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Issues: Whether a partnership formed to exploit tobacco licences, which involved sharing the benefits of the licences and the licensed business, was illegal and therefore disentitled to registration under section 26A of the Income-tax Act, 1922.
Analysis: The partnership deed showed that the business was carried on through licences obtained by some partners and that the arrangement gave the partners shared interests in the benefits of the licences. The statutory scheme of the Cochin Tobacco Act and the relevant notification prohibited transfer of the licence and of the benefits attached to it without permission. A partnership that creates equitable interests in the advantages of the licence, or alters the licensee's possession and enjoyment of the licensed business in favour of others, amounts to a prohibited transfer. The Court also held that the prohibition in section 6 was not merely revenue-protective but prohibitory, because punishment was attached to each contravention.
Conclusion: The partnership was void as being contrary to the prohibition under the tobacco law, and the firm was not registrable under section 26A.
Ratio Decidendi: Where a statute or notification prohibits transfer of licence rights and punishes each act of contravention, a partnership that conveys substantial beneficial interests in the licensed business to others is a prohibited transfer and the resulting contract is void.
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