1964 (12) TMI 69 - HC - Income Tax

Court rules partnership agreement void for excise business involving ganja and opium due to lack of necessary permissions

Mahapatra Bhandar Versus Commissioner of Income Tax

The court upheld the Income Tax Authorities' refusal to register a partnership firm for carrying on an excise business involving ganja and opium, deeming ... - Issues:Refusal of registration of a firm under Section 26-A of the Income Tax Act based on the legality of the partnership agreement for carrying on excise business involving ganja and opium.Analysis:The case involved a reference under section 66(1) of the Indian Income Tax Act, 1922 regarding the refusal of registration of a partnership firm named Mohapatra Bhandar under Section 26-A of the Income Tax Act. The firm was formed to carry on the excise business of possessing and selling ganja and opium. The Income Tax authorities denied registration citing that the transfer of the excise business to the firm was prohibited by the Excise Laws of Orissa, making the business unlawful.The possession and sale of ganja and opium were regulated by specific Acts and Rules in Bihar and Orissa, requiring prior permission for any transfer or sub-lease of the license. The partnership agreement in question did not have the necessary permission from the Collector, rendering the business unlawful under the Excise Laws. The Tribunal relied on precedents from Madras, Kerala, and Punjab High Courts, establishing that such agreements without proper authorization were void ab initio.The appellant argued that as long as the licensee managed the actual business of selling excisable goods, entering into a partnership for financial contributions would not constitute a transfer of the license. However, the court noted that the partnership deed indicated the firm took over the entire business, including its management, contrary to the provisions of the Excise Rules.The court distinguished a Patna case where a licensee remained the managing partner of a firm dealing in mica, unlike the present case where the partnership firm took over the excise business entirely. The absence of a managing partner for the excise business in the partnership deed further supported the finding of a complete transfer of the business to the firm, violating the Excise Rules.The court rejected the appellant's request for a further statement of the case, as the Tribunal's findings were clear. Ultimately, following the decisions of the Madras, Kerala, and Punjab High Courts, the court held the partnership agreement unlawful, justifying the Income Tax Authorities' refusal to register the partnership.In conclusion, the court answered the reference question affirmatively, holding the partnership agreement unlawful, and directed the applicant to bear the costs of the reference. Both judges, R.L. Narasimham, C.J., and Raj Kishore Das, J., concurred with the decision.