Bishambhar Dayal, C.J.

This is a reference at the instance of the Commissioner of Income Tax, M. P., under Section 66(1) of the Indian Income Tax Act, 1922. The question referred is:

"Whether, on the facts and in the circumstances of the case, the assessee-firm was an illegal firm not entitled to registration?"

The question for consideration, therefore, is whether the firm was illegal in the circumstances. The findings of the Tribunal on which the opinion has to be expressed may be shortly stated as follows. Four persons, viz., Ramlal Sethi, Ramlal Anand, Sukardutt Anand and Vikramajit Sethi, were carrying on business, in partnership and were running a hotel and restaurant in the name of Pagoda Hotel. Partner No. 1, Ramlal Sethi, was, in his personal capacity, running a shop for selling foreign liquor and had a licence for the same. He was running the shop in the name of M/s. Sethi Wine Stores. Another partner, Sukardutt Anand, was also running a foreign liquor shop in the name of Anand Wine Stores. He also had a licence in his own name for the purpose. From 1st April, 1959, these shops were also handed over to the partnership firm and along with the hotel the partnership started running both these shops as a firm. All the partners had equal shares in all the businesses. The wine shops were, however, managed by managers employed separately in each shop and the transactions and business of these shops were carried on separately against each other as also against the restaurant. The remaining two partners, who previously had no interest in the wine shops, did not take actual part in the running of the wine shops even after they had been made partners of the firm's business. The partners entered into a written agreement of partnership on 21st May, 1959. It has been recited in this document that parties Nos. 1 and 3 have invited parties Nos. 2 and 4 to join them and "to work with them in partnership in their individual liquor shops and parties Nos. 2 and 4 have agreed to it". It was also recited :

"... all the above named four parties are carrying on the business of restaurant and foreign liquor shops at Bhopal in partnership since April 1, 1959 . . . "

and lastly :

"... Parties Nos. 2 and 4 are satisfied with the statements of assets and liabilities as transferred to the new partnership concern by the parties Nos. 1 and 3 for their respective shops, i.e., Sethi Wine Stores and Anand Wine Stores."

On these facts, the question is whether the partnership in running the wine stores is a valid partnership and can be the basis of registration under the Income Tax Act.

Under the Central Provinces Excise Act rules have been framed and Rule VI of the C.P. Excise Rules relating to General Licence Conditions is as follows:

"No privilege of supply or sale shall be sold, transferred or sub-leased, nor shall a holder of any such privilege enter into a partnership for the working of such privilege in any way or manner without the written permission of the Collector, which shall be endorsed on the licence."

This rule, therefore, not only prevents transfer or sub-lease of the privilege but also prevents any privilege holder from entering into a partnership for the working of such privilege. Since the privilege is to be in an individual name, the partnership could only be entered into in the working of that privilege and consequently this has been prohibited. In order to make it further clear that this prohibition of entering into a partnership is absolute and not limited in any way, the further phrase "in any way or manner" has also been added.

In the present case, the contention of learned counsel appearing for the assessee is that since the partners who did not have that privilege in their names were not taking any active part in the working of the privilege, such a partnership was not prohibited, and even though in the deed of partnership it has been expressly stated that "parties Nos. 2 and 4 would join them and work with them in part