A partnership formed to conduct the business jointly on a license granted to only one of its partners is illegal and void.

MEHAR SINGH, J.

1. By this application the Commissioner of Income-tax requires the Tribunal to refer a question of law which it said to arise out of the Tribunals order dated October 15, 1957 in I.T.A. No. 817 of 1957-58. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order of the Tribunal, we draw up a statement of case and refer it to the High Court of Judicature at Chandigarh under section 66(1) of the Indian Income-tax Act.

2. Partners of M/s Benarsi Das and Co. of Faridkot applied for registration of the firm under section 26A of the Indian Income-tax Act for the assessment year 1955-56 on the basis of the instrument of partnership dated the 31st day of March 1954. The said partnership deed is annexed hereto as annexure "A", forming part of the case.

3. The preamble and term (1) of the instrument of partnership reads as under :

The instrument of partnership made this 31st day of March, 1954, between : 1. Shri Benarsi Das s/o Shri Munshi Ram of Faridkot,

2. Shri Jangir Chand s/o Shri Bansi Ram of Faridkot,

3. Shri Chali Ram s/o Shri Assa Ram of Gidar,

4. Shri Shivcharan Das s/o Shri Atma Ram of Faridkot,

5. Shri Harcharan Dass s/o Shri Atma Ram of Faridkot,

6. Shri Brij Lal Bajaj s/o Shri Kirpa Ram of Faridkot,

7. Shri Bhagwat Sarup s/o Shri Mithan Lal of Faridkot and

8. Shri Kishan Chand s/o Shri Mulkhi Ram of Faridkot

Witnesseth as follows : Whereas the above named persons hereinafter called the partners have formed a partnership firm under the name and style of M/s Benarsi Das and Co. at Faridkot to run the opium contracts of Faridkot and Ransinghwala taken for Rs. 80,100 and Rs. 8,000 respectively for the year 1954-55, it is hereby agreed as under : 1. The said firm "Benarsi Das and Co." shall run the contracts of Faridkot and Ransinghwala opium for the year 1954-55 the various partners shares in the profit and losses of the firm being as under : Said Banarsi Das ....0-1-6 in a rupee

Said Jangir Chand ....0-4-0 "

Said Chali Ram ....0-2-0 "

Said Shiv Charan Dass Sethi ....0-1-3 "

Said Harcharan Dass Sethi ....0-2-0 "

Said Brij Lal Bajaj ....0-0-3 "

Said Bhagwat Sarup ....0-3-0 "

Said Kishan Chand ....0-2-0 "

4. Licence for the sale of opium was granted in the name of Benarsi Das on April 28, 1954, and it remained so throughout the relevant year of account.

5. The Income-tax Officer refused to grant registration to the firm on the ground that the object of the firm was unlawful and the partnership contract under which the firm was constituted was wholly void. In rejecting the assessees claim the Income-tax Officer relied on the decision of Madras High Court in the cases of Velu Padayachi V/s. Sivasooriam Pillai [1950] 1 M.L.J. 315.], and Mohideen Sahib & Co. V/s. Commissioner of Income-tax [(1959] 18 I.T.R. 200.]

6. The Appellate Assistant Commissioner upheld the rejection of registration for the reasons set out in his order dated March 25, 1957, which is annexed hereto as annexure "B" forming part of the case.

7. The Tribunal, however, accepted the contention of the assessee that Benarsi Das had not transferred the opium licence but had merely utilised the services of seven other persons and rather than engage them on a salary basis had agreed to pay them a share in the profits earned in the business. As the department had failed to satisfy the Tribunal that there was any prohibition or punishment provided under the Opium Act 1 of 1878 and the rules thereunder against the transfer or sub-letting of the licence and the revocation thereof, it held that the Punjab cases reported in 159 P.L.R. 1996 and Adbullah V/s.. Allah Diya [(A.I.R. 1927 Lah. 333.], were apposite and the Madras case which was under the Excise Act was distinguishable as no punishment under the Opium Act for transfer of licences was provided. Having found that there was no transfer of licence as such by Benarsi Dass the partnership was held not to be illegal. The Tribunal accordingly directed the Income-tax Officer