Partnership in liquor business not illegal where licence was not transferred and contract was not hit by public policy

A partnership formed for country liquor was treated as lawful where the deed did not transfer the liquor licence to the firm merely because other partners were associated in the business. The U.P. Excise Manual was regarded as executive instruction rather than statutory rule, and the licence condition requiring prior sanction for partnership did not itself prohibit forming the partnership. Breach of that condition was only punishable by fine, which did not make the underlying agreement forbidden by law. The arrangement was read as one to carry on the business lawfully within the licence framework, and it was not shown to be opposed to public policy or hit by section 23 of the Contract Act; refusal of registration was therefore unjustified.

---

---

Issues: Whether the partnership formed for carrying on country liquor business, and the refusal of registration under section 184 of the Income-tax Act, 1961, were legally valid in view of the Excise law, the licence conditions, and section 23 of the Contract Act.

Analysis: The partnership deed did not effect a transfer of the liquor licence to the firm merely because the licensees associated other partners in the business. The relevant provisions of the U.P. Excise Manual were treated as executive instructions rather than statutory rules, and the licence condition requiring prior sanction for partnership did not itself prohibit the formation of a partnership. The breach of that condition was punishable by fine, but a penal provision does not by itself imply that the underlying agreement is forbidden by law. The business arrangement was construed as an agreement to carry on the business lawfully, with sales confined to persons authorised under the licence, and the agreement was not shown to be opposed to public policy or otherwise hit by section 23 of the Contract Act.

Conclusion: The partnership was not illegal, and the refusal of registration was unjustified.

---