Sub-partnership treated as separate arrangement, avoiding Abkari illegality and supporting income-tax registration.

A sub-partnership among partners was treated as a separate arrangement inter se and did not make the sub-partners partners in the main firm. Because the main firm remained the lessee under the excise arrangement and had not declared any outsider as its partner, section 14 of the Andhra Pradesh (Telangana Area) Abkari Act was not attracted. The arrangement was also held genuine, with the partnership deed specifying constitutive terms and profit shares, so it satisfied the requirements for registration under sections 184 and 185 of the Income-tax Act, 1961.

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Issues: Whether the sub-partnership was hit by section 14 of the Andhra Pradesh (Telangana Area) Abkari Act and, if not, whether it was entitled to registration under the Income-tax Act, 1961.

Analysis: A sub-partnership is a partnership inter se among the parties to it and does not make the stranger or sub-partners partners of the main firm. The main firm remained the lessee under the excise arrangement, while the sub-partnership only financed one partner's share in the main firm and shared the profits and losses accruing to that partner. On those facts, there was no declaration by the lessee of any person as its partner, so the statutory prohibition in section 14 of the Abkari Act was not attracted. The firm was also found to be genuine, with its constitution evidenced by instrument and the shares specified, satisfying the requirements for registration under sections 184 and 185 of the Income-tax Act, 1961.

Conclusion: The sub-partnership was not illegal under section 14 of the Abkari Act and was entitled to registration under the Income-tax Act, 1961. The finding was in favour of the assessee.

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