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TMI Blog1997 (12) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred the licence or the privilege to and in favour of the partnership firm of which he is a partner' ? (ii) 'such transfer, if any, is not prohibited under the Abkari Act' ? (2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to be treated as a registered firm under the Income-tax Act. The respondent assessee is a partnership firm consisting of three partners running a hotel and a bar. The licence for running the bar was granted to one of the partners, Shri K. J. Joseph. The said licence was utilised for running the bar. The firm is a registered firm with the Income-tax Department. But their continuance of registration for the assessment years 1983-84, 1986-87 and 1990-91 was refused by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned counsel appearing on behalf of the assessee, on the other hand, sought to distinguish the Full Bench judgment. According to him, the assessee is not applying for registration afresh, and secondly, the assessee is an existing partnership firm, doing hotel business. The running of a bar is only one of the many businesses. According to him, a rejection to continue the registration would make the other business also suffer and, therefore, the ratio would not apply to the facts of the case. He submits that the Full Bench was concerned with a case of an assessee who is running an abkari business exclusively on the basis of the licence obtained by one of the partners. He further contends that even assuming that one of the several objects o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with both. A reading of the provisions of the Act and the conditions imposed in the licence granted to the licensee, clearly prohibits the licensee to lease out, sell or otherwise transfer his licence. The violation of the rules and conditions of the licence is made punishable. Of course, there is a provision for a written permission for such a transfer. Apart from the Full Bench which has decided on the identical question which is binding on us, the Supreme Court in Bihari Lal Jaisiwal v. CIT [1996] 217 ITR 746 has held that the assessee could be refused registration on the ground that its constitution was illegal, for breach of the provisions of the Excise Rules. The observations of the Supreme Court in the said decision are in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partnership by the licensee, whereas the rules we are concerned with prohibit such a transfer and make it an offence punishable. Learned counsel for the assessee referred to the decision in CIT v. Three Aces [1989] 176 ITR 160 (AP) wherein, the Andhra Pradesh High Court took the view that if, out of several activities of a firm, one activity turns out to be illegal, that would not render the constitution of the firm illegal or disentitle it to registration or renewal of registration under the Income-tax Act. In that case, the main business of the firm was running a restaurant. The Excise Licence which was granted to the earlier firm was utilised by the new firm. According to the High Court, the illegality would be only in support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the argument of learned counsel for the assessee that there is no legal bar under section 23 of the Contract Act, cannot be sustained. Section 23 of the Indian Contract Act, 1872, states that the consideration or object of an agreement is lawful, unless it is forbidden by law ; or is of such a nature that, if permitted, it would defeat the provisions of any law. The licensee permitting others to participate in the business is a situation not conducive to effective implementation of excise law and is against public interest. It follows that the contract would be defeating the excise laws. Such an agreement is declared by section 23 to be unlawful and void. Therefore, the unlawful partnership cannot be treated as genuine under the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be opposed to public policy and defeat the object of the Act. Therefore, the courts cannot come to the rescue of an assessee to sustain a contract which is opposed to the public policy. It is not the case of the assessee that he would stop the liquor business so as to continue the lawful trade in hotel. Even if there is a possibility of severance, the assessee should be in a position to intimate his discontinuance. That being purely academic and not having taken place, there is no scope for continuance of registration during the relevant period. In the light of the decision of the Supreme Court in Bihari Lal Jaiswal's case [1996] 217 ITR 746 and the Full Bench decision in Narayanan and Co.'s case [1997] 223 ITR 209 (Ker), there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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