2000 (8) TMI 11 - SC - Income Tax

Liquor Business - No one may deal in liquor without express permission. It is only the licensee who is granted such permission. If he enters into a partnership to deal in liquor, all the other partners would, as partners, also be dealing in liquor and holding the same. This would be contrary to the basic principle and illegal - claim of the assessee-firm for registration under section 185 should not be accepted

Summary

Issues:
- Registration under section 185 of the Income-tax Act, 1961 for a partnership dealing in liquor.
- Validity of partnership agreements involving liquor licensees.
- Interpretation of the prohibition on partnerships with liquor licensees under relevant excise enactments.

Analysis:
The Supreme Court dealt with an appeal challenging a High Court order that upheld the registration of a partnership under section 185 of the Income-tax Act, 1961. The case involved a partnership dealing in liquor, where only some partners held the liquor license. The Revenue argued against the registration, citing precedents that highlighted the prohibition on agreements transferring or subletting liquor licenses. The court referred to judgments emphasizing that liquor business is strictly regulated, and partnerships with liquor licensees could be illegal. However, the assessee relied on a different case involving sub-partnerships formed to finance the liquor business, which were found genuine and entitled to registration. The court distinguished the current case from the precedent, emphasizing the purpose of the sub-partnerships in question.

The court noted that partnerships with liquor licensees could lead to unauthorized dealing in liquor, contrary to legal principles. It highlighted the importance of express permission for dealing in liquor and the potential illegality of partnerships involving liquor businesses. The decision emphasized the need to adhere to the regulations governing liquor licenses and partnerships in the context of liquor trade. Ultimately, the court allowed the appeal, setting aside the High Court's order and ruling in favor of the Revenue. The judgment clarified the legal stance on partnerships in liquor businesses and the implications of violating relevant excise enactments.