_ BIJAEPUR. V
IN THE HIGH COURT or KARNATAKA cincvlfr'
AT GULBARGA __
Dated this the 2"" day of N0vembe_r.~ V
pREsENf'
THE HON'BLE MR,JUsT1cr;"N.KUM4éR:v': 1
THE HON'BLE MR.,.1JUsi*i¢'E' 1' SiIBHASHV "I3.AD1
ITA
BETWEEN :
THE COMMISSJQNER OF 'INQQME jimx
KH1MJIBr--I0T1'COMMERCW. COMPLEX
opp. CIVIL_HOS.P1TAL -- . '
BELGA'UM--'590'O0.'1-._ "
THE I;\Icc5'M_E" TAX .o'F*F£c1i:R
WARI).--2 ' '-
. APPELLANTS
' ' .(;§4Y Sm KUMAR DESHPANDE, ADV.)
'V V' 1').I3LIVER;E}I) THE FOLLOWING;
ix.)
AND:
M/S SB. PANNALKAR 8: CO..
BIJAPUR ROAD
JAMKHANDI.
{BY SR1. ASHOK KULKARNI, -AAD:\fu.' -I?OR"-- "
SRI. K.R. I:>RASAD',,A::x_v.) "
THIS INCOME TAX APPEAL-IS FIL.EI)«UNDER§ SECTION
260--A OF' IT. ACT, 195.1 ARIS-I-NG*0U'_F OF 'O-RD.ER DATED
30-06-2006 PASSED IN __ITA NO.3623._/BANG/2004, FOR THE
ASSESSMENT YEAR 2001-I02, ':?RAI;'1NOjO_TIIAT THIS HON'BLE
COURTMAY BE PLEASED TO; j
i} FORMULATE THE SUBS. QUESTIONS OF LAW
SATED THEIREIN'g_.'~ _ _
1'1) ALLOW THE AP;REAI,'A.ND.'SE'I'"'ASIDE THE ORDER PASSED
BY ITAT "'i:::I:SAI~IGALORE----V" BENCH 'B' IN ITA
NO.3623/BANG/'.2002;-I DATED 30-06-2006 AND CONFIRM
ORDER PASSED THVE---.ASISESSING AUTHORITY, IN THE
INTERESTS' OF JUSTICE-.AN--.t_)"EQU1TY.
. APPEAL COMENG ON FOR HEARING, N.KUMAR, J.,
"
JUDGMENT
The revenue has preferred this appeal
order passed by the Tribunal which held
complied with the provisions of Section and
entitled to the benefit of deduction
1961.
2. The assessee_fij’.\/I/:03 lB–.__’~.¥?’annalkar & Co., a
partnership firm is carr_yingV..Von__ the””‘busl£tiess of liquor on
wholesale bas_lils.’l5f_Thel31iquor~licence stood in the name of one of
the partners.” fih’c..plilc-fence”-was”.not transferred to the name of
the assessee andilit Vcontinueld to be in the name of the partner.
‘0 lffhe “a.s:seissee’i– zcarI*ied'”mon this wholesale business using the
“ii..¢e;._;§;e’ by the firm and therefore the Assessing
Autliority dislallolxred the remuneration paid to the partners and
the interest on capital, vide order dated 23.03.2004. Aggrieved
same, the assessee filed an appeal before the
___”‘l«.Cofnmissioner of income Tax (Appeals) Belgaum. The appeal
came to be allowed by order dated 18.09.2004. Aggz~iev’ed by
the same, the Revenue preferred an appeal before
which came to be dismissed affirming the order”p_e1ssed
Appellate Tribunal. Aggrieved by sanfiet t1f:eAlV’E”{everi.{,l1e h
before this Court.
3. The appeal was admpititeldohl’*2§§.02.t2GO.7..to consider
the following substantial 0[uelst:to11_sf’ot7 1ei§2’v::?_
” 1) t.:Appelldte”Authority and
Vc.3W=ih_iilnt1Z u)I:«:sV.co–rrect in “holding that a licence to
uend lViqz;or. an individual can be used
by thefi’r’rnlutnd/or__lit’;=”partners when there being
no le_gal’ trans fer of the licence ?
l ‘Whetherlllthe First Appellate Authority and
it 0. correct in holding that though
issued to an individual to mend in
J utilised by a third party firm, the same
it v1;;l)uld not attract Section 23 of the Contract Act ?
3) Whether the First Appellate Authority and–_
Tribunal was correct in distinguishing
judgment of the Hon’ble Supreme Court_r-e;o’o’rtefcl–. 9′
in 2002 (254) rm 230 (so) «M Comr_niss_ioner.:’o_f 3
Income Tax vs. Rangeelararji Otheits ?;
4) Whether the First Appellate’ Aut’hott’iyl’and’j’§ .
Tribunal was justfied in. holding tbat”At.h;e
a valid firm despite mefgitt that it haasv-violated
the provisions :E::cise Act in
conducting liquor uitthouft fjayment of
transfer u2’i_thottt”havinglj’licence of its
ownond ‘act Qf thefinn being opposed
1 S’?
A Whethe’r.:theticence issued to an individual
A « , for v4endirtg.7liquor be transferred as an asset
the firrn under Section 2(2) of the Partnership
_Act*and ij’ so, would it not amount to violation of
it licence conditions, thus affecting the
provisions of Section 23 of the Indian Contract
1′ ,. lA_ct V?”
4. Learned Counsel for the Revenue assailingp the
impugned order passed by the Tribunal contendedV..t.h’at’:
under the Karnataka Excise Act, a liquor”
transferred with the permission ;’3:fmVU’l’3 p_
admittedly in this case, no such is
could not have carried on liquorc:’p:b1isine.ss_ of the
licence which stood in the na1r1eVp_:’of “-one of “they partners.
Secondly, he contended thlatain laid down by the
Apex Court, a partner ‘transfer the licence
standing in t.l_i.eD’1a.anie ltvhelllpartnership firm, on
the basis of whiich the.partnership firm carries on the business
in liquor, which is eleariyuproliiibited. A contract entered into in
this regard isuuhipt 133.?’ Section 23 of the Contract Act as it is
‘opposed totheppublicvlllpolicy as well as the express provision in
th”eVstatrL!,t”e»…r_pd in ‘those Circumstances, the Assessing Officer was
justified in .disvalllouring the deduction to the firm wherein the
‘salary paid’i~to the partners and the interest paid are treated as
expenditure and given the benefit. Therefore, he
RX”
submits that the order passed by the Tribunal as well as the
appellate authority is liable to the set aside.
5. Per contra, the learned Counsel
assessee submitted that in the instant case. _ti1cr.e: tranisier
of licence. The partnership firm liquor l’
business. After the firm came into_V:e’xistence;_; carry on
business, it had to obtain itiiwas agreed
between the partners obtained either in
the name of the firm or o–f~th’e.:’pbartners. If obtained
in the name of Vth.e«i.p4artners;–.itwould be an asset of the firm. In
those circurnstances; licence was applied in the name of
the partner. the firs paid out of the partnership firm and
it stood in the name of the partner. it was the
VAi’assetVplAovfT’:thve partnership firm and there was no transfer of
licence partner to the firm involved in this case. The
‘ “judgn1entt’relied on are not attracted to the facts of this case and
the appellate authority as well as the Tribunal held that
it/r
the firm is entitieci to the benefit of deduction. ‘Fh~e”refore’.,he
submits that no case for interference is made out,_.”*’
6. The Apex Court in the of,
JAISWAL Vs. CIT, has held as arider:
” A iicensee coald.. nofihlbelei to in
strangers into the :I,’I:)hf’i1fA’c’,l1fi1;i._?OltlCi mean
that instead licensee on the
busine§ss,fi;ii’_Vivoillci be by others a
V _ R” V” i not it ieonoiueitget’ V to effective
l excise law and
:’:__conset;;ViteI1tlg;j”riehteterioiisl to public interest. It is
for this my “that transfer or sab–letiing of
_ license prohibited by several State
excise enaetrrients. It, therefore, follows that any
where under the license is transferred,
a partnership is entered into with
to the privilege business under the said
contrary to the prohibition Contained in
the relevant excise enactment’, is an agreement
V H prohibited by law. ”
Again the Supreme Court in the Case of CIT Vs.
PAL CHAND AND CO., held that the liquor 1aceA1a3seéA:’1;:’g3£’
enter into a partnership without p1’tor_permiss_£o191.””rid _ .g
Again in the case of CIT Vs. DEGAON
SHNA AND CO., the Apex chm-f’1:as heicl
” In view of the clewfiraaiiigs of ‘recorded
by the Tribunal; .no–..doubtu’t’hat the
subsparmershipslfonrted. partners of
the main’–p_artners’i”ti;:§”: u)hi_ch_ lessees, with
some to finance the business of a
partnerV’~’oj7._ ‘matn.g_firr:1 doing abkart business
and and losses accrued to or
received the main firm, were not in
i it :.>:o1atzc$h~ ofsechon 14 of the Abkart act. For this
theremts no basis to hold that the sub-
” l. were in violation of Section 14 of the
and, therefore, illegal. The Tribunal
right in holding that in the facts and
H »ci:’rcumstances of the case, the assessee sub-
partnerships being found to be genuine were
bl/.
entitled to be registered under the
Act.
7. The Apex Court had
said question in the ease of
PATIALA Vs. RANGILA RAM in l_(lé5<i3 ITR 230
(SC). In the said Case, doxishrnhlthe law as
under:
” principle, to us, is that
the are: commercial. No
_Oine_ ;,:_ ll without express
pef’7Al1:9’s.ior1,_l:’It is,only the licensee who is granted
sueh “he.~~enters into a partnership to
debit.’ liduolr,’._vdll.._l~~the other partners would, as
l ‘V partners-, be dealing in liquor and holding the
5»-sarrtes Thiswlwould be contrary to the basic
_ “and illegal.”
.8. »._’ T’i1″e1’efo1’e, ultimately it is the intention of the
as” gathered from the facts of the case which would
l.l_«i&detvelrn1’ine the eligibility for deduction. No person can carry on
it,
liquor business without a licence or permission. Such;
granted is not transferable. Even if transferable’;
subject to conditions. A partnershipifirrnto it
needs a licence or perrnision
Excise Act. if an individual Viransfersfhe to
partnership firm, it has to law.
Otherwise the transfer __Section 23 of the
indian Contract Act, and a ‘partnership firm
chooses to obtain in the ofpne of its partner and
the licence ipéréated as the partnership
asset expresslvx even before acquiring
such licneiggand firm pays the fee for obtaining
such licence, the..sAaid”‘licence granted is a partnership asset and
.is=noV’t*thelpersonal property of such partner. No transfer is
i’nybJ_x_;ed- =s_u’ch=aftransaction. It is not a case of a person who
has obtained Zaglirliuor licence is inducted into a partnership as a
dz”-‘..__partner,” .vvl1o brings in the said licence as his capital
coritiribtttion and makes available the licence to the partnership
to carry on liquor business and thus circumvent the law
[Licence ..{General Conditions) Rules 1967, reads as under:
12
prohibiting transfer of such licence. Thus the
should acquire the licence to carry on liquor __i;i.1siness~–eii*i-.–.Taab
manner known to law to be eligiblefQf__C1ec13;1ctionsundécr the
heading business expenditure 1JI1Cl(31:’.:4S€3f’.3’l.if_1:[1 ‘oflthleliilnconie
Tax Act. 1961. V V ‘_
9. It is not in dispute thiunder the Karnataka Excise
Act, Section 15 deals witl1._i:he sal’eo_f’eiécisable« ‘articles without
licence is prohibited.
‘cf ‘-excisabie articles without
Iicence.. ‘ ‘
}. ir1toitttjcin.£..’ishall be sold except under
the duthiorityiand subject to the terms and
congiitionsvllllllof a licence granted in that
The rule found in 1703) of the Karnataka Excise
I3
” I 7MB. Transfer of licence in other cases.– U)»
Notwithstanding anything contained in -1-
2, licences issued, —
(i) for sale of Indianiziiquor
arrack) or Foreign Liquor in No. R’
CLAI (Wholesale licen_ce)… or {retail
licenses) or CL–7 (Hotel”‘and_VBoarding’ “Rouse
Licenses} or roolnli (Bar)
Licence under {Sale of
Indian and Foreign. Liquoifsj I 968; or
{ii} of:Beer_”u.nder—-the Karnataka
‘Q:fl”R,_l’_ghi of Retail Vend of Beer)
-K’-.Rules. — R’
Commissioner may on an
tA.applicaiion by the licensee and subject to
* ;,,,”l4hai;rrri,ent vofwltransfer fee equivalent to the
‘V=._annuai–.licence fee specified in Rule 8 of the
Excise [Sale of Indian and Foreign
Liquors) Rules, 1968 or Rule 5 of the
” Kamaiaka Excise {Lease of Right of Retail
Vend of Beer, Rules, 1976, as the case mag
14
be, and with the prior approval of the Excise’
Commissioner, transfer such licence in_ ‘7’
of any person named by such licence, .
person is eligible for grant; ofa .li_cence«
the Karnataka Excise ‘lorlldii”»’»’?”‘. it
made thereunder. V _ .
[2] Nothing in ‘fl1i,T$z”‘ful€’
transfer of licence uni -“r l ‘ E
10. From the reading. provisions it is
clear that no intoxicant licence granted
in that lbehe_1fA.xV’l’vfThel:’«Rules”-also.’ provide for transfer of such
licence in favotir ‘per’son::named by such licensee, if such
persorris _ eligible for of licence, under the Karnataka
1965 Rules made therein. Therefore, there
is no;-totaled’prohibition for transfer of the excise licence.
11.} ‘Corning to the facts of this case, the preamble to
‘the Paittne.rship Deed dated 04″‘ November 1997 reads as
-1 , .. .. W//1 _.
” WHEREAS, the above said parties of then”. _
15* to 6*” parts along with Late
GANGABAI W/o BABURAO PANALKAR.’ L”
were carrying on business .of”Fareig7n V
in partnership till 2.1
name and style of M/s 1 2
CC), at Jamkhandi the it
deed dated 1.4.1992. ‘ _V
AND the §g;:i¢:..,_s;§it.oanguba:
W/ o Baburao ..j:o.rr1lchandi
expireciion.2.1:1.l99%. V 2
_ « _» the remaining
‘pal-tners._ eoritintieéi “the said business as
in partnership with effect from
‘3.V11.1’9£’7….._911 the following terms and
V o renditions.”
xclalluésel3vvo£_’t£1elV.Péirtnership Deed is of utmost importance. It
reacisas u:1.der_; ‘T
9.
16
” 3. THAT the business of partnership:
shall be that of dealing in foreign Liquor agici or. . it
any other business that the partners.__j may it 1′
decidefrom time to time.” .
Clause 15 reads thus:
” 15. THAT the licencex:’t0_ the said
business may beflobtc-iinedeither’in the name
of any partner or in. to suit
the conuedraienceiwofi laujj-unu:ier.V’tohich such
lice’nc§e, twflowever, the
licen_ce::_ _belorigs firth only. =.
12. Frorn recital in the partnership deed,
It is clear that though Athisftnartnership came into existence on
1′ Ath 1’Jiover;–1ber,A 19957′ ‘fer« the reasons set out above, the business
=1i«cjuor” xvasV”e3;r1iled on by the partnership from the year 1992.
The said bu-sijneiss cannot be carried on without a licence being
‘VVobtai’ned:’«§Nh1ch is to be renewed every year. it is In that
A Clause 15 provides for iicence which may be obtained
either in the name of any partner or in the name of the firm.
E7
However, the licence belongs to the firm only. It
dispute that after the formation of such .
licence was obtained in the name of one V»
Therefore the business of the
licence. Therefore it is not a case a
licence and enters into a partnership firrn contributes
licence as his capital aidlofllvwhich the
partnership carries on the
provisions of is prohibited.
Similarly, this ‘the’ licence is transferred
without authorities, when the statute
provides This is a case where a
Pa1″tne§r’:-yhip on liquor business. On account
V. of the one partners, the partnership firm came to
reconstituted. Without a licence, they could
not *–.have.~ ~coi.itinued to cany on the liquor business in
‘ ‘partnership. Therefore, they agreed to apply for a licence either
it ‘thelname of the firm or in the name of a partner making it
clear that even if the licence is obtained in the name of the
18
partner, the licence belongs to the partnership;
Therefore, it is not a case of transfer of licence to’ _
firrn nor transfer of licence to a partnership withoiit:j*pgei’ri’iission ” V»
of the authorities. The very licence is obtaiiiedghbyl the’
the name of a partner, to carry -on theV_plartnee.rs’iiip_business_it’;
which they were carrying on for than prior to the
constitution of the .A ” If it if
13. ‘Hit? is no intention on
behalf of these the law. It is not
camoufla_gecl_’ Therefore the appellate
authority Aaspwell were justified in holding that
the afoi’esaid of Apex Court has no application to
It is a case of genuine partnership
in liquor after obtaining licence in the
narnelof v_ the partners, treating the said licence as
– ‘««___lpartnersi1_i_p asset. No transfer is involved.
14. In fact, the Apex Court in an unreported _§vuti~grrIent
in the case of GRAND ENTERPRISES {T _
COMMISSIONER OF INCOME TAX, ~m.~ .:’jcj:Itz§iIf:Appeg:ciI-« ..
No.1 31 711319/01, disposed of on flit’ 2r4)’Of£:;V–II,_’Vai£*§eI’
referring to the aforesaid judgments ofV'”the”Ape:;”‘C’,o:.irt
under:
” A condition expressivgh the entry
into agvptzrthership a’«.iiee_tfiCVe_’ hjoider would
ope:’afe if _Lvere:InOV fer in fact.
that “ail: Q) is a transfer,
th<'2F1tttVti»5?V be;]7O;:t:Iaily established.
h 'In the fact of mere
utiiisgdiionh "the'..:iieence, nothing further has
i it been recorded the High Court to come to the
. 7"eOntch,tIsion there has been a transfer of
or of any rights thereunder to the
Neither the partnership deed
»__'nOr:'any other facts have been brought on
" record which would Show that the liquor
licence and the privileges thereunder were
brought in by the licence holder by way of his
capital contribution to the partnership assets'."».l
We have already held that merely forTnin_g§'_:the–«l — » A4
partnership firm would not tantamo_antfl"to L.
transfer without something' mrnore'. In
absence Of an express sl"1fi4"$l5Tyll 15lr'OU'£»"'l§nll'
prohibiting the format1'o'n- of a parfi1ershtpl'l-Eaylial
licence holder, the Hig'i1.V:lV.Court haoel
addressed itself to then-'qLiestto~n whether the
licence formed of property
or not, Unless the answered
in the§.va_f,tr'inati§tA_)e, Htgh_j–Couift, I could not
draw' the there a transfer
of the the condition
on hadlloeen granted to the
Therefore it clear .that"inl'the instant case there is no statutory
'l V' "prQvilsiori..A'prohibitingthevformation of a partnership by a licence
l"'ho'Id&er; did not contribute the licence as a captial
c0n't1filjutior1't:tet::the partnership assets. On the contrary, the
licence," from the inception, was treated as partnership asset by
R.
words in the partnership deed.
2]
15. In that View of the matter, the aforesaid
of the Apex Court have no appIicati_.on.._’ It inuu
connection with express statutory “p1foV:’is1oVn on” the \,?ar.ioi3.s
State enactment. in question w1iiei–:._.proVisions ate n_0t…t.h.ere inf’
the enactment in question In that_o_f the mattervvfwe do not
see any merit in this appeal,’ the substantia}
questions of iaw in faVou3″*v.ofoth€¢and against the
revenue. Accorétinéjifi, tltc cipjaeqi Vistttiiisifitissed.
= ‘¢,”a*.W .’ judge
…..
Vfim ‘ksp/nu. 2