Liquor licence treated as partnership asset; no prohibited transfer found, preserving the firm's tax deduction claim.

A liquor licence obtained in a partner's name was treated as a partnership asset because the deed expressly provided that it belonged to the firm. The arrangement was not an impermissible transfer under section 23 of the Indian Contract Act, since the excise framework allowed transfer in the prescribed manner and the facts did not show a forbidden assignment or a personal capital contribution of the licence. On that basis, the licence remained effective in the firm's hands and could not, by itself, defeat the assessee's deduction claim under the Income-tax Act.

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Issues: Whether a liquor licence obtained in the name of a partner, but expressly treated in the partnership deed as belonging to the firm, amounts to an impermissible transfer so as to attract section 23 of the Indian Contract Act and disentitle the firm to deduction under the Income-tax Act.

Analysis: The business of dealing in liquor cannot be carried on without a licence, and the excise law prohibits sale without authority. The relevant excise rules also permit transfer of licence in the prescribed manner, showing that transfer is not totally barred. On the facts, the partnership deed expressly provided that the licence could be obtained in the name of any partner or the firm, but would belong to the firm. The licence was taken after the partnership had already been carrying on the business and was never introduced as the personal capital contribution of any partner. The arrangement, therefore, did not amount to a transfer of licence in contravention of law or an agreement opposed to public policy.

Conclusion: The licence was a partnership asset and no prohibited transfer was involved. The disallowance was not justified and the questions of law were answered in favour of the assessee.

Final Conclusion: The appeal failed, and the assessee retained entitlement to the claimed deduction because the liquor licence arrangement was held to be lawful and effective in the hands of the firm.

Ratio Decidendi: Where a partnership deed expressly treats a liquor licence obtained in a partner's name as the property of the firm, and the facts do not show a forbidden transfer or capital contribution of the licence itself, the arrangement is not hit by section 23 of the Indian Contract Act and cannot by itself defeat tax deduction claims.

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