COMMISSIONER OF INCOME TAX Vs. SHEONARAYAN HARNARAYAN

JUDGEMENT

(1.) IN this reference under Section 66(1) of the INdian INcome-tax Act, 1922, the INcome-tax Appellate Tribunal, at the instance of the petitioner, namely, the Commissioner of INcome-tax, has referred the following question for our opinion :

(2.) THE present reference arises on the following facts: THE question relates to the assessment year 1960-61. THE respondent-firm consisted of two partners, namely, Sheonarayan and Umashanker. Previous to that, Harnarayan was a partner of the firm along with Umashanker, but, after the death of Harnarayan, Sheonarayan, and Umashanker formed a partnership by a deed dated September 20, 1952, for carrying on business in medicines and liquor. THE liquor business was carried on by the partnership firm on the basis of a licence granted by the Government in the name of Umashanker. THE respondent-firm, therefore, applied for registration for the purposes of the Indian Income-tax Act, 1922, and an application was made to the Income-tax Officer for registration under Section 26A of that Act within the prescribed time. THE respondent-firm stated that it had duly intimated to the Collector that the liquor business in respect of which licence had been issued in the name of Umashanker, who was one of the partners, would be carried on by the partnership firm. THE Income-tax Officer refused registration to the respondent-firm on the ground that the assessee could not prove that it had intimated to the Collector the fact that the liquor business would be carried on by the firm. THE Income-tax Officer was further of the opinion that the contract of partnership in respect of the liquor business was void as being opposed to public policy. For that proposition, the Income-tax Officer relied on the following decisions : Commissioner of Income-tax v. Krishna Reddy, 1962 46 ITR 784, Commissioner of Income-tax v. Union Tobacco Co., 1961 41 ITR 115, Commissioner of Income-tax v. Benarsi Das and Co., 1962 44 ITR 835 Punj and D. Mohideen Sahib and Co. v. Commissioner of Income-tax, 1950 18 ITR 200. THE Income-tax Officer, therefore, refused registration of the respondent-firm.

(3.) AS regards the letter written by the respondent-firm to the Collector, a copy of the same is to be found at page 14 of the paper-book, the same being marked annexure "B", which was purported to have been written on December 15, 1958. In that letter, the respondent-firm had intimated the Collector that the liquor business would be carried on in partnership. In our opinion, mere intimation to the Collector will not be enough. Under Rule VI of the Rales relating to General Licence Conditions, framed under Section 62 of the Madhya Pradesh Excise Act, 1915, the Collector has to sanction the business being carried on in partnership and, accordingly, he is to make an endorsement on the licence itself to that effect. Unless that endorsement be there, it cannot be urged that the Collector had consented to the liquor business being carried on in partnership. Thus, a mere intimation to the Collector would not be sufficient. From this point of view, the question arises whether the action of the respondent-firm in insisting on carrying on the liquor business in partnership would be void, it being opposed to public policy, as per Section 23 of the Indian Contract Act. If it be considered to be void, then naturally, the Income-tax Officer would be justified in refusing registration of the firm for the purpose of liquor business. At this stage, it is pertinent to note that the Income-tax Officer granted the request of the respondent-firm for registration for the purposes of the business of medicines and registration was refused only in respect of the liquor business.