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TMI Blog1997 (10) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... business of abkari contracts, the Tribunal is right in law in holding--- (i) it cannot be said that the concerned partner has transferred 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 relevant facts are as follows : The assessee, a partnership firm, was refused registration under section 185(1)(a) of the Income-tax Act, 1961, for the assessment year 1990-91 by the assessing authority, who found that the firm was carrying on abkari business in violation of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n liquor covered by the licence in favour of his partners and such a transfer is hit by the provisions in rule 6(22) of the Rules. It was also held that such a contract of partnership is void under section 23 of the Contract Act and a void contract of partnership cannot be recognised as a genuine partnership for the purpose of the Income-tax Act, 1961. Learned counsel for the assessee contended that the above decision has no application in the facts of the present case. According to him, in this case, transfer of the licence to the business of the firm was not after formation of partnership as in the case reported in Narayanan and Co. v. CIT [1997] 223 ITR 209 (Ker) [FB]. Referring to annexure D, copy of the partnership deed dated March 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icence shall be bound by the conditions of that licence." In all other rules, such as the Kerala Foreign Liquor (Compounding, Blending and Bottling) Rules, 1975, and the Abkari Shops (Disposal in Auction) Rules, 1974, there is no reference to any prohibition in formation of a partnership by the licensee. Rule 6(22) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974, reads as follows : "(22) The licensee shall not sell or otherwise transfer his contract or licence without the written consent of the Assistant Excise Commissioner concerned. No licensee shall lease out or sub-rent the whole or any portion of the privilege granted to him under the licence." Rule 13(2) of the Kerala Foreign Liquor (Compounding, Blending and Bott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, even if the licence can be issued only in the name of an individual, it is not illegal to conduct the business through a partnership by utilising the licence. We do not find any reason to accept the contention raised by the assessee that the dictum laid down by this court in Narayanan and Co. v. CIT [1997] 223 ITR 209 [FB] cannot have any application to the facts of this case. It is true that in the above case, the licensee entered into a partnership by which he transferred a portion of his privilege under the licence in favour of other partners and thus violated the provisions of the rules. We cannot find any difference in the legal position when the very object of the partnership was for treating the licence to be obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld also take in transfer of a portion of the privilege of the partner in favour of other partners which would be against the provisions of the rules. The Full Bench had observed in Narayanan and Co. v. CIT [1997] 223 ITR 209 (Ker) as follows : "So, the partnership that has been entered into for sharing the privilege in dealing in liquor with other partners is a prohibited one. Such a contract of partnership is void under section 23 of the Contract Act." We fully agree with the above observation. If that be so, no difference can be spelt out in the legality of the contract of partnership merely for the reason that even at the time of execution of the deed of partnership the intention was to do business by exploiting the licence to be obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that there was no such prohibition. The question whether entering into a partnership would entail a transfer of a portion of the rights of the licensee in favour of the partnership, was not as such raised. In this context, it is relevant to refer to a decision of the Supreme Court in Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. In the above case, it was held that when an assessee brought his personal assets, namely, shares of limited companies, into the partnership firm as his contribution to his capital, there was a transfer of a capital asset within the meaning of section 45 of the Income-tax Act. The exclusive interest of the partner in the individual asset before he enters the partnership is reduced on such entry into a shared inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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