such partnership is legal and is entitled to registration. The Madhya Pradesh High Court in Kondra Durgaiya's case [1983] 143 ITR 315, considered the provisions of the Orissa Rules. Referring to Section 23 of the Bihar and Orissa Excise Act, 1915, it was held that there is no contravention thereof if the holder entered into partnership arrangements. What is prohibited by Section 23 is letting or assigning the licence or permit, or any portion thereof without being expressly authorised. In the instant case, there was no letting or assigning. The view of the Patna High Court in Md. Warasat Hussain v. CIT [1971] 82 ITR 718 and CIT v. Narpati Khan and Co. [1974] 97 ITR 645 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, there was no illegality in the partnership. But where the licence itself is transferred to the partnership, it may result in an assignment of part of the licence, and Section 23 may come into force. In the instant case, it is accepted that the licence continued to stand in the name of Ramesh Chotolal Thacker.
7. The point raised by Mr. Kar relating to contravention of the terms of the partnership does not appear to have been raised before the authorities below, and has not been considered by the Tribunal. The Tribunal has not recorded any finding in that regard and, therefore, we are not inclined to take note of the submission.
8. Our answer to the reference is that the Tribunal was justified in directing grant of the assessee's claim for registration for the assessment year 1980-81. The reference is, accordingly, answered. No costs.
S.K. Mohanty, J.
9. I agree.