Sub-partnership in licensed liquor business upheld as valid for tax registration where it only shared profits and losses.

A sub-partnership formed by a partner in a licensed liquor business, solely to finance that partner's share and apportion the resulting profits and losses, is not illegal under the Abkari law merely because the main business is liquor trade. The sub-partnership remains an arrangement inter se and does not make the sub-partners partners in the main firm. Its validity and eligibility for registration under the Income-tax Act depend on its genuineness and legal existence, not on later sharing of beneficial income. The prohibition in the Abkari law applies only where the sub-partnership itself carries on liquor business without the necessary licence or permission. On the stated facts, the sub-partnerships were valid and entitled to registration.

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Issues: Whether a sub-partnership formed by a partner in a liquor business, solely to finance that partner's share and receive a portion of profits and losses from the main firm, is illegal or void under the Abkari law and therefore disentitled to registration under the Income-tax Act.

Analysis: A sub-partnership is a partnership inter se between the partner of the main firm and the sub-partners; it does not make the sub-partners partners of the main firm. Registration depends on the genuineness and legal existence of the sub-partnership and not on whether the beneficial income is later shared among others. The prohibition in the Abkari law applies only where the sub-partnership itself carries on liquor business without the requisite licence or permission. On the facts found, the sub-partnership did not conduct liquor business, but only financed the partner's share in the licensed main firm and shared the income and losses arising from that share. The authorities relied on by the department were distinguished because they dealt with arrangements that directly carried on the prohibited business without the required authority.

Conclusion: The sub-partnerships were valid and entitled to registration under the Income-tax Act.

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