1. Sub-partnership in abkari business entered without government permission under Section 14 of the Abkari Act — eligibility for registration under the Income Tax Act, 1961. (Para 1 )
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1996 Supreme(SC) 49
1996(1) Supreme 291
SUPREME COURT OF INDIA
B.P. Jeevan Reddy and S.B. Majmudar, JJ.
Commissioner of Income Tax, Andhra Pradesh -Appellant
versus
M/s. B. Posetty & Co. -Respondent
Civil Appeal No. 1209 (NT) of 1978
Decided on 8-1-1996
Counsel for the Parties :
For the Appellant : J. Ramamurthy, Sr. Advocate and S.N. Terdol, Advocate.
IMPORTANT POINT
Whether a sub-partnership entered into without following Section 14 of the Abkari Act can be registered under the Income Tax Act requires consideration by a large Bench of 3 Judges of Supreme Court, in view of different holdings in two DB Judgments of Supreme Court.
Headnote:Partnership Act, 1932-Section 4-Definition of Partnership-Andhra Pradesh (Telangana Area) Abkari Act, 1316F-Section 14-Sub-partnership entered into by me of the partners of the firm carrying liquor or abkari business - Sub-partnership was entered into without following Section 14 of Abkari Act-Whether the sub-partnership is entitled to the benefits of registration under the I.T. Act, 1961 for the Assessment Year 1966-67 ? High Court answered in favour of assessee-Appeal by Revenue to S.C.-A D.B. of Supreme Court in (1995) 214 ITR 650 had taken similar view-Contention that said decision requires consideration-Different view in 1955(6) Scale 508 by another D.B. of Supreme Court.
Held : This is a matter which would properly be construed by a Full Bench. (Para 4)
Legal Category Hierarchy
Table of Contents
2. Revenue argues sub-partnerships violating excise laws are void and ineligible for tax registration; opposing view holds they are distinct financing entities not violating such laws. (Para 2 , 3 )
3. The court identified conflicting Division Bench decisions regarding whether sub-partnerships for financing abkari businesses violate excise laws or constitute distinct taxable entities. (Para 2 , 3 , 4 )
4. Conflicting judicial interpretations regarding the legality and tax registration of sub-partnerships in regulated businesses require resolution by a larger bench. (Para 4 )
5. Matter referred to a Full Bench of three judges for an authoritative pronouncement. (Para 4 )
6. Can a partnership formed in violation of state excise laws be registered under the Income Tax Act?
The court noted conflicting views: one suggests agreements prohibited by excise law are void under the Contract Act and ineligible for registration, while another suggests sub-partnerships for financing are distinct entities. (Para 2 , 3 )
7. Does a sub-partnership for financing an abkari business violate Section 14 of the Abkari Act?
One judicial view holds that sub-partnerships for financing are distinct entities and not in violation; another contends that sharing profits of the main abkari business attracts the prohibition. (Para 2 , 3 )
8. What is the legal status of a partnership agreement that contradicts statutory prohibitions?
Such agreements may be viewed as prohibited by law under Section 23 of the Contract Act, rendering them void and unenforceable, though they may still be taxed as unregistered firms or associations of persons. (Para 3 )
ORDER
The short question involved in this appeal is as to whether a sub-partnership entered into by one of the partners of the firm carrying on the business of vending liquor or abkari business, governed by the provisions of Section 14 of the Andhra Pradesh (Telangana Area) Abkari Act, 1316F (hereinafter referred to as Abkari Act ) during the relevant assessment year 1966-67 could be registered under the provisions of the Income Tax Act, 1961 when such sub-partnership was entered into without following the statutory provisions of Section 14 of the Abkari Act. The said Section lays down that the lessee of liquor business cannot take partners without prior permission of Government. The Income Tax Officer refused registration holding that the sub-partnership contravened the aforesaid provision and hence it was void and unenforceable, being formed only to share the profits of abkari business. The said view was confirmed by the Appellate Assistant Commissioner. However, on assessee s further appeal the Income Tax Appellate Tribunal held that the sub-partnership had all the insignia of a valid partnership and was required to be registered. The following question was referred by the Tribunal at the instance of the Revenue :
Whether on the facts and in the circumstances of the case, the sub-partnership is entitled to the benefits of registration under the Income-tax Act, 1961, for the assessment year 1966-67.
That question was answered by the High Court of Andhra Pradesh in favour of, the assessee and against the Revenue. The Revenue has challenged the said decision in this appeal.
2. At the time of the final hearing of this appeal it was brought to our notice that in the case of Additional Commissioner of Income-tax v. Degaon Ganga Reddy G. Ramakrishna And Co. & Ors.1, a Division Bench of this Court consisting of J.S. Verma and K.S. Paripoornan, JJ. , has taken a view in a similar matter in favour of the assessee. It was held that the members of the sub-partnership did not become partners of the main firm. They constituted different and distinct entities for the purposes of the Income Tax Act. The sub-partnership formed by the individual partners of the main partnership which was doing abkari business, with some others, was merely to finance the business of the main partner doing abkari business and share the profits and losses accruing to or received by him from the main firm. The sub-partnership was not, therefore, in violation of Section 14 of the Abkari Act.
3. The aforesaid decision squarely covers the question in controversy before us. However, learned counsel for the Revenue vehemently contended that the said decision required reconsideration. He submitted that a Division Bench of this Court consisting of one of us, B.P. Jeevan Reddy, J. and B.N. Kirpal, J., in Biharilal Jaiswal etc. v. The Commissioner of Income Tax etc.2, had an occasion to consider the question whether the income-tax authorities were bound to register a partnership firm which was contrary to the provisions of State Excise enactment. In the aforesaid decision it was held that such partnership could not be registered under the provisions of the Income Tax Act. In this connection following observations were made by the Division Bench :
Any agreement whereunder the licence is transferred, sub-let or a partnership is entered into with respect to the privilege/business under the said licence, contrary to the prohibition contained in the relevant excise enactment, is an agreement prohibited by law. The object of such an agreement must be held to be of such a nature that if permitted it would defeat the provisions of the excise law within the meaning of Section 23 of the Contract Act.
When the law prohibits the entering into a particular partnership agreement, there can be in law no partnership agreement of that nature. The question of such an agreement being genuine cannot, therefore, arise.
The grant of registration under the Income Tax Act, it must be remembered, co
