2004 (5) TMI 534 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the partnership formed for arrack blending.
2. Taxability of an illegal partnership under the Tamil Nadu General Sales Tax Act.
3. Liability of a minor in a partnership or association of persons for tax dues.

Issue-wise Detailed Analysis:

1. Legality of the Partnership Formed for Arrack Blending:
The petitioners contended that the partnership formed to exploit the arrack blending licence issued to S.Sewak was illegal, as per the provisions of the Tamil Nadu Prohibition Act, which prohibits the transfer of such licences and the conduct of arrack blending by anyone other than the licensee. The court acknowledged that the partnership, formed in 1981 under the name "Methanath Agencies," was indeed illegal since it was constituted solely to exploit the licence issued to S.Sewak, which was non-transferable and could not be used by anyone else.

2. Taxability of an Illegal Partnership under the Tamil Nadu General Sales Tax Act:
The court examined whether an illegal partnership could be taxed under the Tamil Nadu General Sales Tax Act. It referred to several rulings, including:
- Mohamed Abdul Kareem and Co. v. Commissioner of Income-tax (16 ITR 412): The court ruled that an association of persons formed in contravention of abkari law could still be taxed.
- V.K.Kumaraswami Chettiar v. Additional Income-Tax Officer, Madras (31 ITR 457): The court held that an illegal partnership could be taxed as an association of persons.
- Bihari Lal Jaiswal v. Commissioner of Income-tax (217 ITR 746): The Supreme Court of India held that an illegal partnership could be taxed either as an unregistered partnership firm or as an association of persons.

Based on these precedents, the court found no substance in the petitioners' argument that an illegal partnership could not be taxed under the Tamil Nadu General Sales Tax Act.

3. Liability of a Minor in a Partnership or Association of Persons for Tax Dues:
The first petitioner claimed that he was a minor during the relevant assessment year (1986-87) and thus could not be held liable for the tax dues. However, the court found discrepancies in the petitioner's statements regarding his age. Initially, he claimed to be a minor during the assessment year, but later, it was revealed that he had become a major in 1985. The court branded the petitioner as a "classic liar" for attempting to evade tax liability through falsehood.

The court further examined whether a minor could be a member of an association of persons for tax purposes. It referred to the ruling in M.M.Ipoh v. The Commissioner of Income-tax, Madras (AIR 1968 SC 317), which stated that there is nothing in the Income-tax Act that indicates a minor cannot be a member of an association of persons. Therefore, the court rejected the petitioner's argument that a minor cannot be held liable for tax dues.

Additional Observations:
1. The court noted that the first petitioner had not claimed that he was unaware of the business or that he had not received any profits from it.
2. The petitioner falsely claimed that his father had not joined any partnership business, indicating an attempt to evade liability.
3. The petitioners and the late Viswambaran had been living together, suggesting that they were aware of the business activities.

Conclusion:
The court dismissed the writ petition, finding no merit in the arguments presented by the petitioners. The petitioners were held liable for the tax dues, and the writ petition was dismissed with costs of Rs.5,000/- payable to the first respondent. The connected W.P.M.P.No.54912 of 2002 was also dismissed.

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