TaxTMI 
TaxTMI 
TaxTMI 
1972 (12) TMI 8
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....ad entered into a partnership agreement and stipulated that the assets and liabilities of P. C. Kapoor and Bros. were to be taken over by the new partnership-firm, hereinafter referred to as the firm, which was to continue the business in the same firm-name. The agreement further provided that the new partnership-firm will be deemed to have come into existence with effect from 1st of April, 1961, and that it was to do business of excise contract which may be taken in the name of any partner or partners. So long as the firm continued, any contract taken in the name of an individual partner or in the names of more than one partner will be deemed to be the business of the firm. Badri Prasad obtained an excise licence, in Form CL 5-A, dated March 24, 1961, for the retail sale, for consumption "on and off" the premises of country liquor under auction system. This licence was issued in the names of Badri Prasad Debi Prasad. Names of Shyam Kishore, Nawal Kishore, Prem Chand and Om Prakash, aforesaid partners, along with Bedesi Prasad and Lakshman Prasad were entered in the licence as salesmen. This licence was valid for the period April 1, 1961, to March 31, 1962. Similarly, for running....
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....resenting the firm and that Sarvashri Debi Prasad and Badri Prasad were the licensees of country liquor shop at Shahganj, Allahabad, during 1961-62, in the same capacity. He relied upon the decision of the Patna High Court in the case of Commissioner of Income-tax v. K. C. S. Reddy, and held that the partnership in question was not illegal. The firm was, therefore, entitled to be registered and, thereafter, for continuance of its registration. The Income-tax Officer then filed two appeals before the Income-tax Appellate Tribunal, Allahabad. The departmental representative relied upon a Division Bench decision of this court in the case of Jer & Co. v. Commissioner of Income-tax, and contended that the partnership entered into between the licensee and non-licensee was invalid in law. In the circumstances the firm was neither entitled to registration nor for its continuance. Learned counsel for the firm tried to distinguish the decision of this court in the case of Jer & Co., on the ground that in that case the court was dealing with a case of licence for foreign liquor, whereas the present one was a case of a licence for the retail vend of country liquor. The rules contained in the ....
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....e Tribunal observed that although there was no condition in the special conditions attached to the licence prohibiting the holder from entering into a partnership, but the provisions of the Excise Act and the rules framed thereunder do not permit formation of a partnership of the type as has been entered into in the present case. When the reference came up for hearing before this court, learned counsel for the revenue placed strong reliance on two decisions of this court in the case of Jer & Co. v. Commissioner of Income-tax and Oudh Cocogem and Provision Stores v. Commissioner of Income-tax wherein it had been held that a partnership agreement entered into in violation of the provisions contained in various paragraphs of the Excise Manual was prohibited by law and was therefore void. In the opinion of the Bench hearing the reference the view expressed by this court in these two cases required further consideration. Hence, it referred the case for hearing by a larger Bench. Learned counsel for the revenue referred us to paragraphs 334 and 337 of the U.P. Excise Manual which read as follows: " 334. No licence shall be issued in the name of a company or firm unless such company or....
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....without obtaining the previous approval of the Excise Commissioner is that the licence standing in the names of some of the partners stands transferred to the firm, which transfer is prohibited under the law. At any rate agreement of partnership entered into without obtaining the prior approval of the Excise Commissioner is in contravention of the rules and is as such void. For this contention, learned counsel sought support from two decisions of this court in the cases of Jer & Co. v. Commissioner of Income-tax and Oudh Cocogem and Provision Stores v. Commissioner of Income-tax. First of all we will deal with the question whether, as contended by the learned counsel for the revenue, the partnership agreement entered into in this case resulted in the transfer of excise business from Sarvashri Debi Prasad and Badri Prasad to the firm. Relevant facts in this connection are that Debi Prasad and Badri Prasad had already obtained a licence dated 24th March, 1961, for the retail vend of country liquor, before executing the partnership deed dated 9th of April, 1961. The deed of partnership stipulates that the firm is to do the business of excise contract which may be taken in the name of....
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....lease by the licensee and the contract was not illegal as being in violation of rule 82 made under the Excise Act. Similar view has been taken by another Division Bench of this court in the case of Radhey Shyam v. Mewa Lal, wherein it has been held that in a case where an agreement is entered into between a licensee and a third person in consideration of money contributed by the latter for sharing the profits and losses in the business, the transaction does not amount to a transfer or sub-lease of liquor contract contravening the provisions of rule 82 and is not void in terms of section 23 of the Contract Act. We are accordingly of opinion that in this case there was no transfer of licence as contemplated by rule 337. Learned counsel for the revenue next argued that section 12 of the Indian Partnership Act provides that subject to contract between the partners every partner has a right to take part in conducting the business of a firm. In this case the contract does not stipulate that it will be the licensee-partners alone who would be dealing with the country liquor. It, therefore, follows that under the partnership agreement dated 9th April, 1961, the partners, including those ....
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....he partnership agreement does not, by virtue of section 12 of the Indian Partnership Act, vest the non-licensee to carry on the activity of sale of intoxicant without obtaining a licence. Section 12 provides that unless there be a contract to the contrary every partner has a right to take part in the conduct of the business of the firm. This section nowhere lays down that the contract to the contrary has got to be in express terms and that such a contract cannot be inferred from the general tenor of the agreement. Whenever there is an agreement between the parties that a business activity will be carried on by them acting for all, it necessarily implies an agreement that the business activity would be done in a lawful manner. In the circumstances, in the instant case, when the various partners agreed to carry on the business of excise contract on the basis of a licence standing in the names of some of the partners it necessarily implied an agreement or a contract to the effect that the sale of liquor will be carried on by the partners on behalf of all the partners in accordance with law, i.e., the activity of sale would be carried on only by such partners in whose names the licence....
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....information. As against several of these paragraphs the source which formed the basis for the information contained therein has also been stated. All the paragraphs of volume II of the Excise Manual cannot be equated with rules framed by the relevant rule making authority under the provisions of the U. P. Excise Act. Some of these paragraphs may be based on actual rules framed under the Act whereas some others may merely be executive instructions issued by relevant authorities from time to time. Some of the paragraphs may merely convey incidental or factual information which does not flow either from a law, rule or executive instructions. While considering the implication of what is contained in a particular paragraph of the Manual the source on the basis of which the facts mentioned in that paragraph have been stated will have to be traced. Opposite paragraph 334 of the Manual the source of the statement contained in that paragraph has been stated as Excise Commissioner's letter No. 8473/X-220 dated February 1, 1928. Similarly, the source for the statement contained in paragraph 337(2) is stated to be the Excise Commissioner's order No. 1864/IX-2971. In order to determine the nat....
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....he licence, he is to be punished with fine which may extend to Rs. 200. The act of a licensee entering into partnership in contravention of condition No. 4 of the licence is, therefore, an offence punishable under section 64. Such a contract, therefore, is by necessary implication forbidden by the U. P. Excise Act and is void as provided in section 23 of the Contract Act. In Udhoo Dass v. Prem Prakash, a Full Bench of this court was required to consider whether a contract of tenancy, entered into by a landlord, in contravention of the provisions of the U. P. Control of Rent and Eviction Act, was void as a contract forbidden by law. This court held that merely because the legislature penalised the landlord for letting out the premises in contravention of the provisions of the Act, it did not mean that the contract of tenancy was void. It follows that the wide proposition that, whenever a contract which results in breach of some provision of law, is entered into and the contracting party becomes liable to be punished under the law, it necessarily is a contract which is forbidden by law and is as such void, cannot be accepted. Section 23 of the Contract Act lays down that considerat....
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.... penalty is merely to protect the revenue, or whether its object, or one of its objects is to protect the general public or some class of the general public by requiring that the contract shall be accompanied by certain formalities or conditions, as, for example, registration in the case of a money-lender. In the latter case it is probable that the act for the doing of which the penalty is imposed is impliedly prohibited by the statute and, therefore, illegal. It may also be useful to ask whether the penalty is imposed once and for all, or whether it is a recurring penalty imposed every time the act is done. In the latter case it is evidently the intention of the statute that the act should be prohibited." (Principles of the English Law of Contract, 21st edition, page 278). According to Pollock and Mulla (Indian Contract Act, VIIIth edition, page 158) same principles apply so far as the expression "forbidden by law" occurring in section 23 of the Contract Act are concerned. The principle is stated thus: " Parties are not, as a rule, so foolish as to commit themselves to agreements to do anything obviously illegal, or at any rate to bring them into court; so the kind of question w....
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....on of excise revenue. It is significant to note that section 64(c) of the U. P. Excise Act provides that whoever wilfully does or omits to do anything in breach of any of the conditions of the licence shall be punished for such an act with fine which may extend to Rs. 200. This shows that an agreement in contravention of the conditions attached to a licence has been made punishable only if it is done wilfully and not otherwise. It follows that if an act of contravention of any condition of the licence has not been committed wilfully, commission of that act would not lead to imposition of penalty. This leads to an inference that the commission of that act as such has not been prohibited. Section 34 of the U. P. Excise Act, while empowering the licensing authority to cancel a licence in case a licensee commits a breach of its condition, leaves a discretion whether to cancel the same or not. In a case where the excise authority chooses not to cancel the licence, the licensee would be entitled to carry on his business under the licence and will also be bound by the agreement entered into by him. This also indicates that while making a provision for imposition of penalty for breach of c....