H.N. Seth, J.
1. At the instance of the applicant-firm, P.C. Kapoor and Brothers, the Appellate Tribunal, Allahabad, has referred the following question arising in respect of assessment years 1962-63 and 1963-64 for the opinion of this court:
' Whether, on the facts and in the circumstances of the case, the refusal of registration or the continuance thereof was legally valid in terms of Section 184/185 of the Income-tax Act, 1961 '
2. There was a partnership-firm carrying on business in the name and style, P. C. Kapoor and Bros. This firm consisted of five partners, viz., (1) Shyam Kishore Kapoor, (2) Nawal Kishore Kapoor, (3) Prem Chand Kapoor, (4) Om Prakash Kapoor, and (5) Ragho Kapoor. It was registered under the provisions of the Income-tax Act for the assessment year 1961-62. On 9th April, 1961, the aforementioned persons and Sarvashri Debi Prasad and Badri Prasad 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.
3. 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.
4. Similarly, for running the same country liquor business during the period April 1, 1962, to March 31, 1963, a licence was obtained in the names of Sarvshri Shyam Kishore Kapoor and Prem Chand Kapoor. In this licence names of Shyam Kishore Kapoor, Nawal Kishore Kapoor, Bedesi Prasad, Om Prakasb, Badri Prasad and Prem Chand Kapoor were shown as salesmen.
5. This firm applied for its registration under the provisions of the Income-tax Act, 1961, for the assessment year 1962-63. It further filed a declaration under Section 184(7) of the Income-tax Act, 1961, and claimed continuance of its registration for the assessment year 1963-64.
6. Both the applications, i.e., for registration of the firm and for its continuance, were disposed of by the Income-tax Officer on January 18, 1967, by two separate orders. Although the licence for the year 1961-62, relevant for the assessment year 1962-63, stood in the names of Sarvashri Debi Prasad Badri Prasad, the firm claimed that the licence had been obtained by these two persons as representing it and, therefore, it was entiled to claim registration. The Income-tax Officer did not accept this contention. After discussing various provisions of the Excise Act, he held that under the provisions of the Act only such person, in whose name the licence stands, can deal with the sale and purchase of country liquor. No other person can be associated with the licensee. Sarvashri Debi Prasad and Badri Prasad, therefore, could not enter into a partnership agreement with others. The partnership so constituted was illegal and as such it could not be registered under the provisions of the Income-tax Act. For the same reason it was not entitled to claim continuance of its registration for the subsequent assessment year 1963-64.
7. The firm filed two appeals before the Appellate Assistant Commissioner. As both these appeals raised a common question, they were consolidated and were disposed of by a common order. The Appellate Assistant Commissioner went through the provisions of the U. P. Excise Act and Rules. He concluded that there was no provision in the Excise Act which prohibited a partnership from carrying on liquor business. He also referred to two certificates issued by the excise authorities in which it had been stated that Sarvashri Shyam Kishore Kapoor and Prem Chand Kapoor were the licensees of the country liquor at Shahganj, Allahabad, during 1962-63 as representing 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 : 38ITR560(Patna) , 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.
8. 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 : 60ITR335(All) , 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 decison 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 Excise Manual regarding foreign liquor were different from those for the vend of country liquor. The Appellate Tribunal considered the provisions of rules 334 to 337 and 360 of the Excise Manual and came to the conclusion that these rules were applicable to licences issued under the auction system and as such were applicable to licences issued for the sale of country liquor as well. In its opinion, Rule 337(2)(a) lays down that if a person holding an excise licence wishes to transfer it to a partnership he has to apply to the Collector for permission. Such permission can be granted by the Collector after calling for a report from the Assistant Excise Commissioner. There is nothing on the record to show that Debi Prasad and Badri Prasad, in whose names the licence stood, ever applied to the Collector fox permission to transfsr the licence to the firm. The two certificates relied upon by the firm before the Appellate Assistant Commissioner, also were of no avail as they merely described the person to whom the licence had been issued and did not support the fact that the licensees ever applied for and were granted permission to transfer the licence in favour of the partnership-firm. The firm did not obtain a licence to carry on country liquor business and was thus prohibited by law in carrying it on. The circumstance, that the firm carried on its business on the basis of a licence issued in favour of two of its partners, showed that the two partners transferred their licence to it in a manner not permitted by law. In the result the Tribunal found that the partnership was illegal as it had been formed with the object of carrying on the business without a licence and in tact it carried on the business on the basis of licence granted to two of its partners who were not competent to transfer the same. The Income-tax Officer was, therefore, justified in refusing the application for registration and for continuance of the same.
9. At the instance of the firm, the Tribunal submitted a statement of the case on the aforementioned question. Under the direction of this court, it further submitted a supplementary statement of the case, annexing copies of the licence issued in the names of Debi Prasad, Badri Prasad and P.C. Kapoor and S.K. Kapoor, on the basis of which the firm carried on its business in the years in question. While submitting the supplementary statement, the 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.
10. 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 : 69ITR819(All) 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.
11. 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 firm is a registered joint stock company. Where a licence has been granted to an unregistered private company or firm, the licence should be issued in the name of the individual as representing the corporate body and not in the name of the corporate body itself.
337. (I) All licences are personal to the licensee in whose favour they are granted.
(2) (a) Whenever any application is received for transfer, sub-lease or partnership in respect of an excise licence, the Collector shall call for a report from the Assistant Excise Commissioner of the charge :
(b) on receipt of the report from the Assistant Excise Commissioner and further enquiry, if any, the Collector shall refer suitable cases to the Excise Commissioner for approval;
(c) no transfer or sub-lease or partnership of excise licence shall be allowed by the Collector without the prior approval of the Excise Commissioner.
(3) Partnership may also be permitted in the case of shops under the auction system but they should not be sanctioned as a matter of course. They should be allowed only in exceptional circumstances when it is clear that the shop cannot be well managed by the existing licensee without a partner and that the partnership will not result in any loss of revenue. Not more than two partners can be allowed to hold the shop. No distinction should be drawn between legal liabilities of the two partners who will be jointly and severally responsible.
(4) In the case of licences granted under the surcharge or fixed fee system no transfer or sub-lease of a licence shall be permitted, nor shall a licensee be allowed to enter into private partnerships in the business covered by the licence. If the licensee desires to withdraw from the business he shall be required to resign and the shop resettled in the manner prescribed by paragraghs 355 to 358.
(5) Partnership may, however, be permitted for shops settled under the graduated surcharge system as provided for in paragraph 360.'
and urged that these rules, framed under the U.P. Excise Act, not only prohibited a transfer or sub-lease of an excise licence but also the formation of a partnership without obtaining previous approval of the Excise Commissioner. According to these rules in no case can a partnership of more than two persons in respect of an excise licence be allowed. He contends that the effect of the agreement which had been entered into 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.
12. 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 any partner or partners and that 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. According to the learned counsel for the revenue this shows that right to carry on business under the licence (sale of country liquor) was being transferred by the persons holding the licence to the firm as such so that all the partners may become entitled to sell country liquor. In substance this is a transfer by which the licensees have transferred their interest in the licence to the firm.
13. In Gordhandas Kessowji v. Champsey Dossa,  A.I.R. 1921 P.C. 137 the provisions of the Bombay Salt Act which prohibited alienation of an interest in the manufacturers' licence was considered. The Privy Council held that a licensee of salt manufacture cannot be said to have contravened the terms of his licence whereby he is prohibited from alienating his interest simply because he admits members of his family and others as partners who, however, do not actually take part in the manufacture. In the instant case the licence was granted to Debi Prasad and Badri Prasad to carry on sale of country liquor in accordance with the terms of the licence. Merely because Debi Prasad and Badri Prasad entered into a partnership agreement with five others it did not mean that these five others were given a right to sell country liquor in contravention of the provisions of the licence. Out of those five partners four partners could act as salesmen under the terms of the licence itself. In the circumstances, it could not be said that any interest in the licence was transferred in favour of other partners. There is absolutely no material on the record to indicate that the person who had not been so authorised under the licence to conduct the sale was permitted to conduct it under the partnership deed.
14. In the case of Shyam Behari Lal v. Malhi,  14 A.L.J. 1035 (All.), Rule 82 framed under the Excise Act was considered by a Bench of this court. This rule also prohibited transfer or sub-lease by a licensee. This court held that where the plaintiff in consideration of payment of something contracted with the defendant who had obtained a licence to sell drugs that if there was profit the plaintiff would get one anna and in case of loss he would suffer loss to the extent of one anna, the contract constituted neither a transfer nor a sub-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 A.I.R. 1929 All. 210, 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.
15. We are accordingly of opinion that in this case there was no transfer of licence as contemplated by Rule 337.
16. 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 who did not hold the licence, are entitled to to carry on business in liquor. This means that either the non-licensee-partners acquired an interest in the licence standing in the name of Debi Prasad Badri Prasad or that they have been authorised to carry on the required business without a licence.
17. We are unable to accept this submission. Section 4 of the Indian Partnership Act lays down that partnership is a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Even if one partner carries on a business acting for all it will still be described as the business of the firm. The provision that a firm shall do the business of excise contract which may be taken in the name of any person or persons merely means that the business which is carried on on the basis of the excise contract would be the business of the firm and that the profits of the business will be shared by all the partners. The agreement cannot be interpreted to mean that the business will be carried on by the firm or the licensee in contravention of the terms of licence and that such partners who were not authorised to sell liquor would become entitled to sell it. Act of carrying on the business in liquor consists of several activities like procuring liquor, stocking and selling it, maintaining accounts, managing the staff, etc. Sale of liquor is one of the activities which goes to constitute the entire activity of carrying on business in liquor. Section 21 of the Excise Act merely requires that no intoxicant shall be sold without a licence from the Collector. There is nothing in the Excise Act which prohibits the carrying on of other business activity in connection with the business of liquor without a licence. If a person enters into a partnership in connection with the excise business it does not necessarily mean that he claims a right to sell liquor. In such a case all that he claims is to participate in the business of country liquor in the manner permissible under the law. In other words he may participate in the excise contract business by writing accounts and maintaining them without participating in the activity of sale as long as he does not possess a licence to carry on this part of business activity. However, if his name is entered in the licence as a salesman he may as well participate in the sale of liquor.
18. The 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 stood or whose names were incorporated in the licence as salesmen. The terms of the partnership deed do not show that the intention of the partners was that the activity of sale of country liquor should be conducted by persons other than those in whose names the licence had been issued. We, accordingly, reject the argument of learned counsel for the revenue based on Section 12 of the Partnership Act.
19. Decisions of the Patna High Court in the cases of Commissioner of Income-tax v. Prakash Ram Gupta : 72ITR366(Patna) and Mohd. Warasat Hussain v. Commissioner of Income-ta : 82ITR718(Patna) also support the aforesaid view taken by us. In these cases it has been held that in a case where a licensee enters into a partnership with a non-licensee mere formation of partnership does not amount to transfer of the licence.
20. Argument of the learned counsel for the revenue that formation of a partnership in respect of liquor licence, without obtaining the prior approval of the Excise Commissioner is invalid and that in no case can a firm having more than two partners be constituted, is based on the provisions of paragraph 337 of the U. P. Excise Manual which according to him are statutory rules. This position is seriously disputed by the learned counsel for the firm, who contends that the provisions of paragraph 337 of the U. P. Excise Manual are merely executive instructions addressed to departmental officers and cannot be equated with law. He contends that there is no prohibition in law against a licensee entering into a partnership in connection with an activity covered by the licence. Such a partnership cannot be said to be illegal specially in a case where it has been entered into in the knowledge of the excise authorities and with their tacit consent.
21. Volume 1 of the U. P. Excise Manual is a compilation of the excise laws, rules and executive instructions. It has been divided into two parts. The first part reproduces the U. P. Excise Act (Act IV of 1910), together with some other enactments and their extracts. The second part has been divided into various chapters dealing with all aspects of the excise administration. In this part the letters and the instructions issued by respective authorities have been tabulated in the form of paragraphs so that one may get a clear picture about the administration and working of the excise department in the State. It also contains other incidental and connected 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.
22. In order to determine the nature of the provisions contained in these various paragraphs we have been referred to the order and letter dated January 29, 1952 and 1st of February, 1928, mentioned in paragraphs 337(2) and 334 of the Manual, copies of which were produced before us. Both these documents are in the form of letters from the Excise Commissioner, U. P., addressed to all District Officers, U. P. Copies of these letters have been forwarded to all Assistant Excise Commissioners, U. P., Undersecretary to Government, U. P., Industries (C) and Excise Department, Lucknow, and Superintendent E.I.B., Allahabad. It does not appear that any copy of the letter or the order mentioned in these paragraphs was published in the U. P. Gazette. Instructions contained in these two documents, viz., order dated January 29, 1962, and the letter dated February 10, 1928, cannot be equated with the rules framed under Section 41 of the U. P. Excise Act as the same have not been published in the Official Gazette as provided under Section 77 of the U. P. Excise Act. Instructions contained in these paragraphs are, therefore, merely executive instructions issued to the District Excise Officers and they do not have the force of law. These instructions have been issued merely for the purposes of providing a guide line for the exercise of discretion by the district officers while considering the application for the grant of licence or for its transfer, sub-lease or formation of partnership. It cannot be said that an act of entering into partnership with regard to a licence issued under the Excise Act is prohibited by law and is illegal merely because it contravenes the instructions contained in the aforementioned paragraphs of the Excise Manual.
23. Learned counsel for the revenue then invited our attention to condition No. 4 of the licence, which is described as general conditions binding on all retail shops licensed for the sale of excisable articles except foreign liquor and which runs thus :
' In a case where transfer or sub-lease is allowed tinder the rules no transfer or sub-lease whether entire or partial, of the business covered by the shop licensed shall be made nor the licensee enter into private partnership except with the previous sanction of the licensing authority.'
24. He urges that under Section 64 of the U.P. Excise Act, a licensee' if he wilfully does anything in breach of any of the conditions of the 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.
25. In Udhoo Dass v. Prem Prakash : AIR1964All1 , 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.
26. Section 23 of the Contract Act lays down that consideration or object of an agreement is unlawful if it is forbidden by law or is of such a nature that if permitted it would defeat the provision of any law or is fraudulent or involves or implies injury to the person or property of another or the court regards it as immoral or opposed to public policy. A law can prohibit an act either expressly or by necessary implication. Once it is held that various provisions contained in the Excise Manual relied upon by the learned counsel for the revenue are not statutory, it cannot be said that there is a law which expressly prohibits a licensee from entering into a partnership in respect of the business carried on by him under the licence. The question, however, that remains for consideration is whether when the Act makes a breach of any condition of a licence punishable, it by necessary implication prohibits the act which results in such breach. The law on the point has been summed up in Halsbury's Laws of England, III edition, volume VIII, paragraph 245, at page 141, as follows :
' Where a penalty is imposed by statute upon any person who does a particular act, this may or may not imply a prohibition of that act. It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether or merely to make the person who did it liable to pay the penalty. If the penalty is recurrent, that is to say, if it is imposed not merely once for all but as often as the act is done, this amounts to a prohibition. Where the object of the legislature in imposing the penalty is merely the protection of the revenue, the statute will not be construed as prohibiting the act in respect of which the penalty is imposed ; but where the penalty is imposed with the object of protecting the public, though it may also be for the protection of the revenue, the act must be taken to be prohibited, and no action can be maintained by the offending party on a contract which is made in contravention of the statute.'
27. Anson has stated the law on the point in the following words :
' The statute may impose a penalty on the parties to a contract, without declaring it to be illegal or void. The effect in such a case depends upon the proper construction of the particular statute. Where the words of a statute leave room for doubt as to its intention, it is material to ask whether the object of the Act in imposing the 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 if 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 which arises in practice under this head is whether an act, or some part of a series of acts, agreed upon between the parties, does or does not contravene some legislative enactment or regulation made by lawful authority. The decision may turn on the construction of the agreement itself, or of the terms of the Act or other authoritative document in question, or on both. In particular it may have to be considered whether the intention of the legislature was to prevent certain things from being done, or only to lay down terms and conditions on which it may be done............Broadly speaking, that which has been forbidden in the public interest cannot be made lawful by 'paying the penalty for it.'
28. In view of these authorities the position appears to be well-settled that when an enactment merely imposes a penalty without declaring a contract made in contravention of it to be illegal or void, the imposition of penalty, by itself and without more, does not necessarily imply a prohibition of the contract. In such cases the question always is whether the legislature intended to prohibit the contract. This must be decided upon a construction of the statute. If the object of the enactment or one of its objects in imposing penalty is to protect the general public or any class thereof it will be construed in the absence of any other indication expressed in the statute as implying a prohibition of the contract. On the other hand, if the object of imposing the penalty is merely the protection of the revenue, the contract will be regarded as prohibited by implication.
29. We, therefore, proceed to analyse the conditions mentioned in the licence, breach of which has been made punishable under Section 64 of the U. P. Excise Act, with a fine which may extend to Rs. 200. Condition No. 4 quoted above does not prohibit a licensee from entering into a partnership agreement as such. All that it does is that it obliges the licensee to obtain previous sanction of the licensing authority before entering into an agreement of partnership. The licences under the U. P. Excise Act are presumably granted by the excise authority in order that they may have control over the person who is authorised to sell the intoxicants (sic) may not pass it out of his control to unauthorised persons. The object of controlling the persons by whom the intoxicants are to be sold seems to be to ensure realisation 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 provison for imposition of penalty for breach of condition of licence, which is imposed once for all, the Act did not intend to prohibit that act as such. The only consequence provided for such a breach is to penalise the licensee by imposing a fine of Rs. 200. In the instant case the certificates, which are annexures A, F and G to the supplementary statement of the case submitted by the Tribunal, clearly indicate that the licence was issued to Sarvashri Shyarn Kishore Kapoor and Prem Chand Kapoor as representing the firm Messrs. P.C. Kapoor and others as disclosed by the partnership deed dated April 9, 1961. The excise authorities were also aware of the fact that there were eight partners in the firm. They have not taken any step to cancel the licence. The only object of annexing condition No. 4 attached to the licence is that the excise authorities be always kept acquainted with real persons under whose auspices the business is being conducted. It does not appear that the intention of the legislature, while making the provision for punishing a licensee for committing breach of the conditions of licence, was to prohibit the act as such.
30. We are, accordingly, of opinion that while penalising an act which results in breach of condition No. 4 of the licence granted under the Act the legislature did not intend to prohibit that act and as such the agreement entered into by the parties in this case cannot be said to be an agreement forbidden by anything contained in the U. P. Excise Act, and it is not invalid on that, ground. It has also not been shown that such an agreement is against public policy, as contemplated by Section 23 of the Contract Act. It is nobody's case that the agreement was obtained by fraud or is of such a nature that, if permitted, it would defeat the provisions of any law. We are of opinion that the partnership entered into in this case is not illegal under Section 23 of the Contract Act.
31. The view which we have taken above is fully supported by a Full Bench decision of the Madhya Pradesh High Court in the case of Smt. Janki Bai Chunni Lal v. Ratan Melu : AIR1962MP117 .
32. Learned counsel for the revenue has not stated any other reason in support of his contention that the partnership in question is invalid and illegal.
33. In the result we find that the partnership in question was legal and the income-tax authorities were not justified in refusing registration of the firm under Section 184 of the Income-tax Act, 1961. The question referred to us is accordingly answered in the negative and in favour of the assessee. We assess the costs of this reference at Rs. 300.