1965 (8) TMI 99 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement of the assessee-firm to registration under section 26A of the Indian Income-tax Act, 1922.
2. Legality of the partnership under the U.P. Excise Act and Rules.
3. Validity of the Excise Rules due to alleged lack of pre-publication.

Issue-wise Detailed Analysis:

1. Entitlement of the Assessee-Firm to Registration under Section 26A:

The primary issue was whether the assessee-firm was entitled to registration under section 26A of the Indian Income-tax Act, 1922, for the assessment years 1958-59 and 1959-60. The partnership was constituted by a written document on July 21, 1945, and had been registered under section 26A since 1945-46, with renewals up to 1959-60. The Commissioner of Income-tax canceled the renewal for the two assessment years on the grounds that the partnership's object was illegal, as it involved selling foreign liquor contrary to the rules framed by the Government under the Excise Act. The Tribunal, however, allowed the partnership's appeal, stating that the business covered by the license had not been sublet or transferred, and both partners were carrying on the business. The Tribunal found no illegality in the partnership agreement and concluded that the partnership was entitled to registration.

2. Legality of the Partnership under the U.P. Excise Act and Rules:

The Excise Commissioner had granted Dady a license for wholesale vending of foreign liquor since 1945. The business was carried on by the partnership under the name Jer and Company, but the license was in Dady's name. The Tribunal found that the partnership was genuine and existed during the assessment years. However, the court found that the business was carried on by the assessee using Dady's license, which constituted a transfer of the license to the partnership, violating rule 322 of the Excise Manual. The transfer of the license without the prior approval of the Excise Commissioner rendered the partnership invalid. The court referenced several cases, including Velu Padayachi v. Sivasooriam Pillai and Commissioner of Income-tax v. Union Tobacco Company, which held that partnerships formed to conduct licensed businesses without proper authorization were void.

3. Validity of the Excise Rules due to Alleged Lack of Pre-publication:

A question was raised about the validity of the Excise Rules on the ground that there was no pre-publication as required by section 40 of the Excise Act. The court noted that whether the Rules were published or not is a question of fact, and the statement of the case did not contain the fact that there was no publication. The court could not ascertain facts and could not proceed on the basis that there was no publication. The court referenced Radhey Shiyam v. Mewa Lal, which pointed out that the Excise Rules, made under sections 40 and 41 of the Excise Act, have the force of law.

Conclusion:

The court concluded that the assessee-partnership was invalid because it was formed with the object of carrying on the business of wholesale vending of foreign liquor without a license in its favor, violating the Excise Act and Rules. Consequently, the contract of partnership was void under section 29 of the Contract Act, and the partnership could not be registered. The question was answered in the negative, and the Commissioner of Income-tax was awarded costs of Rs. 200.