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TMI Blog1992 (8) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ses on route Nos. 51, 54 and 56 on the strength of stage carriage permits granted to it by the transport authorities, it entered into an agreement, styled as an "agency agreement", with four members of the Khanna family (hereinafter referred to as the "Khannas"). For the purpose of carrying on the business of running the buses on the aforementioned routes, in pursuance of the agency agreement, the Khannas entered among themselves into a partnership agreement dated March 15, 1964. It was under this partnership agreement that the assessee-firm, known as "Salkia Transport Associates", came into being with effect from March 29, 1963, the date on which the Khannas had commenced business under the agency agreement referred to above. It was not in dispute that, since the partnership came into being, the assessee-firm had been operating the buses on the strength of the stage carriage permits which did not stand in its name but in the name of the aforementioned limited company. When the limited company owning the buses and previously operating the buses went into liquidation, the partners of the assessee-firm filed an application in the High Court in the year 1969 for a direction to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adistinguished from refusal of initial registration. Against that order of the Appellate Assistant Commissioner, the assessee preferred appeals before the Tribunal. By its consolidated order dated March 31, 1975, the Tribunal held that the orders of refusal of continuance of registration were appealable under section 246(j) of the Income-tax Act and restored the appeals for the assessment years 1966-67 to 1970-71 to the file of the Appellate Assistant Commissioner with direction to dispose of the appeals afresh in the light of the final result of the appeal for the assessment year 1964-65. The appeal of the Department against the order of the Appellate Assistant Commissioner directing the grant of initial registration for the assessment year 1964-65 also came before the Tribunal for decision. By order dated April 30, 1975, the Tribunal restored the appeal relating to the assessment year 1964-65 also to the Appellate Assistant Commissioner with a direction to dispose of that appeal afresh in the light of the directions given by the Tribunal in that order. The appeal for the initial assessment year 1964-65 and the appeals for the assessment years 1966-67 to 1970-71 thus went back to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it by the Departmental Representative on the one side and the assessee's counsel on the other hand, the Tribunal discussed the case law on the point and recorded the following finding in paragraphs 9 and 10 of its order : "Section 31 of the Motor Vehicles Act does not prohibit the transfer of a motor vehicle by one person to another. All that the section says is that where the ownership of a motor vehicle is transferred, the transferor and the transferee shall report the transfer to the transport authority in the manner laid down in the said Act. If the transferor and the transferee have failed to report the transfer and thus contravened the provisions Of section 31 of the Act, they may be prosecuted for that offence but that does not render the partnership between the transferee and others for the purpose of carrying on the business of running the transferred vehicle illegal. Mere transfer of a motor vehicle from one person to another does not by itself amount to transfer of the permit to operate the vehicle so as to amount to contravention of section 42(1) of the Motor Vehicles Act, as laid down by the Madhya Pradesh High Court in Dayabhai and Co. v. CIT [1966] 59 ITR 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort authorities had taken any such action against the assessee-firm. The Tribunal further held that there is distinction in law between the illegality of the partnership itself and illegality of the acts done in the course of the partnership business and, in support of this principle, cited the decisions of the Madhya Pradesh High Court and the Madras High Court. Thus, in the view of the Tribunal, the object of the partnership was not illegal and registration for the assessee-firm could not be refused on the ground of the illegality of the objects of the partnership. For the reasons mentioned in its consolidated order, the Tribunal upheld the orders of the Appellate Assistant Commissioner directing the Income-tax Officer to allow continuance of registration to the assessee-firm for the assessment years 1966-67 to 1972-73. The case of the Income-tax Officer is that the illegality of the object of the partnership affects the assessee's case for registration as a firm. Where its object is opposed to law or public policy, the firm cannot be treated as a genuine firm. Here the partnership was constituted for the purpose of exploiting commercially the bus permits and the buses of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of different Acts. Whether the provisions of the excise law are analogous to those under the Motor Vehicles Act is a question which we need not enter into. Anyway, the decision of the Madhya Pradesh High Court is clearly in favour of the Revenue. The ratio in Dayabhai and Co.'s case [1966] 59 ITR 364 (MP) shall apply in the assessee's case with greater force because, as already noticed by us here, the permit-holder is not a partner of the firm. The permit-holder is a stranger to the partnership. It is a company which allowed the partnership to utilise the route permit for gains of business. Therefore, here is a case of utilisation of the route permits of the buses by another party which is an outside party without however knowledge or consent of the transport authority. There is difference of opinion amongst the High Courts as to whether a firm carrying on business on the strength of the permit or licence standing in the name of one of the partners is tainted with illegality. That question is ruled out in the present case. Here the holder of the permit is not a partner of the partnership firm using the permit for its business. Therefore, the controversy amongst the High Courts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the vehicles or the route permits. From this, the Tribunal drew the conclusion that there was no transfer of the buses and the route permits attracting any of the prohibitory provisions of the Motor Vehicles Act. But we are not in agreement with the Tribunal's reading of the implication of the said decision of this court dated October 10, 1969. It was the claim before the court that the agency agreement whereunder the assessee was utilising the buses and the route permits is a managing agency agreement and the court dismissed the claim and held that, for all practical purposes, the assessee was the transferee in respect of 34 motor buses. Section 59 of the Motor Vehicles Act prohibits the transfer of stage carriage permits without the permission of the transport authority that grants the permit and provides that, without such permission, such transfer would not confer upon the transferee of such vehicles covered by the permit any right to use the vehicles in accordance with the permit or any manner authorised by the permit. Therefore, no agreement under the agency agreement between the assessee and the company in liquidation came to be conferred upon the partnership. This court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and falsely obtained route permit in its name and allowed the true owner who had no permit to conduct the business. There can be no worse violation of the basic requirements of the Motor Vehicles Act. When this court held on the assessee's application in the liquidation proceeding relating to the permit-holding company that there was no transfer of the vehicles or for that matter, the permits, it implied that no lawful transfer was effected and the assessee could not lawfully claim any interest or right in the vehicles or the permits. There is a clear pronouncement in that order against the legality of the assessee's arrangement with the company in liquidation. Now, there is one aspect of the matter very much highlighted by learned counsel for the assessee, i.e., the principle that a partnership cannot be held illegal unless the purpose itself is tainted with illegality. It was only in carrying out the object of the partnership, i.e., the business of transportation, that the assessee committed an illegal act. The question may arise whether such illegality bears down on the very object of the partnership contemplated at the time of its formation. Here, circumstantially, we can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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