Liquor licence transfer in breach of excise law renders the partnership void and bars income-tax registration.

A Kerala HC decision on liquor licensing and tax registration held that using one partner's excise licence through the firm amounted to an impermissible transfer of the liquor privilege in breach of Abkari law and licence conditions, which prohibited transfer, lease, sub-renting or other alienation without prior written sanction. The Court further held that a partnership formed or continued to carry on liquor business in violation of excise law was hit by the prohibition on unlawful objects under section 23 of the Contract Act, making the arrangement void. On that basis, the firm was not recognised as a genuine partnership and was denied registration under the Income-tax Act.

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Issues: (i) Whether the partner's licence for liquor business could be treated as transferred to the firm in breach of the Abkari law and licence conditions. (ii) Whether a partnership carrying on liquor business in such breach was entitled to registration under the Income-tax Act.

Issue (i): Whether the partner's licence for liquor business could be treated as transferred to the firm in breach of the Abkari law and licence conditions.

Analysis: The relevant provisions and licence conditions prohibited sale, transfer, lease or sub-renting of the licence without prior written sanction. Breach of these restrictions attracted penal consequences. On the admitted facts, the licence stood in the name of one partner but was being used by the firm for carrying on the liquor business, which amounted to an impermissible transfer of the privilege under the excise regime.

Conclusion: The transfer was prohibited in law and the finding that there was no transfer was incorrect.

Issue (ii): Whether a partnership carrying on liquor business in such breach was entitled to registration under the Income-tax Act.

Analysis: A partnership formed or continued for carrying on liquor business in violation of the excise law is hit by the bar against unlawful objects under section 23 of the Contract Act. Such an agreement is void and cannot be treated as a genuine partnership for income-tax purposes. The severability argument was rejected because the unlawful liquor business was integral to the arrangement on the facts found, and the authorities requiring compliance with excise law governed the claim for registration.

Conclusion: The assessee was not entitled to registration under the Income-tax Act.

Final Conclusion: The reference was answered against the assessee, and the Revenue's position was upheld on both questions.

Ratio Decidendi: A partnership arrangement that depends on an impermissible transfer or use of a liquor licence in breach of excise law is unlawful and void under section 23 of the Contract Act and cannot be recognised as a genuine partnership eligible for registration under the Income-tax Act.

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