TaxTMI 
TaxTMI 
2010 (11) TMI 563
X X X X Extracts X X X X
X X X X Extracts X X X X
....-3-2004. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) Belgaum. The appeal came to be allowed by order dated 16-9-2004. Aggrieved by the same, the revenue preferred an appeal before the Tribunal, which came to be dismissed affirming the order passed by the Appellate Tribunal. Aggrieved by the same, the revenue is before this Court. 3. The appeal was admitted on 28-2-2007 to consider the following substantial questions of law: "(1) Whether the First Appellate Authority and Tribunal was correct in fielding that a licence to vend liquor issued to an individual can be used by the firm and or its partners when there being no legal transfer of the licence ? (2) Whether the First Appellate Authority and Tribunal was correct in holding that though licence was issued to an individual to vend in liquor, if utilised by a third party firm, the same would not attract section 23 of the Contract Act ? (3) Whether the First Appellate Authority and Tribunal was correct in distinguishing the judgment of the Hon'ble Supreme Court reported in 2002 (254) ITR 230 - Commissioner of Income-tax vs. Rangeelaram &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....those circumstances, when licence was applied in the name of the partner, the fees was paid out of the partnership firm and licence, though it stood in the name of the partner, it was the asset of the partnership firm and there was no transfer of licence by the partner to the firm involved in this case. The judgment relied on are not attracted to the facts of this case and rightly the appellate authority as well as the Tribunal held that the firm is entitled to the benefit of deduction. Therefore he submits that no case for interference is made out. 6. The Apex Court in the case of Biharilal Jaiswal v. CIT [1996] 217 ITR 746/84 Taxman 236 has held as under: "A licensee could not be "permitted to bring in strangers into the business, which would mean that instead of the licensee carrying on the business, it would be earned on by others a situation not conducive to effective implementation of the excise law and consequently deleterious to public interest. It is for this very reason that transfer or sub-letting of license is uniformly prohibited by several State excise enactments. It, therefore, follows that any agreement where under the license is transferred, sub-letting or a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has to be in accordance with law. Otherwise the transfer would be contrary to section 23 of the Indian Contract Act, and is void. However, if a partnership firm chooses to obtain a licence in the name of one of its partner and the licence granted to such partner is treated as the partnership asset expressly in the partnership deed even before acquiring such licence and the partnership firm pays the fee for obtaining such licence, the said licence granted is a partnership asset and is not the personal property of such partner. No transfer is involved in such a transaction. It is not a case of a person who has obtained a liquor licence is inducted into a partnership as a partner, who brings in the said licence as his capital contribution and makes available the licence to the partnership firm to carry on liquor business and thus circumvent the law prohibiting transfer of such licence. Thus the partnership should acquire the licence to carry on liquor business in a manner known to law to be eligible for deductions under the heading business expenditure under section 37 of the Income-tax Act, 1961. 9. It is not in dispute that under the Karnataka Excise Act, section 15 deals with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the partnership deed dated 1-4-1992. And whereas, the said Smt. Gangubai W/o Bahurao Panalkar of Jamkhandi expired on 2-11-1997. And whereas, the remaining partners continued the said business as usual in partnership with effect from 3-11-1997 on the following terms and conditions." Clause 3 of the Partnership Deed is of utmost importance. It reads as under: "3. That the business of partnership shall be that of dealing in foreign Liquor and or any other business that the partners may decide from time to time." Clause 15 reads thus: "15. That the licence to carryon the said business may be obtained either in the name of any partner or in the name of the firm to suit the convenience of the law under which such licence shall be obtained. However, the licence belongs to the firm only." 12. From the aforesaid recital in the partnership deed, it is clear that though this partnership came into existence on 4-11-1997 for the reasons set out above, the business of liquor was carried on by the partnership from the year 1992. The said business cannot be carried on without a licence being obtained, which is to be renewed every year. It is in that context clause 15 provi....