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TMI Blog1996 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... or counsel) to assist us. We heard counsel for the Revenue, Sri J. Ramamurthy and Sri V. A. Bobde. The short question involved in this appeal is : Whether the respondent-assessee-firm is entitled to registration under the Income-tax Act for the year 1966-67 ? The Income-tax Officer by his order passed under section 185 of the Income-tax Act, 1961, dated December 28, 1970, held that the respondent-assessee -- sub-partnership -- contravenes the provisions of section 14 of the Andhra Pradesh (Telangana Area) Abkari Act (hereinafter referred to as "the Abkari Act") and so, the sub-partnership should be considered as void and illegal. Section 14 of the Act is to the following effect : " No lessee shall, except with the permission of the Government, declare any person to be his partner ; and 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. " Registration was refused. The said order was confirmed in appeal by the Appellate Assistant Commissioner by order dated February 28, 1972. In further appeal, the Income-tax Appellate Tribunal (the Tribunal) in I. T. A. No. 210/(Hyd) of 1972-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -partnership can be entered into by a partner of the main firm with some strangers to share the income or loss receivable by him from the main partnership and such sub-partnership is entitled to registration and then proceeded to state thus at ([1995] 214 ITR 650) pages 653 to 655 : " 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 of the main partnership firm and this position would not be altered in any manner even if the business of the main firm were to deal in liquor or any other prohibited article since the partners of the sub-partnership would be entitled only to share the profits and losses, as the case may be, that ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 holding that in the facts and circumstances of the case, the assessee-sub-partnerships being found to be genuine were entitled to be registered under the Income-tax Act." In the normal circumstances, the aforesaid decision of this court in Addl. CIT v. Degaon Ganga Reddy G. Ramakrishna and Co. [1995] 214 ITR 650, should govern the decision in this case also. But, when the instant appeal came up for hearing before a Bench of two judges, after referring to the decision in Bihari Lal Jaiswal v. CIT [1996] 217 ITR 746, it was observed : " As the profits of the business to be shared by the sub-partners were the profits of the main business, namely, abkari business, section 14 of the Abkari Act squarely got attracted and made even the sub-partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip on the ground that the sub-partnership contravened the provisions of section 14 of the Abkari Act, and so, was void and unenforceable. It was affirmed in appeal. But, the Tribunal as well as the High Court granted registration. The sole question that arises for consideration in this appeal is, whether the sub-partnership contravened section 14 of the Abkari Act ? Section 14 of the said Act runs thus : "No lessee shall, except with the permission of the Government, declare any person to be his partner ; and 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." It will be appropriate to quote the relevant provisions of the Income-tax Act, 1961, dealing with registration as they existed during the relevant period : Section 184. " (1) An application for registration of a firm for the purposes of this Act may be made to the Assessing Officer on behalf of any firm, if-- (i) the partnership is evidenced by an instrument ; and (ii) the individual shares of the partners are specified in that instrument. (2) Such application may, subject to the provisions of this section, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by framing an appropriate question in that regard. In the instant case, the High Court followed its earlier decision reported in Addl. CIT v. Degaon Gangareddy G. Ramkishnan and Co. [1978] 111 ITR 93 (AP), wherein after noticing section 14 of the Abkari Act, the High Court held thus : " All the decisions relied upon by the Revenue are applicable only if it is found as a fact that the sub-partnership had carried on the business of liquor, tobacco, opium or any other prohibited article without the requisite permission of the State Government or the Collector, as the case may be. . . . The pertinent question that arises in the present case is whether the sub-partnership has intended to do and in fact did business in liquor in the accounting year. If the sub-partnership also had indulged in the business of liquor without the requisite licence in the name of the sub-partnership or in the names of all the partners of the sub-partnership, the sub-partnership, on the application of the principles referred to above, must be held to be void ab initio and non est as it intended to do business in liquor without the requisite licence. If, on the other hand, the business of the sub-partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " In this case, the lessee is Nizamabad Group Sendhi Contractors (main firm). The sub-partnership is a distinct and different firm. It is one recognised by law and it is not a partnership with the main firm. It will not have the effect of making the partners in the sub-partnership, partners of the main firm. In other words, the main firm, the lessees and the sub-partnership are distinct and different. In the light of the above legal position, it cannot be said that either the sub-partnership in the instant case, or any of its partners as a partner, became a partner of the main firm, Nizamabad Group Sendhi Contractors. The inhibition contained in section 14 of the Abkari Act will apply only in a case where the lessee declares any person as its partner. Here, the lessee, Nizamabad Group Sendhi Contractors, had not declared either the sub-partnership or any other person, as its partner. In such circumstances, the inhibition contained in section 14 of the Abkari Act cannot apply. It is true that Sri Posetty and 10 others formed the sub-partnership, "B. Posetty and Co." -- for a legitimate business purpose, to provide the requisite finance, on condition of allotment of certain shares ..... X X X X Extracts X X X X X X X X Extracts X X X X
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