1. Partnership dealing in liquor where only some partners held the license — dispute over registration under Section 185 of the Income Tax Act, 1961. (Para 1 , 2 , 3 )
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2000 Supreme(SC) 1257
SUPREME COURT OF INDIA
N.Santosh Hegde : S.P.Bharucha : U.C.Banerjee
Commissioner Of Income Tax, Patiala
Versus
Rangila Ram
Case No. : 150 of 1998
Date of Decision : 8/3/00
A partnership agreement to conduct a liquor business is illegal and ineligible for registration under the Income Tax Act if it violates excise laws prohibiting license transfers or partnerships without permission, as liquor business is res extra commercium.
Headnote:(A) Income Tax Act, 1961 - Section 185 - Registration of partnership - Liquor business - Res extra commercium - No one may deal in liquor without express permission - If a licensee enters into a partnership to deal in liquor, other partners also deal in liquor, which is contrary to basic principles and illegal - Such an agreement is not genuine and cannot be registered under the Act. (Para 6)
(B) Excise Law - Prohibition on transfer or sub-letting of license - Agreement to enter into partnership regarding privilege business under a license, contrary to excise enactments, is an agreement prohibited by law. (Para 4)
Facts of the case:
A partnership firm dealing in liquor sought registration under the Income Tax Act. Only some of the partners held the necessary liquor license. The lower courts had allowed the registration, holding that the partnership was entitled to be registered.
Findings of Court:
The court held that the liquor business is res extra commercium and requires express permission. A partnership formed to conduct such business without permission for all partners is illegal and the agreement is not genuine.
Issues: Whether the Appellate Tribunal was right in law in ordering that the claim of the assessee firm for registration under Section 185 of the Income Tax Act, 1961 be accepted.
Ratio Decidendi: The liquor business is res extra commercium. Permission is granted only to the licensee. Entering into a partnership to deal in liquor makes all partners dealers in liquor, which is illegal without express permission. Consequently, such an agreement is not genuine and is ineligible for registration under the Income Tax Act.
Result: Appeal allowed.
Act Referred
Legal Category Hierarchy
Table of Contents
2. Revenue argues partnership violates excise laws and is not genuine; assessee contends sub-partnerships for financing are permissible. (Para 4 , 5 , 7 )
3. Liquor business is res extra commercium; partnership without permission allows non-licensees to deal in liquor, violating legal principles. (Para 6 , 7 )
4. Partnership agreements to deal in liquor in violation of excise laws are prohibited by law and ineligible for registration under the Income Tax Act. (Para 4 , 6 )
5. Appeal allowed — High Court order set aside — registration under Section 185 of the Income Tax Act denied. (Para 8 )
6. Can a liquor licensee enter into a partnership to conduct the business without prior permission?
No. The liquor business is res extra commercium, and only the licensee is granted permission. Entering a partnership allows other partners to deal in liquor, which is contrary to basic legal principles and illegal. (Para 6 )
7. Is a partnership agreement that violates state excise laws eligible for registration under the Income Tax Act?
No. Agreements that transfer, sub-let, or create partnerships regarding licensed business in violation of excise enactments are prohibited by law and not considered genuine agreements for registration under the Income Tax Act. (Para 4 )
8. Does a sub-partnership formed solely to finance a liquor business violate excise laws?
Not necessarily. If sub-partnerships are formed merely to finance the business of a partner and share profits and losses, rather than to actually conduct the liquor business, they may not violate excise laws and can be registered. (Para 7 )
(1) THE Revenue is in appeal against the order of a Division Bench of the High Court of Himachal Pradesh. Thereby, the High Court answered against the Revenue the following question:
"WHETHER in the facts and circumstances of the case, the Appellate Tribunal was right in law in ordering that the claim of the assessee firm for registration under Section 185 of the Income Tax Act, 1961 be accepted."
It did so relying upon an earlier judgment.
(2) THE question arose out of an order made by the Income Tax Appellate Tribunal which had held that the registration of the partnership in question under the Income Tax Act had not been rightly refused.
(3) THE partnership (the assessee) dealt in liquor. Only some of the partners held the liquor licence.
(4) OUR attention was drawn by the learned Solicitor General, appearing for the Revenue, to the judgment of this Court in Bihari Lal Jaiswal v. CIT. It was held that a licensee could not be
"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. It is for this very reason that transfer or sub-letting of licence is uniformly prohibited by several State excise enactments. It, therefore, follows that 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".
Accordingly, it was held that this not being a genuine agreement, it could not be registered under the Income Tax Act.
(5) OUR attention was also drawn to the judgment in CIT v. Hardit Singh Pal Chand & Co. where the Rules applicable, even in the State of Himachal Pradesh, have been set out, and there is no doubt that a liquor licensee may not enter into a partnership without prior permission.
(6) THE basic principle, as it seems to us, is that the liquor business is res extra commercium. No one may deal in liquor without express permission. It is only the licensee who is granted such permission. If he enters into a partnership to deal in liquor, all the other partners would, as partners, also be dealing in liquor and holding the same. This would be contrary to the basic principle and illegal.
(7) LEARNED counsel for the assessee relied upon a judgment of this Court in CIT v. Degaon Ganga Reddy G. Ramakrishna & Co. It dealt with the A.P. Telangana Area Abkari Act, which contained a prohibition similar to that stated above. This Court held:
"6. In view of the clear findings of fact recorded by the Tribunal, there can be no doubt that the sub-partnerships formed by individual partners of the main partnership which were lessees, with some others, merely to finance the business of a partner of the main firm doing abkari business and share the profits and losses accrued to or received by him from the main firm, were not in violation of Section 14 of the Abkari Act. For this reason, there is no basis to hold that the sub-partnerships were in violation of Section 14 of the Abkari Act and, therefore, illegal. The Tribunal was right in holding that in the facts and circumstances of the case, the assessee sub-partnerships being found to be genuine were entitled to be registered under the Income Tax Act. The High Court has correctlybe genuine were entitled to be registered under the Income Tax Act. The High Court has correctly answered the question of law referred to it, against the Revenue and in favour of the assessee."
The facts of the case are entirely different. The sub-partnerships were not formed to do business in liquor but, as the Tribunal clearly found, to finance the business of the partner of the main firm doing abkari business and share the profits and losses accrued
