COMMISSIONER OF INCOME TAX vs P. KUNHIRAMAN and CO.

V. V. KAMAT, J. :

The questions, with reference to asst. yr. 1987-88, that expect our answer are as follows :

"Whether, on the facts and in the circumstances of the case, and where a partner obtains a licence and carries on the business of abkari contracts, the Tribunal is right in law in holding : (i) it cannot be said that concerned partners has transferred the licence or the privilege to aid in favour of the partnership firm of which he is a partner ? (ii) such transfer, is any, is not prohibited under the Abkari Act ?

Whether, on the facts and in the circumstances of the case, the assessee is entitled to be treated as a registered firm under the IT Act ?"

The assessee is a partnership firm consisting of fifteen partners engaged in arrack business. During the previous year ending 31st March, 1987, relevant to the asst. yr. 1987-88, the VIIth group arrack shops in Kumbala Range, Kasaragod district were taken in auction for a sum of Rs. 18,17,227 by the partnership firm. However, the licences for the shops were in the names of partners - P. Kunhiraman, B. Vasantha Pai and A. Janardhana.

Clause 11 of the deed of partnership dt. 12th January, 1987, covering the partnership from 1st August, 1986, is as follows :

"The auction taken by any one of the partners in his capacity will be treated as the auction taken by the firm. The death of any partner will not dissolve the firm. The legal heirs of the deceased can be restored to the firm by mutual consent."

It would be seen by reference to the said clause that the partners of the firm agreed to treat auction taken by any one of the partners as the auction taken by the firm. Factually, the learned counsel submitted that this was an agreement between the parties contained in the deed of partnership and in regard thereto, it is the firm that is the assessee.

After the decision of the Full Bench of this Court in Narayanan & Co. vs. CIT (1996) KLJ 154, this Court has consistently followed that the partnership that has been entered into for sharing the privileges in dealing in liquor with other partners is a prohibited one. Such a prohibition is available under s. 23 of the Contract Act rendering the entire agreement of partnership as void being against public policy and cannot be recognised as a genuine partnership under the IT Act, 1961. We have already seen that the Full Bench relied on the decision of the apex Court in Bihari Lal Jaiswal and Others Vs. Commissioner of Income Tax and Others, , wherein the apex Court had gone into consideration to hold that the assessee could be refused registration under s. 185 of the IT Act, 1961 and in this connection the apex Court made an observation that since the licence is granted for dealing in intoxicating liquors, the business wherein is res extra commercium and also because they are supposed to be harmful and injurious to the health and morals of members of society, close control is envisaged and provided over the business carried on under the licence. It is observed that this object will be defeated if the licence is permitted to bring in strangers into the business, which would mean that instead of the licensee carrying on the business, it would be carried on by others, a situation not conducive to effective implementation of the excise law and consequently deleterious to public interest. The Full Bench has found the very constitution of the partnership firm being violative of the provisions of s. 23 of the Contract Act.

The learned counsel brought to our notice yet a subsequent decision of the apex Court in Commissioner of Income Tax, Andhra Pradesh Vs. M/s. B. Posetty and Co., , to contend that the apex Court thought of referring the matter before it to a Larger Bench. The learned counsel submitted that this situation be taken into consideration. In CIT vs. Posetty & Co.s case (supra), the question is relating to the entitlement of the sub-partnership to the benefits of registration. In regard to this situation, reference is made to an earlier decision of the apex Court in ADDITIONAL COMMISSIONER OF Income Tax Vs. DEGAON GANGA REDDY G. RAMAKRISHNA AND CO. AND OTHERS., wherein it was held that the members of the sub-partnership did not become partners of the main firm and they constituted different and distinct entities for the purpose of the IT Act, 1961. In fact, the apex Court has observed in ADDITIONAL COMMISSIONER OF Income Tax Vs. DEGAON GANGA REDDY G. RAMAKRISHNA AND CO. AND OTHERS., should squarely cover the question with regard to the entitlement of the sub-partnership to the benefits of registration. But it was found in the Bihari Lal Jaiswals case (supra) to the effect as to whether the IT authorities were bound to register a partnership firm which was contrary to the provisions of the State Excise enactment. In the further process of reasoning, the apex Court has observed that the decision in Bihari Lal Jaiswals case (supra) would apply even in case of such sub-partnership in spite of the situation that the said decision was rendered in connection with the partners of the main abkari business taking in more partners in the main abkari business. It is in this connection, for authoritative pronouncement in relation to the situation of sub-partnership, after making observations, a reference to the Larger Bench was made by the apex Court.

In our judgment, the Full Bench decision of this Court wholly binds us. Apart therefrom, the Full Bench drew strength from Bihari Lal Jaiswals case (supra) of the apex Court. In addition, the observations referred to above with reference to CIT vs. B. Posetty & Co.s case (supra), also referred to the position that Bihari Lal Jaiswals case (supra) would also apply in the case of sub-partnerships. We make it clear that in the proceedings before us, there is no question of sub-partnership in anyway.

For the above reasons, we answer both the questions in the negative, in favour of the Revenue and against the assessee.