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TMI Blog1990 (11) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 per cent. (3) Razaq Khan, S/o Khaju Khan 15 per cent. (4) Badroo Khan, S/o Karne Khan 15 per cent. The main purpose of constituting this sub-partnership-firm was to distribute the share income of Sujankhan derived from or losses incurred to him in the business of Theka Sharab, Ajmeri Gate, Jaipur, amongst the partners of sub-partnership-firm. According to this sub-partnership deed, Sujan Khan became a partner in the original firm on behalf of the assessee firm. The assessee, Sujankhan Laloo Khan, applied for registration along with Form No. 11 before the Income-tax Officer. The Income-tax Officer, by his order dated March 13, 1978, refused to grant registration to the assessee on the grounds that : (1) no business was carried on by the assessee firm during the accounting year relating to the assessment year 1975-76, and (2) the agreement contravenes the provisions of the Rajasthan Excise Act. After the refusal of the registration, the assessee preferred an appeal before the Appellate Assistant Commissioner, Jaipur, who, by his order dated May 9, 1979, upheld the order of the Income-tax Officer and dismissed the appeal filed by the assessee by holding that the deed of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rajasthan Excise Act and, therefore, void and non est in law. In support of his argument, learned counsel for the Revenue has placed reliance over the Full Bench decision of this court rendered in the case of Motilal Chunnilal v. CIT [1987] 168 ITR 650. Learned counsel for the respondent, on the other hand, contended that the business of the main firm is different from the sub-partnership and the three partners of the sub-partnership firm have nothing to do with the main firm and its business and the business of the sub-partner ship is only to finance one of the partners of the main firm who is doing business in liquor along with the other partner(s) at Jaipur in the name and style of "Theka Sharab, Ajmeri Gate, Jaipur", and , therefore, the provisions of the Rajasthan Excise Act have nothing to do with the distribution of the profits of the excise business after allotment of the same to the share of a partner and the sub-partnership is neither illegal nor void and the sub-partnership firm is, therefore, entitled to registration. Learned counsel for the respondent has tried to distinguish the Full Bench decision of this court on the above lines. He has further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the partners ; (2) That an application on behalf of, and signed by, all the partners, containing all the particulars as set out in the Rules, has been made; (3) That the application has been made before the assessment of the income of the firm, made under section 23 of the Act for that particular year ; (4) That the profits (or loss, if any) of the business relating to the previous year that is to say, the relevant accounting year, should have been divided or credited, as the case may be, in accordance with the terms of the instrument ; and lastly (5) That the partnership must have been genuine, and must actually have existed in conformity with the terms and conditions of the instrument. " The apex court further held that, if these five conditions are satisfied, then the authorities under the Act are bound to grant registration to the firm. In CIT v. Sivakasi Match Exporting Co.'s case [1964] 53 ITR 204 (SC), there were five match factories run by five different concerns of which four were firms and the fifth was a sole proprietorship. One partner from each of those four firms and the proprietor of the fifth concern, in his individual capacity, constituted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one or one which has no legal existence, the mere fact that one of the partners brought the share capital from the funds of another firm and took back his share of the profits in the firm to the other firm for division between its partners will not disentitle the firm to registration under section 26A. The source of the share capital contributed by one of the partners and the division of his share of profits in the firm between the partners of another firm in which he happens to be a partner is wholly irrelevant to the question whether a given firm is a real one and has legal existence." "....The matter : Whether a partner in a registered firm can divert his share to the sub-partnership firm, whether it can be treated as the income of the sub-partnership firm and the provisions of section 23(5)(a) of the 1922 Act apply in that case or not came up for consideration before the Supreme Court in Murlidhar Himatsingkas case [1966] 62 ITR 323, and it was held (headnote) : ". . . . There was nothing in section 23(5)(a) of the Indian Income tax Act, 1922, which prevented the income from firm A being treated as the income of firm B and section 23(5)(a) being applied again." It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal derived from Hoshiarpur Electric Supply Company. The Division Bench of the Punjab and Haryana High Court, placing reliance on the judgment of the Supreme Court in Murlidhar Himatsingha's case [1966] 62 ITR 323, came to the conclusion that the sub-partnership in the case is entitled to registration under section 26A of the Indian Income-tax Act, 1922. Whether a partner of a registered firm can enter into a sub-partner ship with other persons and can form a sub-partnership to share his income derived from the main partnership firm between the partners of the sub- partnership firm, came up for consideration before the Andhra Pradesh High Court in the case of Degaon Gangareddy G. Ramkishan and Co. [1978] 111 ITR 93. That was a case in which, for the assessment year 1964-65, a partnership by the name "Nizambad Group Sendhi Contractors" was formed under the deed of the partnership with 17 partners and one of the partners was Rampuram Ganga Goud, having 10 per cent. share. This Rampuram Ganga Goud entered into a partnership with 11 others and executed a partnership deed to the effect that Ganga Goud, after becoming a partner in the "Nizambad Group Sendhi Contractors", found it diffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-partnership firm did not carry on any business. As long as the sub-partnership firm exists and is found to be a genuine one, it is entitled to registration under the Income-tax Act." The matter regarding the grant or refusal of registration under the Act again came up for consideration before the Supreme Court in the case of Ratanchand Darbarilal v. CIT [1985] 155 ITR 720 and the Supreme Court reaffirmed its view taken in the case of R. C. Mitter and Sons [1959] 36 ITR 194 and further held that once such conditions are satisfied, then it is obligatory on the Income-tax Officer under the Act to extend the benefit of registration and allow the firm to enjoy the benefit provided by the Act. In CIT v. Uppala Rameshwara Rao, the question regarding the grant of registration to the sub-partnership firm in the abkari matter came up for consideration before the Supreme Court and the Supreme Court dismissed the Department's special leave petition against the judgment dated March 31, 1985, of the Andhra Pradesh High Court in C. R. No. 55 of 1978, whereby the High Court answered against the Department the question whether the Income-tax Officer was entitled to refuse registration to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, such a partnership would not be valid and would not be entitled to registration under the Income-tax Act, 1961." This judgment of the Full Bench of the Rajasthan High Court, so far as the present case is concerned, is not applicable because in the case of Motilal Chunnilal [1987] 168 ITR 650, new partners were added in the main partnership itself, which changed the constitution of the main partnership while, in the present case, though the main partnership firm is doing business in liquor, the sub-partnership firm is not carrying on business in liquor. The business in liquor under the Rajasthan Excise Act requires the specific permission of the State Government or the district authorities and the business can only be done by the persons who obtain a specific licence for the same. The requirement of specific licence by the persons or the person who conduct(s) such business is a condition precedent as the persons other than the licensees or the permit-holders are specifically prohibited on the ground of public policy from conducting such business. The Full Bench of this court, while considering the pro visions of the Rajasthan Excise Act and the conditions of the licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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