G.P. Singh, C.J.
1. This is a reference made by the Income-tax Appellate Tribunal under Section 256(1) of the I.T. Act, 1961, referring, for our answer, the following question of law:
'Whether, on the facts and in the circumstances of the case, registration could be given to the business carried on in partnership in the area of the Orissa State while the head office of the assessee is situated in Madhya Pradesh ?'
2. The facts briefly stated are that certain excise contracts were taken by Kondra Durgaiya in the account year ending on March 31, 1970, relevant to the assessment year 1970-71, in Madhya Pradesh and Orissa. A partnership deed was executed on May 15, 1969, making it effective from February 1, 1969, in which Kondra Durgaiya took three adult partners and one minor was admitted to the benefits of the partnership. The firm applied for registration which was granted by the Tribunal for the business carried on in Orissa. The registration was refused for the business carried on in Madhya Pradesh on the ground that the partnership contravened Rule 6 of the Rules relating to General Conditions of Licence made under the Madhya Pradesh Excise Act, 1915. The Tribunal held that Section 23 of the Bihar and Orissa Excise Act was not contravened by entering into the partnership and, therefore, the partnership in so far as the Orissa business was concerned, was not illegal and could be registered.
3. The question referred to us assumes that the location of the head office of the firm at Bhopal had some bearing on the legality of the liquor business carried on in Orissa, But this assumption, in our opinion, is wrong. If the partnership was not prohibited by the Bihar and Orissa Excise Act, it was not illegal to the extent of its Orissa business and its registration in respect of that business could not be refused on the ground that its head office was in Madhya Pradesh. The provisions of the Madhya Pradesh Excise Act and the Rules made thereunder, which prohibit a partnership without the permission of the Collector, apply to the grant of privilege for doing liquor business within the State and have no application to Orissa. The legality of the business carried on by the partnership in Orissa must be judged by the law in force there, i.e., the Bihar and Orissa Excise Act. Section 23 of the Act, which is relevant to this question, reads as under:
'23. (1) A grantee of an exclusive privilege under Section 22 shall not let or assign the same or any portion thereof unless he is expressly authorised by a condition made under that section to do so.
(2) Such letting or assignment shall be made only to a person approved by the Collector or (if the letting or assignment extends to more than one district) the Excise Commissioner.
(3) The lessee or assignee shall not exercise any rights as such unless and until the Collector has, upon his application, granted him a licence to do so.'
4. A look at s, 23 will go to show that the prohibition contained therein does not in terms include a prohibition for entering into a partnership. In Dayabhai & Co. v. CIT : 59ITR364(MP) , a Division Bench of this court held that where the relevant statute does not prohibit a licensee or a permit-holder from taking a partner but simply prohibits a transfer or a sub-lease of the licence or the permit, then the licensee or the permit-holder, by merely admitting a partner or partners in the business to which the licence or the permit relates, does not transgress the prohibition against transfer or sub-lease and the partnership is valid. It was observed that there is a distinction between a statutory provision or a term or a condition in the permit prohibiting a permit-holder from taking a partner and a statutory provision or a term or a condition simply prohibiting a transfer except under certain conditions. Rule 6 of the Rules relating to general conditions made under the Madhya Pradesh Excise Act in terms contains a prohibition that the licensee shall notenter into a partnership for the working of the privilege without the written permission of the Collector. As earlier pointed out, such a prohibition is not contained in Section 23 of the Bihar and Orissa Excise Act. Merely entering into a partnership by the licensee for carrying on the liquor business will, therefore, not contravene Section 23. This view is supported by the decision of the Supreme Court in Jer and Co. v. CIT : 79ITR546(SC) . In that case the excise licence was issued in Form FL-II under the U.P. Excise Manual. The licence provided that the licence shall not be sub-let or transferred. Referring to this condition, the Supreme Court observed that ' since there is no prohibition against entry by the holder of the licence into a partnership the question whether the partnership was illegal does not arise '. The Patna High Court in Mohammed Warasat Hussain v. CIT : 82ITR718(Patna) has also taken a somewhat similar view. In CIT v. Narpati Khan and Co. : 97ITR645(Patna) , the Patna High Court again held that where the licence for trading in liquor stood in the names of only some of the partners of a firm and was not transferred to the firm, there was no illegality in the partnership. But if the licence itself is transferred to the partnership, there would result an assignment of part of the licence and Section 23 would be contravened. In the instant case, there is no finding recorded by the Tribunal that the licence was transferred to the partnership. There is also no material from whichsuch a finding could have been given. The partnership, therefore, didnot contravene Section 23. As the business carried on in Orissa by the partnership was distinct from the business in Madhya Pradesh, the partnership was entitled to registration on the principle applied in CIT v. PagodaHotel and Restaurant : 93ITR271(MP) :
5. Before concluding, we may state that the consistent view of this court with reference to Rule 6 of the Rules relating to General Conditions of Licence made under the M.P. Excise Act is that a partnership entered into without the permission of the Collector for working the business of a licence for the sale of liquor granted under the Excise Act is illegal. This view, however, proceeds on the language of Rule 6, which expressly prohibits entering, into partnership without the permission of the Collector [see CIT v. Shantilal Mehta & Co., M.C.C. No. 326 of 1976, decided on 18th July, : 143ITR308(MP) ].
6. For the reasons given above, our answer to the question referred is that the registration could be given to the business carried on in partnership in the Orissa State. There shall be no order as to costs of this reference.