ORDER
V.S. Gaitonde, Accountant Member
1. These appeals have been field by the revenue against the order of the AAC dated 11-1-1984 for the assessment years 1979-80 and 1980-81. The only point in appeals is regarding the correctness of the decision of the AAC that the appellant-firm is entitled to get registration under Section 185 of the Income-tax Act, 1961 (‘the Act’).
2. On behalf of the revenue, Shri Shrinivasan explained the basic facts which are briefly summarised below. There is a Nihalani family at Nanded engaged in the business in the name of Nirose Lodge and Novelty Wine Mart. The latter had obtained a retail licence for sale of liquor. It was considered desirable to have a similar wholesale liquor licence. Accordingly, an application was made to the State Excise authorities. The exact date of application is not known but from one of the letters issued by the Under Secretary of the Home Department, State of Maharashtra, dated 14-7-1978 it appears that the Commissioner of Prohibition and Excise, Maharashtra State had recommended the grant of wholesale liquor licence (FL. 1) by his letter dated 9-3-1978. On 14-7-1978 the Home Department of State of Maharashtra accorded the sanction of the proposal to grant liquor licence to Shri Mulchand Kimatrai Nihalani but it imposed certain conditions. The letter stated clearly that the licence would be granted to Shri Mulchand Kimatrai in his individual capacity. The letter also stated that the licence would be given only if Shri Mulchand Kimatrai retires from the partnership firm Novelty Wine Mart which held the licence for retail licence (FL. 2). A further condition imposed was that neither Shri Mulchand nor any member of his family should keep any interest in the FL. 2 licence of Novelty Wine Mart. It appears, ultimately, that all these conditions were considered as fulfilled and on 2-9-1978 the licence was issued in FL. 1 to Shri Mulchand who was required to pay the annual fee of Rs. 1,000 and a deposit of Rs. 10,000. He did so utilising his funds from Niroz Lodge and Novelty Wine Mart. It was stated that a change in the constitution was made in M/s Novelty Wine Mart disassociating Mulchand and his family from that firm which would thenceforth be held wholly by Nibhandas family.
3. On 2-10-1978 a partnership deed was executed between Shri Mulchand, his brother Ramesh and one Mr. Umesh son of Nibhandas. The partnership deed has a preamble as below :
Whereas the party of the first part Shri Mulchand Kimatrai has obtained licence for wholesale wine and beer business to be done at Nanded, but due to his limited financial and supervision capacity he has taken party No. 2 Umesh and 3 Ramesh as partner.
The other relevant part of the partnership deed is as below :
(4) The party of the third part Shri Ramesh Kimatrai shall attend this business fully and regularly therefore (sic).
Clause 12 : Every partner shall have a right to take part in the conduct of the business.
4. The due course application for registration was filed also with partnership deed etc. The procedural formalities were completed. The ITO examined the partnership deed and other relevant facts mentioned above and held that in terms of Rule 21 of the Foreign Liquor Rules, 1953, the partnership contract is void. Consequently, the question of granting registration would not arise, In support of this contention, the ITO relied on D. Mohideen Sahib & Co. v. CIT [1950] 18 ITR 200 (Mad.), CIT v. Benarsi Das & Co. [1962] 44 ITR 835 (Punj. & Har.), Mohapatra Bhandar v. CIT [1965] 58 ITR 671 (Ori.), Lalchand Mohan Lal Fazilka v. CIT [1967] 65 ITR 418 (Punj. & Har.) and CIT v. Hardit Singh Pal Chand & Co. [1979] 120 ITR 289 (Punj. & Har.). Accordingly, the ITO refused registration.
5. Aggrieved by the decision of the ITO the assessee filed an appeal to the AAC who allowed the same. Before coming to AAC’s order, it would toe necessary to examine the relevant provisions of the Bombay Prohibition Act, 1949 and Bombay Foreign Liquor Rules, 1953. Briefly re-stated no manufacture or sale of intoxicants can be permitted except in accordance with the provisions of the Act or Rules. There is prohibition of manufacture and sale without proper trade and import licence. A licence is a must. The various officers of the Government have necessary powers to grant or refuse licence and to impose such conditions as they may think fit (as has actually been done as above). Section 58 of the Bombay Prohibition Act, 1949 provides that the right, title or interest under licence is personal to the licence-holder and is not liable to be sold or otherwise transferred or even attached in execution of decrees. Section 65 provides for penalty for illegal imports of intoxicants, etc. As far as Bombay Foreign Liquor Rules, 1953 are concerned, the relevant Rule 21 has been quoted by the ITO in his order as under :
21. Regulation of business of licensee :
(1) No person shall be recognised as partner of the trade and import licensee for the purpose of his licence, unless the partnership has been declared to the Collector before the licence is granted and the names of the partners have been entered jointly in the licence or if the partnership is entered into after the granting of the licence, unless the Collector agrees on application made to him to alter the licence, and the State Government has sanctioned such alteration and addition.
Rule 21(2) though not mentioned by ITO specifies as below :
A trade and import licensee shall carry on his business under the licence either personally or by an agent or servant duly authorised by him in this behalf by a written nokarnama signed by himself and countersigned by a Prohibition and Excise Officer not lower in rank than a Sub-Inspector ; provided that any such nokarnama signed by the licensee shall be valid until counter-signature is refused. If for any reason the Collector shall order the withdrawal of any nokarnama issued by the licensee, the nokarnama shall be forthwith withdrawn. For every nokarnama issued by him and countersigned the licensee shall pay a fee of Re. 1. No nokarnama shall be issued to any person under 21 years of age and no such nokarnama, if issued shall be valid.
6. The departmental representative on the basis of the above contended that violation of the excise rules constitutes not a mere technical or venial infraction of law but a serious offence which would defeat the very provision of law enacted for enforcing prohibition law founded on the sacred directive principles enshrined in article 47 of the Constitution of India. As the licence is personal, if the same is unauthorisedly allowed to be exploited by the other persons, it would mean violation of the terms of the licence and also an act which would defeat the provisions of law. The validity of the contract is therefore, to be examined from the point of view of Section 23 of the Indian Contract Act which states that the consideration or object of an agreement is unlawful if it is forbidden by law or is of such a nature that, if permitted it would defeat the provisions of any law or is fraudulent. There are also other provisions regarding the Court treating it as immoral or opposed to public policy. Section 23 further provides that in each of these cases, the contract or object of an agreement is unlawful and every agreement of which the object or consideration is unlawful is void.
7. The D.R. then pointed out that when the above aspects are taken note of, the scheming of the parties to defeat the provision of law becomes clear. First, Shri Mulchand agrees to sever his connection with Novelty Wine Mart and pleads before the authorities that he and his members of the family have given up all interests in that firm and that members of Nibhandas family alone would be interested in that firm. Then an application is made for wholesale liquor licence. Even before the ink on this licence dries up Shri Mulchand enters into a partnership contract with others, including Umesh who is a member of Nibhandas family. As if this is not enough Shri Mulchand makes one more application for a bonded warehouse licence in 1979 and once again holds himself out as a proprietor of M/s Novelty Wine Traders when in fact he has already entered into a partnership with Ramesh and Umesh. The authorities would not have granted a bonded warehouse licence in 1979 if they were aware of the actions of Shri Mulchand culminating in a partnership contract the legality of which is now challenged by the ITO. Thus, the ITO was justified in refusing registration on the ground that the partnership is illegal, and void,.
8. It is true that the ITO has relied only on Rule 21(1) of the Bombay Foreign Liquor Rules. This rule provides a rule of evidence regarding recognition of a person as a partner. Thus, although someone may in fact be a partner he would not be recognised as a partner unless the conditions for such recognition the Government authorities are fulfilled. Although the ITO has relied on Rule 21 other provisions of law summarised on page 1 of D.R. compilation would show that the chronology of actions culminating in the partnership contract betray planned actions of defeating the provisions of law. Under the Bombay Prohibition Act, 1949 Section 58 provides that the right, title or interest under licence is not liable to be sold or attached in any execution of decree. This shows that the right is personal to the licensee and is not transferable. The D.R. highlighted the fact to show how the two licences were procured and dealt with, vis. FL, was obtained by Shri Mulchand by paying Rs. 1,000 licensee and Rs. 10,000 as deposit and when the partnership was formed, these were treated as expenses and asset of the alleged firm respectively and credit was given to Shri Mulchand. The bonded warehouse licence was obtained during the subsistence of the alleged firm by paying licence fee and deposit out of funds of the alleged firm and were shown as expenses and asset of the alleged firm. Thus for both the licences obtained the firm treated the licence fee as revenue expenditure and claimed deduction and the deposit amounts were shown as asset of the firm in its balance sheet in the respective years. The fact that the alleged firm reimbursed Shri Mulchand for the revenue expenses (Rs. 1000) and also for the deposits (Rs. 10,000) would show, particularly in view of the Supreme Court decision in Sunil Siddharth bhai v. CIT [1985] 156 ITR 509 that there is an actual or attempted transfer of the licence by Mulchand which is prohibited.
9. Against the above factual and legal position, the departmental representative contended that the AAC went wrong in examining certain issues out of context. The AAC has not disputed that Rule 21(2) requires the licensee to carry on the business personally or by agent or a servant who is recognised by the Collector. But instead of examining this basic position, the AAC went wrong in comparing the wholesale licence FL 1 and FL 2 as far as the licence forms go. Actually, nothing turns on what has been mentioned in the licence FL 1 and FL 2 forms as both are governed by the same provisions of law. Further, the AAC erred in holding that carrying on a business by a partnership in respect of a licence held by one of the partners may not invalidate partnership unless the statute specifically says so. It is futile to expect in a prohibition law all possible situations regarding partnership. The issue has to be examined from the Indian Contract Act’s viewpoint. Further, the AAC erred in holding that the test of legality is only with reference to the object of the partnership being contrary to the law. As already mentioned above, even if the object is to defeat the provisions of law the contract cannot but be void. General test of the type applied by AAC cannot be appropriated because it is not possible to say that the prohibitions of partnership is technical or purely administrative. Lastly, the AAC erred in holding that the burden of proving the illegality is cast upon the person alleging illegality. This is not really a question of burden of proof but an appraisal of the facts touching the validity of the partnership. Lastly, Shri Shrinivasan submitted that all the case law mentioned by the AAC refers to specific statutes/rules and no ratio as applicable to the facts of this case governed by Maharashtra regulation can be drawn. Once it is shown that there is no material distinction between FL 1 and FL 2 as far as the legal provisions are concerned, no useful purpose would be served by examining the case law. Shri Srinivasan, however, reserved his right to distinguish the particular case law, if necessary, after ascertaining the arguments on behalf of the assessee.
10. In reply, Shri Bhide defended the order of the AAC though in a slightly difference manner. It was fairly conceded that the alleged distinction between the conditions mentioned below FL 1 licence and FL 2 licence is a distinction without a difference. Whatever prohibitions are there for FL 1 would apply mutatis mutandis to FL 2. Nevertheless, it cannot be said that the ITO is justified in refusing registration on the grounds mentioned by him. Firstly, there is no transfer of the licence by Shri Mulchand. The worst that can be said is that the partnership itself did not take out a licence of its own possibly under a bona fide impression that it could proceed on a licence granted to Shri Mulchand. Secondly, as the partnership deed itself shows, Shri Mulchand has not stated anywhere that he is transferring the licence to the firm. Reliance on Sunil Siddharthbhai’s case (supra) is not apt because there can be a transfer only of that commodity which is otherwise legally transferable. If as alleged by the revenue, the licence is not transferable at all, the book entry or reimbursement of expenditure would not amount to a valid transfer of an otherwise non-transferable item in view of Section 6(h) of T.P. Act. Thirdly, as explained in Manilal Dharamchand v. CIT [1970] 78 ITR 96 (Bom.) the rule of construction should be that a document must be read with a view to giving it legality rather than illegality. Taking us through the partnership deed again, Shri Bhide pointed out that Shri Mulchand has declared candidly that he has obtained licence. He has also stated clearly that he wanted finance and supervision assistance and that it is these requirements which prompted him to enter into partnership. The alleged offending clauses viz. Clause 4 authorising Ramesh to attend the business fully and Clause 12 enabling every partner to take part in the conduct of the business do not. ipso facto mean that the partnership business could not have been carried on without breach of law. There are several aspects of the work of partnership which do not require any work directly connected with the wholesale liquor licence or the bonded warehouse licence. All matters dealing with these licences should be assumed to have been carried out by Shri Mulchand or his authorised agent or employee in a manner so as to be consistent with all the conditions laid down in the licence. If the department holds otherwise, the burden is heavily on the department to show what work was done by Ramesh and Umesh which in their opinion would amount to violation of statute or the terms of the licence. Shri Bhide then explained the distinction between the violation of a statute in terms of the partnership and violation de hors the partnership. It is only in the former case that the partnership could perhaps be treated as illegal or void but in case of latter, the partnership would still be valid and genuine and entitled to get benefits of registration. In the case before us, there is nothing to show that the partnership contract itself represents a designed and calculated attempt to violate the law or to commit a wilful breach of law so as to defeat the provision of law. If all actions of the firm resulting in illegality were to be considered as part of the partnership contract, every assessee who invites penalty under Income tax or Sales-tax Law would automatically lose the benefit of registration. Such an interpretation of the partnership contract would be absurd.
11. Shri Bhide was aware of the decision of this Bench in Vijay Wine Mart [IT Appeal No. 34 (Pune) of 1982 dated 17-8-1983]. He submitted with great respect that the decision requires a review, in that, it does not take into consideration several legal and factual aspects. In IT Appeal No. 34(PN)/82 what had happened was that a proprietor had taken his wife as a partner from 1-4-1977. There was no evidence laid to show that the newly admitted partner actually did all the work for partnership without violating provisions of Clauses 3 and 4 of the licence. It was on these peculiar facts that the Tribunal held that the partnership was illegal. Further, in that case, the admission of the wife as a partner was set right through an appropriate application to the Collector with effect from a later date thus confirming the position that prior to that date also the wife was doing the same work which the licence-holder was entitled to do which was against the law. In the case before us now, there is no such thing. No fault is found with partnership by the excise registration authorities who have visited the shop and warehouse from time to time. Shri Bhide however, admitted that there is nothing to indicate that the State excise authorities were actually aware of the existence of the partnership.
12. Shri Bhide then took us through voluminous case law, on the point to show how entering into a partnership by a licence holder would not amount to breach of law. In the oldest case Champsey Dossa v. Govardhandas Karssoivji XIX Bombay Law Reporter 382 there was a licence for manufacture of salt with a provision barring subletting, selling or alienating the privilege without the written permission of the issuing Collector. It was held that the licensee cannot be said to have contravened the terms of the licence simply because he admitted members of his family and others as partners who did not take part in the actual manufacture. It was also held that there is no documentary or other evidence indicating the direct transfer of the right to manufacture to any such partner. This decision was confirmed by the Privy Council in Gordhandas Kessowji v. Champsey Dossa AIR 1921 PC 137. Shri Bhide next referred to Narsaiya & Co. v. CIT [1983] 143 ITR 304 (MP) dealing with Madhya Pradesh Excise Rules and distinguished the same on the ground that it dealt with Section 39 of MP Excise Act requiring prior permission of the Collector. This judgment followed CIT v. Sheonarayan Harnarayan [1975] 100 ITR 213 (MP) which followed its own earlier judgment in CIT v. Pagoda Hotel & Restaurant [1974] 93 ITR 271 (MP). The ruling is based on the interpretation of the specific provision that the holder of privilege shall not enter into a partnership. In the case before us, there is nothing to show that the licence holder is barred from entering into a partnership. The only consequence, if at all, when a partnership is entered into is that unless the other partners are also enrolled and registered before the excise authorities they shall not be recognised as such [rule 21(1)]. As this provision is made only for the limited purpose of ensuring proper administration of the prohibition law, the admission of partner, as far as the Maharashtra State is concerned, is not illegal in absence of any specific provision of the type which existed in the MP excise rules as reproduced in item 2.2 on page 3 of his compilation. Thus, the MP High Court decision on which reliance is placed is not applicable to the facts of the case. Shri Bhide next referred to Nandlal Khajanmal Chhatri v. Thomas J. William AIR 1937 Nag. 250 and submitted that this decision also is not applicable because it dealt with the M.P. rules mentioned above. Similarly, the decision of the Orissa High Court in Mohapatra Bhandar’s case (supra) dealing with licence for ganja and opium should be taken as confined to the facts of that case, which banned transfer of sub-lease. Actually, legal impact is to be seen in the light of the fact that Velu Padayachi v. Sivasooriam Filial AIR 1950 Mad. 444 (FB) on which the above case law is founded may not be good law in view of the later judgment of the Supreme Court which will be referred to later on. Shri Bhide next contended that the facts of the case are similar to those in CIT v. K.C.S. Reddy [1960] 38 ITR 560 (Pat.). It is, however, admitted that the Bihar Mica Act did not require a partnership as such to take out a dealer’s licence. It was also accepted as a fact that the licence holder alone would purchase, sell or deal in the commodity vis., mica and that there was no duty cast upon the licence-holder to get the names of the other partners endorsed on his licence. This aspect thus makes the case only of persuasive value. Rule 21(1) and Rule 21(2) of the Excise Rules of Maharashtra are worded differently. Shri Bhide referred to Jer & Co. v. CIT [1971] 79 ITR 546 (SC) wherein their Lordships held that in respect of U.P. Excise Rules, entering into a partnership is not barred. It is, however, clear that their Lordships of the Supreme Court have referred to one Rule 574 of U.P. Excise Rules, the exact text of which is not known. It cannot also be said that identical provision exists in the Maharashtra statute.
13. Shri Bhide then tried to distinguish Hardi Singh Pal Chand & Co.’s case (supra) on which the ITO has relied. According to Shri Bhide the decision has to be taken as confined to the licence under the Punjab Excise Laws which require prior approval of the authorities for admitting a new partner or for allowing a person to conduct the sales on behalf of the licensee. Shri Bhide made a statement that in the assessee’s case before us now, the necessary authorisation or nokarnama has actually been given, but admitted that no evidence on this point was placed before any of the authorities below. We have, therefore, regretted our inability to examine this aspect at this late stage.
14. Referring to Oudh Cocogem & Provision Stores v. CIT [1968] 69 ITR 819 (All.) Shri Bhide submitted that a partnership deed need not fail in its entirety. Shri Bhide could not, however, show how exactly this case would help as there is no evidence either way regarding the actual work done or expected to be done by the partners Ramesh and Umesh. Shri Bhide then tried to distinguish other case law relied, vis. D. Mohideen Sahib & Co.’s case (supra) and Benarsi Das & Co.’s case (supra). According to Shri Bhide where the ITO merely alleges that the contract is opposed to public policy, the same cannot be a ground for refusing registration because public policy is a matter to be decided by the Courts as held in CIT v. Sri Ramakrishna Nursing Home [1976] 105 ITR 86 (Mad.). We need not, however, examine the issue further because this judgment dealt with ethics and certain other aspects of a doctor entering into a partnership with a non-doctor with the approval of the State Medical Council. Besides, as mentioned above, the main thrust of the DR’s argument is regarding the execution of the partnership contract with the intention of defeating the provisions of law.
15. Quoting from Moitra on Indian Partnership Act, 2nd Edition page 20, Shri Bhide contended that as a general rule, where the law imposes penalty for doing an act, the agreement to do things so prohibited is not unlawful under Section 23 of the Indian Contract Act. But where the statute prohibits absoletely contract may fail in view of Section 23 of the Indian Contract Act. According to Shri Bhide, the prohibition regarding utilisation of the licence is only for administrative purposes. In such cases, unless it is proved that there was mens rea, it cannot be held that there is any conscious disregard of law. The fact that in this case no action has been taken by State Revenue authorities would show that there has been no breach either on account of the partnership contract or other indulgence to Ramesh and Umesh. On breach, the prohibition authority may suspend or cancel the licence. Further, in case of breach only the licence holder or his agent or nokarnama holder will be considered liable. Thus, by allowing a partnership to carry on the business with the help of the licence of Shri Mulchand all that has happened is that Shri Mulchand has given immunity to Ramesh and Umesh from being held liable for offence under the Prohibition Act in case such an offence is committed.
16. The main arguments were wound up by making brief reference to the following case law stated to be in favour of assessee-
(i) Jer & Co. v. CIT [1971] 79 ITR 546 (SC) reversing the decision of the Allahabad High Court in Jer & Co. v. CIT [1966] 60 ITR 335 (U.P. liquor licence rule).
(ii) P.C. Kapoor v. CIT [1973] 90 ITR 172 (All.) (FB) (U.P. Excise Rules).
(iii) Md. Warasat Hussain v. CIT [1971] 82 ITR 718 (Pat.), (Orissa Excise Rules with a specific finding that the partners did not handle excise matters.) Applying Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC) (Bengal Excise Act).
(iv) CIT v. Manick Chandra Bey [1977] 106 ITR 860 (Cal.) (West Bengal Rice Order).
(v) CIT v. Prakash Ram Gupta [1969] 72 ITR 366 (Pat.) (Bihar Excise Act with specific finding that the partners supervision work did not expand to excise licence).
(vi) CIT v. N.C. Mandal & Co. [1969] 72 ITR 769 (Pat.) (Bihar Excise Act).
(vii) CIT v. Gian Chand & Co. [1973] 87 ITR 113 (Punj. & Har.) (Punjab Fishing Rules).
(viii) National Roadways v. CIT [1975] 99 ITR 97 (Mad.) (Madras Motor Vehicles Act).
(ix) T. K. P. R. Ramanatha Chettiar & Bros. v. CIT [1969] 73 ITR 811 (Mad.) (Madras Motor Vehicle Act).
(x) Dayabhai & Co. v. CIT [1966] 59 ITR 364 (MP) (MP Motor Vehicle Act).
17. Shri Bhide then submitted that the earlier case law against the assessee has sprung up relying mainly on Velu Padayachi’s case (supra) followed first in D. Mohideen Sahib & Co.’s case (supra). This case was followed in Vardarajalu Naidu v. Thavasi Nadar AIR 1963 Mad. 413. But the Supreme Court in KM. Viswanatha Pillai v. KM. Shanrnugham Pillai AIR 1969 SC 493 disapproved the same. Though Pillai’s case is with reference to Motor Vehicle Act and benami ownership, all case law following Velu Padayachi’s case (supra) is to be taken as no longer good law in view of the Supreme Court observation in KM. Viswanatha Pillai’s case (supra). Thus, CIT v. Nalli Venkataramana [1984] 145 ITR 759 (AP) which examined all the case law represented in correct legal position. Shri Bhide relied particularly on the observations of their Lords-ships of A.P. High Court that when the Supreme Court decides a particular question in a particular way, every previous decision which had answered the same question in a different way has to be held to have been wrongly decided. Further, a decision of the Supreme Court cannot be ignored on the ground that Their Lordships have not considered the question of public policy.
18. Shri Bhide then took up two alternate arguments without prejudice. The first one based on K. Subramanian v. Siemen’s India Ltd., is that where there are conflicting judgments the one in favour of the assessee should be preferred. The second one is based on Dulichand Laxminarayan v. CIT [1956] 29 ITR 535 (SC) that as the firm is not a legal entity it has no existence separate from those partners. We are, however, not inclined to accept these alternate contentions as proposed by Shri Bhide. Firstly, one cannot say that there is any clear decision in favour of the assessee merely because ultimately registration is granted. Each of the decisions is to be seen in the light of the facts in the particular case and the relevant provisions of Law. Secondly, it cannot be said as a general rule that refusal of registration would always be against the tax payers. It will all depend upon the incomes of the firm and the incomes of the partners apart from their share from the firm. Thirdly, the fact that the firm is not a legal entity is a proposition applicable only where the statute is silent. Income Tax Act refers to a firm as distinct from partner and further distinguishes between registered and unregistered firm. The principles of Dulichand Laxminamyan’s case {supra) would not be applicable when the question of partnership registration is to be considered.
19. In his rejoinder, Shri Shrinivasan submitted that no useful purpose would be served by liability a list of reported cases in favour or against the validity of the partnership without examining the relevant facts and the legal position arising in those cases. None of the cases relied upon by the learned counsel of the assessee had any evidence regarding the calculated plan to defeat the provisions of law as in this case. The question whether a partnership deed was executed for the purpose alleged by the revenue is basically a question of fact. Thus, case-law deriving support for grant of registration on the basis of U.P. Rules would not be relevant because their Lordships of the Supreme Court have themselves explained a particular rule therein which provides for entering into a partnership. In the other case law also the legality of partnership was considered on facts that there was no breach of law. Regarding allegation that the burden of proof shifts on the revenue. Shri Shrinivasan wondered how such a burden could shift. The burden of proving all the facts is primarily on the person in whose knowledge the facts lie. The relevant clauses of the partnership deed do not put any restrictions or fetters on Ramesh and Umesh. Therefore, the burden is still on the assessee to show that the business could have been and has actually been carried on without breach of law. It is well known that the excise measures are not mere revenue or administrative a regulatory measures but are intended for public good. We may not be concerned with the public policy but we are certainly concerned with strict observations of laws on the subject which have to be very strict in view of the need for imposition of curbs on consumption of intoxicants. In Champsey Dossa’s case (supra) referred to by Shri Bhide, there was a factual finding that the business was actually managed by the licensee himself and there was only a sharing of profit. Further, it has not been shown that the provisions of the Bombay Excise Act are materially different from those of Punjab and M.P. whereas it is quite clear that the U.P. Rules in particular Rule 574 has no corresponding rule in Maharashtra. Referring to CIT v. Union Tobacco Co. [1961] 41 ITR 115 (Ker.) Shri Shrinivasan pointed out of that the provisions of Cochin Tobacco Act, 1084 M.E. bear a marked similarity to the facts of the present case. Their Lordships have clearly held that the Supreme Court decision in Umacharan Shaw & Bros.’s case (supra) does not overrule the decision of the Madras High Court in Velu Padayachi (supra). Thus, the ratio of Velu Padayachi still stands as far as the present case is concerned, because of the peculiar provisions under the Maharashtra Excise Legislation. K.M. Viswanatha Pillai’s case (supra) which refers to Manick Chandra Dey’s case (supra) deals with the rice licence where it was found as a matter of fact that there is no prohibition for entry into partnership. Durga Madira Sangh v. CIT [1985] 153 ITR 226 (Raj.) dealing with the registration provision is distinguishable as it dealt with the technical breach in that the firm which had already four partners with a valid licence did not obtain the permission when it admitted the six other partners. The State Government even after noting the additional partnership entity did not penalise or cancel the licence. It was on these peculiar facts that their Lordships held that the firm is entitled to registration. Shri Shrinivasan then referred to the case of Dhanji Lalji v. CIT [1977] 107 ITR 395 (Bom.). Their Lordships of the Bombay High Court have held that all facts are to be taken cumulatively for deciding whether refusal of registration is justified or not. The execution of a partnership deed or application in time for registration cannot grant immunity from security of the real nature of the alleged partnership contract. He then referred to Manilal Jamnadas v. CIT [1977] 109 ITR 278 (Bom.) where their Lordships of the Bombay High Court again reiterates that all the facts are to be considered. That was a case where it was held on facts that the retirement of a partner was a make believe affair. Similarly, in the case before us, the alleged admission of Ramesh and Umesh is a make believe affair. The Bombay Prohibition Act has to be strictly construed there being no scope for liberal interpretation as alleged. If, as now alleged by Shri Bhide, that some Nokarnama was given to Ramesh and/or Umesh, it would only mean that the assessee has with an ulterior motive kept back the evidence. It is possible that the State Excise authorities were kept in the dark about the partnership. Further, no inspiration can be derived from Jer & Co. v. CIT [1971] 79 ITR 546 (SC) because it has not been shown that any provision corresponding to Rule 574 of U.P. Excise exists in Maharashtra. Thus, the facts of the present case would be akin to Hardit Singh Pal Chand & Co.’s case (supra). Rule 21 is markedly similar to the Punjab provision. There can be no dispute about the Andhra Pradesh High Court judgment in Nalli Venkataramana’s case (supra) because on facts, it was held that there was no such prohibited transfer, the permission of the licensing authority not being obtained being only a technical lapse. As already pointed out above, the present case cannot be treated as one of the technical lapse because carefully devised plan has been hatched through the application of licence of Mulchand, execution of partnership and obtaining bonded warehouse licence, etc., and in particular introduction of member of Nibhandas family (which had interest in the retail licence) which the State authorities did not want.
20. We have carefully examined the various facts and the arguments. In our opinion, as rightly contended by the D.R. the relevant case law for and against holding the partnership as valid has to be examined in the light of the particular facts of each case and the relevant laws. The liquor regulations are not just revenue measures but measures introduced with the intention of promoting the State policy of curbing consumption of intoxicants in the light of the directive principles of article 47 of the Constitution. From the facts above, it is quite clear that the State Excise authorities would not have granted wholesale liquor licence or Bonded Warehouse licence to Shri Mulchand if they were made aware of the fact that Mulchand had a plan to admit members of Nibhandas family for an active participation in the business. This is quite clear from the conditions imposed by the Government directing Mulchand and members of his family to disassociate themselves wholly from retail liquor business run in the name of Novelty Wine Mart. Thus, what has been done in the garb of partnership contract amounts to an action to defeat the purpose and provision of law. Section 23 of the Indian Contract Act on this point, as pointed out by the departmental representative would thus be squarely applicable. The D.R’s contention regarding actual transfer the licence cannot be accepted. Mere book entries debiting the expenditure on the licence by the alleged firm and treatment of deposit as its own would indicate only an attempt to transfer a licence which is not transferable as explained in Section 6(h) of T.P. Act. But whether the licence is actually and legally transferred or not, the decision to use and exploit the licence in a manner not permitted by law is writ large in the partnership contract itself. The preamble, no doubt, says that Shri Mulchand required assistance in the form of finance and supervision for making the best use of his licence. But the remaining clauses which enable Ramesh and Umesh to take full part in all the business activities of the assessee without any fetters would show that the partnership contract was executed in a manner so as to defeat the object and provision of law. Since the partnership contract itself does not put any restrictions on Ramesh and Umesh one has to assume that every partner is entitled to act as an agent of the firm in all respects including matters arising on account of the licence. If so, the burden is heavily on the assessee to show that Ramesh and Umesh did or could have acted wholly within the four corners of the law and yet discharged duties cast on them in terms of Clauses 4 and 12 of the partnership deed. This burden is not discharged. The facts of this case have thus no parallel in any of the reported cases relied upon by either side. The question of giving legality rather than illegality thus does not arise. One has to go by the plain words of the partnership contract. Coming to the objection regarding Rule 21, the non-recognition of a partner for the purpose of licence is not a mere formality as the licensing authority verifies the character and antecedents of each of the partners exactly as it would verify the antecedents of persons appointed under agency or nokarnama as mentioned in the rule. The Andhra Rules referred to in Nalli Venkataramana’s case (supra) do not bar entering into partnership and do not have a provision corresponding to Rule 21 of Maharashtra. The rule did not also require a firm to take a separate licence. All that was required was previous permission. In contrast the Bombay Rules require a specific declaration and endorsement of such names on the licence of all partners irrespective of whether they take up only work unconnected with the licence or not. There is nothing to suggest that the State authority would make the endorsement merely on oral assurance that the partners would be attending wholly only to that part of the business as would not involve connection with the licence.
21. When the above aspects are borne in mind it becomes quite clear that the case law directing grant of registration is to be taken as confined to the legal position emanating from the relevant statutes and special facts. In all the cases, there was a specific finding that there was no transfer of licence and that the rules did not prohibit entering into partnership. In particular it is to be mentioned that Md. Warasat Hussain’s case (supra) and Prakash Ram Gupta’s case (supra) had a specific finding that the partners did actually work in the business in a manner which could be considered as within four corners of the law, without violating terms of licence or privilege. No such finding in favour of the assessee can be given, on facts before us. A statement was made at the bar that the respondent-firm in this case has already been dissolved. It is also not necessary to examine the contention that the case law following Velu Padayachi’s case (supra) is to be taken as overruled by the Supreme Court judgment in KM. Viswanatha Pillai’s case (supra). No case dealing with the Maharashtra Excise provisions or having a background regarding declaration for the purpose of licence by one person as a proprietary concern (even after the commencement of the partnership) in 1979 or the clandestine introduction of partners of another family which the Government expressly desired to prohibit, appears to have come before any High Court. In the ultimate analysis the contract of partnership falls under Section 23 of Contract Act, viz. “A contract which, if permitted, would defeat the provision of law or is fraudulent” and is consequently void. As far as the AAC ‘s order is concerned, the wind is taken out of the sail, as it is admitted that the AAC based his case mainly on the alleged distinction between the terms of licence. FL 2 (Retail) and FL 1 (wholesale) and there is really no distinction between the two licences. We accordingly reverse the decision of AAC and restore the order of the ITO.
22. Appeals are allowed.