Illegal partnership under excise licence conditions denied income-tax registration for country liquor business.

A partnership formed to conduct country liquor business without written permission from the excise authorities for admitting partners to the benefit of the licence was treated as illegal, because the licence condition prohibited such admission and the arrangement was opposed to public policy. The court therefore held that the firm was not validly constituted for income-tax purposes and could not claim registration under the Income-tax Act, 1961. The answer was in favour of the Revenue.

---

---

Issues: Whether a partnership firm formed to carry on business in country liquor, without permission of the excise authorities for admitting partners to the benefit of the licence, was validly constituted and entitled to registration under the Income-tax Act, 1961.

Analysis: The assessment year was 1973-74. The firm claimed that the country liquor business conducted under a licence held by one partner was the property of all partners. The Tribunal had directed registration, but the governing question was whether such constitution was lawful when the licence condition prohibited taking a partner without written permission of the licensing authority. The controlling principle applied was that inclusion of new partners to derive benefit of an excise licence without the requisite permission is opposed to public policy and renders the partnership illegal.

Conclusion: The partnership was not validly constituted and was not entitled to registration under section 185 of the Income-tax Act, 1961; the answer was in favour of the Revenue.

---