TaxTMI 
TaxTMI 
1996 (11) TMI 3
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....970, held that the respondent-assessee -- sub-partnership -- contravenes the provisions of section 14 of the Andhra Pradesh (Telangana Area) Abkari Act (hereinafter referred to as "the Abkari Act") and so, the sub-partnership should be considered as void and illegal. Section 14 of the Act is to the following effect : " No lessee shall, except with the permission of the Government, declare any person to be his partner ; and such partner shall not be competent to act as such until he has obtained a licence to that effect from the Collector or any other competent officer. " Registration was refused. The said order was confirmed in appeal by the Appellate Assistant Commissioner by order dated February 28, 1972. In further appeal, the Income-tax Appellate Tribunal (the Tribunal) in I. T. A. No. 210/(Hyd) of 1972-73 by order dated December 31, 1973, held that the firm (sub-partnership) is valid and entitled to registration. In rendering the said order, the Tribunal noticed that another Bench of the Tribunal in I. T. A. No. 1028/(Hyd) of 1969-70 and connected appeals had by an earlier order dated June 30, 1972, held that a sub-partnership on identical lines was not hit by section 14....
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....ner of the main firm who deals in liquor . . . . or any other prohibited article which requires a specific permission of the State Government . . . . can validly enter into a sub-partnership with strangers in respect of his share in the main partnership. This question arises because of the prohibition contained in section 14 of the Abkari Act against carrying on business in liquor without a licence granted for the purpose. The High Court rightly pointed out that the partners of the sub partnership would not become partners of the main partnership firm and this position would not be altered in any manner even if the business of the main firm were to deal in liquor or any other prohibited article since the partners of the sub-partnership would be entitled only to share the profits and losses, as the case may be, that accrue or fall to the share of the partner in the main firm. Accordingly, the members of the sub-partnership do not become partners of the main firm, the two being different and distinct entities for the purpose of the Income-tax Act. The High Court, then proceeded to state thus : 'All the decisions relied upon by the Revenue are applicable only if it is found as a fa....
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....ction 14 of the Abkari Act and, therefore, illegal. The Tribunal was right in holding that in the facts and circumstances of the case, the assessee-sub-partnerships being found to be genuine were entitled to be registered under the Income-tax Act." In the normal circumstances, the aforesaid decision of this court in Addl. CIT v. Degaon Ganga Reddy G. Ramakrishna and Co. [1995] 214 ITR 650, should govern the decision in this case also. But, when the instant appeal came up for hearing before a Bench of two judges, after referring to the decision in Bihari Lal Jaiswal v. CIT [1996] 217 ITR 746, it was observed : " As the profits of the business to be shared by the sub-partners were the profits of the main business, namely, abkari business, section 14 of the Abkari Act squarely got attracted and made even the sub-partnership for sharing at least a part of the main partnership profits illegal as section 14 of the Abkari Act was admittedly not complied with. " and so, referred the matter for appropriate decision by a larger Bench of three judges (see CIT v. B. Posetty and Co. [1996] 220 ITR 216). This is how the matter has come up before this Bench. A few facts to decide the que....
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....ct ? Section 14 of the said Act runs thus : "No lessee shall, except with the permission of the Government, declare any person to be his partner ; and such partner shall not be competent to act as such until he has obtained a licence to that effect from the Collector or any other competent Officer." It will be appropriate to quote the relevant provisions of the Income-tax Act, 1961, dealing with registration as they existed during the relevant period : Section 184. " (1) An application for registration of a firm for the purposes of this Act may be made to the Assessing Officer on behalf of any firm, if-- (i) the partnership is evidenced by an instrument ; and (ii) the individual shares of the partners are specified in that instrument. (2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution. . . . (5) The application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof : . . . . (6) The application shall be made in the prescribed form and shall contain the prescribed particulars. (7) Where registration is granted o....
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....le only if it is found as a fact that the sub-partnership had carried on the business of liquor, tobacco, opium or any other prohibited article without the requisite permission of the State Government or the Collector, as the case may be. . . . The pertinent question that arises in the present case is whether the sub-partnership has intended to do and in fact did business in liquor in the accounting year. If the sub-partnership also had indulged in the business of liquor without the requisite licence in the name of the sub-partnership or in the names of all the partners of the sub-partnership, the sub-partnership, on the application of the principles referred to above, must be held to be void ab initio and non est as it intended to do business in liquor without the requisite licence. If, on the other hand, the business of the sub-partnership is not the sale of liquor or dealing in liquor or doing anything in connection with the purchase and sale of liquor in any manner, it cannot be said that those sub-partnerships are illegal and void and non est. . . ." The High Court further held that the sub-partnership had financed and owned the capital invested by one of its partners in th....
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....he lessees and the sub-partnership are distinct and different. In the light of the above legal position, it cannot be said that either the sub-partnership in the instant case, or any of its partners as a partner, became a partner of the main firm, Nizamabad Group Sendhi Contractors. The inhibition contained in section 14 of the Abkari Act will apply only in a case where the lessee declares any person as its partner. Here, the lessee, Nizamabad Group Sendhi Contractors, had not declared either the sub-partnership or any other person, as its partner. In such circumstances, the inhibition contained in section 14 of the Abkari Act cannot apply. It is true that Sri Posetty and 10 others formed the sub-partnership, "B. Posetty and Co." -- for a legitimate business purpose, to provide the requisite finance, on condition of allotment of certain shares to them out of Mr. Posetty's share in the main firm. The sub-partnership financed one of its partners to make a capital investment in the main firm. Such an arrangement or agreement between persons who formed a distinct and different firm, is valid in law and to such a situation section 14 of the Abkari Act is not attracted ; nor is there any....