1959 (12) TMI 52 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the partnership under the Cochin Tobacco Act.
2. Registration of the firm under Section 26A of the Indian Income-tax Act, 1922.
3. Interpretation of relevant case laws and their applicability.

Issue-wise Detailed Analysis:

1. Legality of the partnership under the Cochin Tobacco Act:
The partnership was formed to exploit tobacco licenses obtained by partners and strangers. According to the Cochin Tobacco Act, VII of 1984, specifically sections 4, 5, and 6, there are strict regulations on the possession, transport, import/export, and sale of tobacco. The relevant notifications, particularly Notification N.D. 148, dated May 20, 1948, prohibit the transfer of licenses without the written consent of the Excise Commissioner. The court examined whether the partnership violated these provisions. The argument by the Department was that the partnership amounted to an illegal transfer of rights under the licenses, making it void. The court agreed, stating that entering into a partnership effectively transfers substantial interests in the licenses, which is prohibited without permission. The court cited Velu Padayachi v. Sivasooriam (A.I.R. 1950 Mad. 444) to support this view, stating that entering into a partnership amounts to a transfer of the licensee's rights, making the contract void.

2. Registration of the firm under Section 26A of the Indian Income-tax Act, 1922:
The Income-tax Officer initially denied the registration of the firm, stating it was constituted in contravention of excise rules and was illegal. The appellate authority concurred, but the Appellate Tribunal reversed the order, holding that the partnership did not infringe the provisions of Act 7 of 1084. The Tribunal also held that the object of the Act was to collect revenue, and any contract conflicting with its provisions would not be void under Section 23 of the Contract Act. However, the High Court disagreed, holding that the partnership was indeed illegal under the Cochin Tobacco Act and thus could not be registered under Section 26A.

3. Interpretation of relevant case laws and their applicability:
The court analyzed various case laws presented by both parties. The Department relied on cases like Govindaraj v. Kandaswami (A.I.R. 1957 Mad. 186) and Pannalal v. State of Hyderabad (A.I.R. 1954 Hyd. 129), which held that partnerships contravening the Abkari Act were void. The assessee relied on cases like Gouri Shankar v. Mumtaz Ali Khan ([1878-80] I.L.R. 2 All. 411) and Radhey Shiyam v. Mewa Lal ([1929] I.L.R. 51 All 506), which supported the legality of partnerships under certain conditions. However, the court found the decision in Velu Padayachi v. Sivasooriam (A.I.R. 1950 Mad. 444) to be more applicable, stating that entering into a partnership amounts to a transfer of the licensee's rights, which is prohibited. The court also discussed the intention behind the punishment in section 6 of the Cochin Tobacco Act, concluding that the repeated punishment for each act indicates a prohibition rather than merely making the act expensive.

Conclusion:
The court concluded that the partnership was illegal under the Cochin Tobacco Act and thus could not be registered under Section 26A of the Indian Income-tax Act, 1922. The reference was answered accordingly, and the assessee was ordered to pay Rs. 50 as costs to the Department.