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TMI Blog2010 (11) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... lkarni and K.R. Prasad for the Respondent. JUDGMENT N. Kumar, J. The revenue has preferred this appeal challenging the order passed by the Tribunal which held that the firm has complied with the provisions of section 194 and accordingly is entitled to the benefit of deduction under the Income-tax Act, 1961. 2. The assessee M/s S.B. Pannalkar Co., a partnership firm is carrying on the business of liquor on wholesale basis. The liquor licence stood in the name of one of the partners. The licence was not transferred to the name of the assessee and it continued to be in the name of the partner. The assessee carried on this wholesale business using the licence not owned by the firm and therefore the Assessing Authority disallowed the remuneration paid to the partners and the interest on capital, vide order dated 23-3-2004. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) Belgaum. The appeal came to be allowed by order dated 16-9-2004. Aggrieved by the same, the revenue preferred an appeal before the Tribunal, which came to be dismissed affirming the order passed by the Appellate Tribunal. Aggrieved by the same, the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disallowing the deduction to the firm wherein the salary paid to the partners and the interest paid are treated as business expenditure and given the benefit. Therefore, he submits that the order passed by the Tribunal as well as the appellate authority is liable to the set aside. 5. Per contra, the learned Counsel appearing for the assessee submitted that in the instant case, there is no transfer of licence. The partnership firm was formed to carry on liquor business. After the firm came 'not existence, to carry on business, it had to obtain licence. At that stage, it was agreed between the partners that licence should be obtained either in the name of the firm or in the name of the partners. If obtained in the name of the partners, it would be an asset of the firm. In those circumstances, when licence was applied in the name of the partner, the fees was paid out of the partnership firm and licence, though it stood in the name of the partner, it was the asset of the partnership firm and there was no transfer of licence by the partner to the firm involved in this case. The judgment relied on are not attracted to the facts of this case and rightly the appellate authority as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 8. Therefore, ultimately it is the intention of the parties as gathered from the facts of the case which would determine the eligibility for deduction. No person can carry on liquor business without a licence or permission. Such licence granted is not transferable. Even if transferable, it would be subject to conditions. A partnership firm to carry on business needs a licence or permission from the authority under the Excise Act. If an individual transfers the said licence to a partnership firm, it has to be in accordance with law. Otherwise the transfer would be contrary to section 23 of the Indian Contract Act, and is void. However, if a partnership firm chooses to obtain a licence in the name of one of its partner and the licence granted to such partner is treated as the partnership asset expressly in the partnership deed even before acquiring such licence and the partnership firm pays the fee for obtaining suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons it is clear that no intoxicant shall be sold without a licence granted in that behalf. The Rules also provide for transfer of such licence in favour of any person named by such licensee, if such person is eligible for grant of licence, under the Karnataka Excise Act, 1965 and the Rules made therein. Therefore, there is no total prohibition for transfer of the excise licence. 11. Coming to the facts of this case, the preamble to the Partnership Deed dated 4-11-1997 reads as under: "Whereas, the above said parties of the 1st to 6th parts along with Late Smt. Gangabai W/O Baburao Panalkar, were carrying on business of Foreign Liquor in partnership till 2-11-1997 under the name and style of M/s S.B. Panalkar Co., at Jamkhandi as per the partnership deed dated 1-4-1992. And whereas, the said Smt. Gangubai W/o Bahurao Panalkar of Jamkhandi expired on 2-11-1997. And whereas, the remaining partners continued the said business as usual in partnership with effect from 3-11-1997 on the following terms and conditions." Clause 3 of the Partnership Deed is of utmost importance. It reads as under: "3. That the business of partnership shall be that of dealing in foreign Liquor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, it is clear that there is no intention on behalf of these partners to contravene the law. It is not camouflaged to contravene the law. Therefore the appellate authority as well as the Tribunal were justified in holding that the aforesaid judgments of the Apex Court has no application to the facts of this case. It is a case of genuine partnership carrying on business in liquor after obtaining licence in the name of one of the partners, treating the said licence as partnership asset. No transfer is involved. 14. In fact, the Apex Court in an unreported judgment in the case of Grand Enterprises Kerala v. CIT [Civil Appeal Nos. 1317-1319/01, disposed of on 4-12-2002], after referring to the aforesaid judgments of the Apex Court held as under: "A condition expressly prohibiting the entry into a partnership by a licence holder would operate even if there were no transfer in fact. But when all that is forbidden is a transfer, then this must be factually established. In this case, apart from the fact of mere utilisation of the licence, nothing further has been recorded by the High Court to come to the conclusion that there has been a transfer of the licence or of any rights t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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