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TMI Blog1987 (2) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Commissioner of Prohibition and Excise, Maharashtra State had recommended the grant of wholesale liquor license (FL. 1) by his letter dated 9-3-1978. On 14-7-1978 the Home Department of State of Maharashtra accorded the sanction of the proposal to grant liquor license to Shri Mulchand Kimatrai Nihalani but it imposed certain conditions. The letter stated clearly that the licence would be granted to Shri Mulchant Kimatrai in his individual capacity. The letter also stated that the licence would be given only if Shri Mulchand Kimatrai retires from the partnership firm Novelty Wine Mart which held the licence for retail licence (FL. 2). A further condition limosed was that neither Shri Mulchand nor any member of his family should keep any interest in the FL. 2 licence of Novelty Wine Mart. It appears, ultimately, that all these conditions were considered as fulfilled and on 2-9-1978 the licence was issued in FL. 1 to Shri Mulchand Who was required to pay the annual fee of Rs. 1,000 and a deposit of Rs. 10,000. He did so utilising his funds from Nirose Lodge and Novelty Wine Mart. It was stated that a change in the constitution was made in M/s. Novelty Wine Mart dis-associating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or even attached in execution of decrees. Section 65 provides for penalty for illegal imports of intoxicants, etc. As far as Bombay Foreign Liquor Rules, 1953 are concerned, the relevant rule 21 has been quoted by the ITO in his order as under: "21. Regulation of business of licensee: (1) No person shall be recognized as partner of the trade and import licensee for the purpose of his licence, unless the partnership has been declared to the Collector before the licence is granted and the names of the partners have been entered jointly in the licence or if the partnership is entered into after the granting of the licence, unless the Collector agrees on application made to him to alter the licence, and the State Government has sanctioned such alteration and addition." Rule 21(2) though not mentioned by ITO specifies as below: "A trade and import licensee shall carry on his business under the licence either personally or by an agent or servant duly authorised by him in this behalf by a written nokarnama signed by himself and countersigned by a Prohibition and Excise Officer not lower in rank than a Sub-Inspector provided that any such nokarnama signed by the licensee shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Traders when in fact he has already entered into a partnership with Ramesh and Umesh. The authorities would not have granted a bonded warehouse licence in 1979 if they were aware of the actions of Shri Mulchand culmination in a partnership contract the legality of which is now challenged by the ITO. Thus, the ITO was justified in refusing registration on the ground that the partnership is illegal, and void. 8. It is true that the ITO has relied only on rule 21(1) of the Bombay Foreign Liquor Rules. This rule provides a rule of evidence regarding recognition of a person as a partner. Thus, although someone may in fact be a partner he would not be recognised as a partner unless the conditions for such recognition the Government authorities are fulfilled. Although the ITO has relied on rule 21 other provisions of law summarised on page 1 of D. R. compilation would show that the chronology of actions culminating in the partnership contract betray planned actions of defeating the provisions of law. Under the Bombay Prohibition Act, 1949 section 58 provides that the right, title or interest under licence is not liable to be sold or attached in any execution of decree. This shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the type applied by AAC cannot be appropriated because it is not possible to say that the prohibitions of partnership is technical or purely administrative. Lastly, the AAC erred in holding that the burden of proving the illegality is cast upon the person alleging illegality. This is not really a question of burden of proof but an appraisal of the facts touching the validity of the partnership. Lastly, Shri Shrinivasan submitted that all the case law mentioned by the AAC refers to specific statutes/rules and no ration as applicable to the facts of this case governed by Maharashtra regulation can be drawn. Once it is shown that there is no material distinction between FL 1 and FL 2 as far as the legal provisions are concerned, no useful purpose would be served by examining the case law. Shri Srinivasan, however, reserved his right to distinguish the particular case law, if necessary, after ascertaining the arguments on behalf of the assessee. 10. In reply, Shri Bhide defended the order of the AAC though in a slightly difference manner. It was fairly conceded that the alleged distinction between the conditions mentioned below FL 1 licence and FL 2 licence is a distinction witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion between the violation of a statute in terms of the partnership and violation de hors the partnership. It is only in the former case that the partnership could perhaps be treated as illegal or void but in case of latter, the partnership would still be valid and genuine and entitled to get benefits of registration. In the case before us, there is nothing to show that the partnership contract itself represents a designed and calculated attempt to violate the law or to commit a willful breach of law so as to defeat the provision of law. If all actions of the firm resulting in illegality were to be considered as part of the partnership contract, every assessee who invites penalty under Income-tax or Sales-tax Law would automatically lose the benefit of registration. Such an interpretation of the partnership contract would be absurd. 11. Shri Bhide was aware of the decision of this Bench in Vijay Wine Mart [IT Appeal No. 34 (Pune) of 1982 dated 17-8-1983]. He submitted with great respect that the decision requires a review, in that, it does not take into consideration several legal and factual aspects. In IT Appeal No. 34 (PN) /82 what had happened was that a proprietor had taken h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case before us, there is nothing to show that the licence holder is barred from entering into a partnership. The only consequence, if at all, when a partnership is entered into is that unless the other partners are also enrolled and registered before the excise authorities they shall not be recognised as such [rule 21(1)]. As this provision is made only for the limited purpose of ensuring proper administration of the prohibition law, the admission of partner, as far as the Maharashtra State is concerned, is not illegal in absence of any specific provision of the type which existed in the MP excise rules as reproduced in item 2.2 on page 3 of his compilation. Thus, the MP High Court decision on which reliance is placed is not applicable to the facts of the case. Shri Bhide next referred to Nandlal Khajanmal Chhatri v. Thomas J. William AIR 1937 Nag. 250 and submitted that this decision also is not applicable because it dealt with the M. P. rules mentioned above. Similarly, the decision of the Orissa High Court in Mohapatra Bhandar's case dealing with licence for ganja and opium should be taken as confined to the facts of that case, which banned transfer of sub-lease. Actuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohideen Sahib Co.'s case and Benarsi Das Co.'s case. According to Shri Bhide where the ITO merely alleges that the contract is opposed to public policy, the same cannot be a ground for refusing registration because public policy is matter to be decided by the Courts as held in CIT v. Sri Ramakrishna Nursing Home [1976] 105 ITR 86(Mad.), We need not, however, examine the issue further because this judgment dealt with ethics and certain other aspects of a doctor entering into a partnership with a non-doctor with the approval of the State Medical Council. Besides, as mentioned above, the main thrust of the DR's argument is regarding the execution of the partnership contract with the intention of defeating the provisions of law. 15. Quoting from Moitra on Indian Partnership Act, 2nd Edition page 20, Shri Bhide contended that as a general rule, where the law imposes penalty for doing an act, the agreement to do things so prohibited is not unlawful under section 23 of the Indian Contract act. But where the statute prohibits absolutely contract may fail in view of section 23 of the Indian Contract Act. According to Shri Bhide, the prohibition regarding utilisation of the licence is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. Though Pillai's case is with reference to Motor Vehicle Act and benami ownership, all case law following Velu Padayachit's case is to be taken as no longer good law in view of the Supreme Court observation in K. M. Viswanatha Pillai's case. Thus, CIT v. Nalli Venkataramana [1984] 145 ITR 759 (AP) which examined all the case law represented in correct legal position. Shri Bhide relied particularly on the observations of their Lordships of A. P. High Court that when the Supreme Court decides a particular question in a particular way, every pervious decision which had answered the same question in a different way has to be held to have been wrongly decided. Further, a decision of the Supreme Court cannot be ignored on the ground that Their Lordships have not considered the question of public policy. 18. Shri Bhide then took up two alternate arguments without prejudice. The first one based on K. Subramanian v. Siemen's India Ltd. [1983] 36 CTR (Bom.) 197, is that where there are conflicting judgments the one in favour of the assessee should be preferred. The second one is based on Dulichand Laxminarayan v. CIT [1956] 29 ITR 535(SC) that as the firm is not a legal entity it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is well known that the excise measures are not mere revenue or administrative a regulatory measures but are intended for public good. We may not be concerned with the public policy but we are certainly concerned with strict observations of laws on the subject which have to be very strict in view of the need for imposition of curbs on consumption of intoxicants. In Champsey Dossa's case referred to by Shri Bhide, there was a factual finding that the business was.actually managed by the licensee himself and there was only a sharing of profit. Further, it has not been shown that the provisions of the Bombay Excise Act are materially different from those of Punjab and M. P. whereas it is quite clear that the U.P. Rules in particular Rule 574 has no corresponding rule in Maharashtra. Referring to CIT v. Union Tobacco Co. [1961] 41 ITR 115 (Ker.) Shri Shrinivasan pointed out of that the provisions of Cochin Tobacco Act, 1084 M. E. bear a marked similarity to the facts of the present case. Their Lordships have clearly held that the Supreme Court decision in Umacharan Shaw Bros.'s case does not overrule the decision of the Madras High Court in Velu Padayachi. Thus, the ration of Velu P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh High Court judgment in Nalli Venkataramana's case because on facts, it was held that there was no such prohibited transfer, the permission of the licensing authority not being obtained being only a technical lapse. As already pointed out above, the present case cannot be treated as one of the technical lapse because carefully devised plan has been hatched through the application of licence of Mulchand, execution of partnership and obtaining bonded warehouse licence, etc., and in particular introduction of member of Nibhandas family (which had interest in the rental licence) which the State authorities did not want. 20. We have carefully examined the various facts and the arguments. In our opinion, as rightly contended by the D. R. the relevant case law for and against holding the partnership as valid has to be examined in the light of the particular facts of each case and the relevant laws. The liquor regulations are not just revenue measures but measures introduces with the intention of promoting the State policy of curbing consumption of intoxicants in the light of the directive principles of article 47 of the Constitution. From the facts above, it is quite clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. Coming to the objection regarding Rule 21, the non-recognition of a partner for the purpose of licence is not a mere formality as the licensing authority verifies the character and antecedents of each of the partners exactly as it would verify the antecedents of persons appointed under agency or nokarnama as mentioned in the rule. The Andhra Rules referred to in Nalli Venkataramana's case do not bar entering into partnership and do not have a provision corresponding to Rule 21 of Maharashtra. The rule did not also require a firm to take a separate licence. All that was enqured was previous permission. In contrast the Bombay Rules require a specific declaration and endorsement of such names on the licence of all partners irrespective of whether they take up only work unconnected with the licence or not. There is nothing to suggest that the State authority would make the endorsement merely on oral assurance that the partners would be attending wholly only to that part of the business as would not involve connection with the licence. 21. When the above aspects are borne in mind it becomes quite clear that the case law directing grant of registration is to be taken as confined t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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