An agreement of partnership for the purpose of carrying on an unlawful business is void ab initio, and the Income-tax authorities are justified in refusing registration of such a firm under Section 26-A of the Income-tax Act.

NARASIMHAM, C. J.

( 1 ) THIS is a reference under section 66 (1) of the Indian Income-tax Act, 1922 made by the Income-tax Appellate Tribunal referring the following question for the opinion of this Court :

"whether on the facts and circumstances of the case the Income Tax officer was justified in refusing registration of the alleged firm under section 26-A or the Income Tax Act. "

( 2 ) ONE Udayanath Mohapatra held a license for excise shop in ganja and opium in his own name, for the previous year ending 31-3-62 for which the assessment year would be 1952-53. Finding difficulty in financing the said excise shop individually, he entered into partnership with five other persons and a deed of partnership was executed on 30-3-1950. In that deed the interest of each partner in the profits and losses was specified. The partnership firm was described as mohapatra Bhandar and that firm applied for registration under Section 26-A of the Income-tax Act for the year in question. The income-tax authorities refused registration of the firm on the ground that the transfer of excise business by udayanath to the firm was prohibited, by the Excise Laws of Orissa and consequently the object of the firm was to carry on unlawful business.

( 3 ) POSSESSION and sale of Ganja are regulated by the Provisions of the Bihar and orissa Excise Act under which such possession and sale are prohibited except in accordance with a licence granted under the Act. Rule 152 of the Rules made by the Board of Revenue, Orissa under that Act is as follows :

"no transfer or sub-lease (whether entire or partial) of a licence shall be made except with the previous permission of the Collector. " possession and sale of opium is governed by the provision of the Opium Act of 1878 which prohibits such possession and sale except by a person holding a permit or licence, in accordance with the Rules made by the Government of Orissa, under that Act. The Board of Revenue made subsidiary rules under the provisions of the said Rules, regarding the grant of license made under the Opium Laws. Condition No. 8 of the General Conditions applicable to such licenses is as follows : "no transfer or sub-lease (whether entire or partial) of a license shall be made except with the previous permission of the Collector. "

Here it is admitted that the previous permission of the Collector was not taken so as to enable the assessee firm to carry on the business of possessing and selling opium and Ganja for the year in question. Hence any agreement between the licensee namely Udayanath Mohapatra and the other partners for carrying on the business in respect of those conditions without obtaining the previous permission of the Collector would be unlawful because carrying on such business without license is an offence under the Bihar and Orissa Excise Act and the Opium Act.

( 4 ) THE learned Tribunal relied on a Madras decision reported in D. Mohideen Sahib and Co. v. Commr. of Income-tax, Madras, 1950-18 ITR 200 : (AIR 1950 Mad 451) which again was based on an earlier Full Bench decision of the same High Court, reported in Velu Padayachi v. Sivasooriam Pillai, AIR 1950 Mad 444 (FB) where it was held that such an agreement is void ab initio. This view has been followed by the Kerala High Court in Commr. of Income-tax, Mysore v. Union Tobaco Co. Ernakulam, 1961-41 ITR 115 : (AIR 1960 Kerala 276) and by the Punjab High court in Commr. of Income-tax v. Benarsi Das and Co. , 1962-44 I T R 835 (Punj ).

( 5 ) MR. Misra for the assessee however, urged that so long as the actual business of possessing and selling the excisable goods was done by the licensee, the mere fact that it entered into partnership with other persons for carrying on that business will not amount to 'transfer or sub-lease' of the license, and consequently such an agreement of partnership' would not be unlawful. For this purpose he relied on gordhandas Kersowji v. Champsey Dossa, AIR 1921 PC 137, Shiam Bihari Lal v. Malhi, AIR 1917 All 5