DURGA MADIRA SANGH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act'), by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, who referred the following questions of law for the opinion of this court :

(2.) IF the answer to the above be in the affirmative, whether the Tribunal was justified in holding that the assessee was not entitled to registration under Section 185 of the I.T. Act, 1961 ?"

(3.) ON the other hand, Shri N. K. Jain, the learned counsel for the assessee, placed reliance on Kapoor v. CIT [1973] 90 ITR 172 (All) [FB], It was a case of partnership in excise business and the Allahabad High Court rejected the contention of the Revenue that the partnership was illegal because of the provisions of the U.P. Excise Manual wherein paragraph 337 provided that a partnership in respect of an excise licence without obtaining the prior approval of the Excise Commissioner is invalid. Its was held by the Allahabad High Court that the instructions contained in the Excise Manual were merely executive instructions issued to the District Excise Officers and do not have the force of law and had been issued merely for the purpose of providing a guideline. Under Section 64 of the U.P. Excise Act, a licensee, if he wilfully does anything in breach of any of the conditions of the licence, is to be punished with fine which may extend to Rs. 200. It was held by the Allahabad High Court that since the Act merely imposes a penalty without declaring a contract made in contravention of it to be illegal or void, the imposition of penalty by itself and without more does not necessarily imply a prohibition of the contract and since the excise authority did not choose to cancel the licence, the licensee was entitled to carry on his business under the licence and will also be bound by the agreement entered into by him. Therefore, the agreement entered into by the parties was not held to be an agreement forbidden by anything contained in the U.P. Excise Act. The Allahabad High Court distinguished its earlier cases, Jer & Co. v. CIT [1966] 60 ITR 335 and Oudh Cocogem and Provision Stores v. CIT [1968] 69 ITR 819 (All) and placed reliance on a decision of the Privy Council in Govardhan Das Kesshowji v. Chamsey Dassa [1921] AIR 1921 PC 137, wherein the Privy Council had held that a licensee of salt manufacture cannot be said to have contravened the terms of his licence whereby lie is prohibited from alienating his interest simply because he admits members of his family and others as partners and had relied on two decisions of the Patna High Court in CIT v. Prakash Ram Gupta [1969] 72 ITR 366 (Pat) and Md. Warasat Hussain v. CIT [1971] 82 ITR 718 (Pat), wherein it has been held that in a case where a licensee entered into a partnership with a non-licensee, mere formation of a partnership does not amount to transfer of licence. The decision of the Allahabad High Court in Jer & Co. v. CIT [1966] 60 ITR 335 has been overruled by the Supreme Court in the case reported in Jer & Co v. CIT [1971] 79 ITR 546 (SC) and held that the licensee is not prohibited from entering into a partnership. It merely provided that the licence shall not be sub-leased or transferred and there was no prohibition in the licence against the holder entering into a partnership and, therefore, the partnership was legal and the appellant was entitled to registration.