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TMI Blog1995 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Andhra Pradesh High Court on the question as to " whether a sub-partnership which is alleged to be illegal as being in violation of section 14 of the A. P. (Telangana Area) Abkari Act, 1316F, can be registered under the Income-tax Act ". The impugned judgment of the High Court is Addl. CIT v. Degaon Gangareddy G. Ramkishan and Co. [1978] 111 ITR 93. The decision of the High Court was rendered in a reference made by the Income-tax Appellate Tribunal, Hyderabad Bench, under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue for opinion on the following question of law, namely : " Whether, on the facts and in the circumstances of the case, the sub-partnerships are entitled to the benefits of registration unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that no business was conducted by the assessee during the relevant year of account and that the sub-partnership was void ab initio under the Andhra Pradesh (Telangana Area) Abkari Act (hereinafter referred to as " the Abkari Act ") as the members of the subpartnership except Ganga Goud were not licenceholders under the Abkari Act. On appeal, the Appellate Assistant Commissioner upheld the order of the assessing authority taking the view that registration of the subpartnership would defeat the purpose of the Abkari Act. Similar applications for registration under the Income-tax Act by six other sub-partnerships formed by different partners of the main partnership with others were rejected by the assessing authority and their appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es a superior title and diverts the income from the main firm before it becomes the income of the partner. " This proposition is not doubted. The High Court then proceeded to consider the next question, namely, whether a partner of the main firm who deals in liquor .... or any other prohibited article which requires a specific permission of the State Government .... can validly enter into a sub-partnership with strangers in respect of his share in the main partnership. This question arises because of the prohibition contained in section 14 of the Abkari Act against carrying on business in liquor without a licence granted for the purpose. The High Court rightly pointed out that the partners of the sub-partnership would not become partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the sale of liquor or dealing in liquor or doing anything in connection with the purchase and sale of liquor in any manner, it cannot be said that those sub-partnerships are illegal and void and non est. . . . " After correctly stating the legal position, the High Court referred to the contents of the deed of sub-partnership and the finding of the Tribunal that the assessee-sub-partnership cannot be said to have not carried on any business ; that the sub-partnership had financed and owned the capital invested by one of its partners in the main firm ; and that the sub-partnership had been formed mainly to finance the business of one of the partners of the main firm doing abkari business and share the profits and losses accruing to or rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d such partner shall not be competent to act as such until he has obtained a licence to that effect from the Collector or any other competent officer. " In view of the clear findings of fact recorded by the Tribunal, there can be no doubt that the sub-partnerships formed by individual partners of the main partnership which were lessees, with some others, merely to finance the business of a partner of the main firm doing abkari business and share the profits and losses accrued to or received by him from the main firm, were not in violation of section 14 of the Abkari Act. For this reason, there is no basis to hold that the sub-partnerships were in violation of section 14 of the Abkari Act and, therefore, illegal. The Tribunal was right in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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