1. The facts leading to the question referred to this Court, which Question has been argued with ability by the counsel of the assessee, may be shortly stated. Twelve persons have formed a partnership under a deed of 23-8-1949. Some of these partners had earlier obtained several tobacco licences for the year 1125 at the auction conducted by the then Cochin Government, and the partnership had been formed to exploit the licences obtained by the partners; ns well as two licences held by the strangers. Para 2 of the partnership deed provides that the shops, for which the lincences were held, should he run under the trade name of 'Union Tobacco Company, Ernakulam' and in accordance with the terms and conditions of the deed. The document further provides that the business should be owned by the partners in four equal shares; one share to be held by a group consisting of three oartners another by a group comprising of two: the third by another group of two partners; and the fourth share by five partners. Para 4 of the deed also provides that the profits or losses of the partnership should be divided among the 12 partners in the manner mentionedtherein. Para 8 states that the closing stocks of tobacco, beedi leaves etc., held by the partners on 31-12-1124 should be taken over by the firm's Head Office either as outright purchase or for commission sales; and the cost of such goods be credited in the accounts of the partners who held them. The other relevant provisions of the partnership deed are that the daily collections of eachshop are to be sent to the Head Office on the same day, or thrice a week; are to be credited to the respective shops; and certain persons are to manage and to attend full time to the firm's business. The details concerning the shops and which partner held what licence can best be described by giving the following extracts from paragraph 4 of the statement of case to this Court:
Class of License
Kovilvattam No. 1
A. B. Mohd. Kutty
Kovilvattam No. 2
A. K. Mammu &V.; K. Abdulkader
6 & 9
Mattancherrry No. 5
V. K. Abdulkader
Wadakkancherry No. 16
V. K. Bapukutty
Ernakulam Nos. 1 to 5
A. B. Abdulkader }
V. K. Bava }
V. U. Kunju Bava } Jointly
V. K. Mammukutty }
A. K. Bava }
' ' No. 13
V. K. Mammukutty
Quilon No. 4
V. K. Moideen Bava (outsider)
1/2 share in tobacco shop,
N. B. patel, Alleppey
Bonded Warehouse at Fort Cochin.
A. K. Bava & V. K. M. Mammukutty
7 & 12
2. At this stage it would be of advantage to quote the relevant sections of the enactment and part of the notification thereunder concerning sales of stocking of tobacco. These are Sections 4, 5 and 6 of the Cochin Tobacco Act, VII of 1084.
'4. Except as permitted by this Act or by rules framed hereunder, no one shall -
(a) possess tobacco for the purpose of sale,
(b) transport tobacco,
(c) import or export tobacco.
(d) sell tobacco, or
(e) cultivate tobacco.
5. The Diwan may, from time to time, after previous publication, make rules consistent with this Act, to permit absolutely or subject to any conditions, and regulate all or any of the following matters;
(a) the possession of tobacco for the purpose of sale,
(b) the transport of tobacco,
(c) the import or export of tobacco,
(d) the sale of tobacco, and the form of duty leviable on the sale of tobacco by retail,
(e) cultivation of tobacco, and
(f) the forfeiture,
XX X X All such rules shall be published in the Cochin Government Gazette and shall then have the force of law.
6. Whoever in contravention of this Act, or of any rule or order made under this Act, or of any licence or permit obtained under this Act,
(a) possesses tobacco for the purpose of sale, or
(b) transports tobacco, or
(c) imports or exports tobacco, or
(d) sells tobacco, or
(e) cultivates tobacco,
shall on conviction before a Magistrate, be punished for each such offence with fine which may extend to five hundred rupees.'
3. We should now give the relevant parts of the Notifications that were applicable for the auctions, at which the partners had obtained the licenses. It is Notification N. D. No. 148 and is dated May 20, 1948. The relevant parts are the following:
'1. The 'A' class licensees will have the right of import and sale to 'B' class licensees as provided for under the rules. They may also purchase tobacco from any of the stockists licensees, or from another A class licensee in the State.
'B' class licensees will have the privilege of sale only to consumers and to the C class licensees in accordance with the conditions of such licenses. B class licensees should make their purchases of tobacco from A class licensees only.
4. The licensee shall not lease out, sell or otherwise transfer the subject matter of his contract or license without the written consent of the Excise Commissioner.'
4. To continue with the statement of fact, the application was made to the Income-tax Officer for the registration of the firm under Section 26A of the Indian Income-tax Act, 1922, and the officer held that the firm having been constituted in contravention of the Excise rules was illegal and should not be registered. The appellate authority has concurred with the view relying on Govindaraj v. Kandaswami Gounder, AIR 1957 Mad 186. The Appellate Tribunal, however, has reversed the order and held that the partnership did not amount to infringement of the several provisions of Act 7 of 1084. In the alternative the Tribunal has held that the object of the Act being to collect revenue, any contract in conflict with its provisions would not be void under Section 23 of the Contract Act. The Income-tax Department thereafter asked for a case to be stated and the following question has been referred to this Court.
'Whether the firm is rcgistrable under Section 26A for the assessment year 1951-52 ?'
5. The learned Advocate for the Department has urged that a contract transferring rights under the licenses and contrary to the rule contained in the notification is void, and as the partnership clearly amounts to such a contract it cannot be registered. In support of this argument the learned advocate relies on AIR 1957 Mad 186, Pannalal v. State of Hyderabad, AIR 1954 Hyd 129, and Fakirchand v. Bansilal, (S) AIR 1955 Hyd 28. In the two last mentioned cases the partnership contravened the provisions of the Abkari Act and were held to be void.
6. The counsel for the assessee has urged two grounds for sustaining the order by the Appellate Tribunal. His first argument is that a partnership with a view to exploit the advantages accruing to persons having license 'A' or 'B' under the Tobacco Act is not illegal and entry into such a partnership does not amount to transfer of licensee's rights. In support of the argument he has relied on Gauri Shankar v. Mumtaz Ali Khan, ILR 2 All 411 (FB), Radhey Shiyam v. Mewa Lal, AIR 1929 All 210, Karsan v. Gatlu Shivaji Patil, ILR 37 Bom 320, Abdulla v. Allah Diya, 27 Cochin 222. Against these is Velu Padayachi v. Sivasooriam, AIR 1950 Mad 444, which the counsel for the assessee urges to have been overruled by Ummacharan Shaw and Bros. v. Commr. of Income-tax, West Bengal, Calcutta, : 37ITR271(SC) . We feel this decision in Velu Padayachi to be correct and not to have been overruled by : 37ITR271(SC) . But before assigning our reasons it is but proper to state what has been decided in the other cases.
7. In ILR 2 All 411 (FB), there was a lease for three years of a Government ferry with a covenant not to underlet or assign the lease without the leave of the person who had granted it, but the lessee admitted another as his partner and the Full Bench held that such a partnership was not void by reason of the covenant not to underlet or assign the lease. The decision in AIR 1929 All 210, is more helpful to the assessee; for there was an agreement between the licensee and a third person for sharing the profits and losses in the business under the license and the learned Judges held that, though Rules 80, 82 and 86 under Sections 40 and 41 of the United Provinces Excise Act permitted transfer of licenses only with the permission of the Collector, the agreement did not amount to transfer or Sub-lease of the liquor contract, and was therefore not void. In ILR 37 Bom 320, the defendant had obtained a license under the Bombay Abkari Act to sell country liquor and one of the conditions of the license was against Sub-leasing without the permission of the Collector. After obtaining the license the defendant admitted the plaintiff in the case as his partner, who brought the suit for an account of what was due under the partnership, and the learned Judges held that under the aforesaid circumstances the partnership was not void. In Abdulla v. Allah Diya, ILR 8 Lah 310 : AIR 1927 Lah 333, it was held that the refusal by the State to recognise others as partners was for administrative purposes only and its contravention did not make the contract void under Section 23. The same view has been taken in 27 Cochin 222, for it decides that prima facie there is nothing illegal in a partnership trade in tobacco, as there is no element of moral turpitude involved in it and the partnership can be carried on without involving any violation of the provisions of the Tobacco Regulation, or of the rules issued thereunder, The learned Judges have further held that what is prohibited by law is not a transfer of the business, but a transfer of the personal privileges of the licenses; and there can be a partnership between a licensee and another wherein the former is allowed to retain intact the personal privileges conferred upon him by the licensee. They have also decided that a partnership between a licensee and another that allows the licensee to retain intact his personal privileges under the license is not void. With respect to the learned Judges we feel the view taken by them not to be legally correct; for it cannot be disputed that creating equitable interests out of the benefits under a license is covered by the prohibition against transfers. If we were to hold otherwise a licensee by declaring himself a trustee for another of the benefits under a license would bring about what the prohibition under the notification seeks to prevent. It also followsthat the prohibition against such a transfer would cover any alienations of the partial benefits as well, and the licensee cannot declare himself a trustee of the benefits in favour of another and himself. If doing that contravenes the rule against transfers, and we think it does, entering into a partnership also amounts to such a violation, as a partner is a trustee for his other partners. It is, therefore, clear that a licensee by entering into a partnership passes partial but substantial interests In what he has in favour of another, and thereby does what the rule seeks to forbid without permission. The same result is reached when prohibition against transfer of possession is analysed; for it cannot be disputed that by becoming a partner a licensee in possession of the goods converts without transfer of corpus his possession into that of an agent, The vicarious possession is then substantially different and the rule against transfer is attracted. We therefore think the view of Menon, J. in AIR 1950 Mad 444 that mere entering into partnership amounts to transfer of licensee's right is correct and the contract to do so is void because such a transfer is prohibited. We further think : 37ITR271(SC) (SCO does not overrule this view, for in the case before the Supreme Court the partnership did not create any benefit that had not existed prior to its formation. The case therefore states the proposition that when no benefit is created the rule against transfer is not attracted, The first ground therefore taken to sustain the order by the Appellate Tribunal fails.
8. The counsel for the assessee has next urged that the provision for punishment in Section 6 of the Cochin Tobacco Act is with a view to safeguard revenue, the contract to do what is so punished is not void, and he relies on a formidable number of cases, Champsey Dossav. Gordhaiidas Kessow-ji. 40 Ind Cas 805: AIR 1917 Bom 250, the learned Judges held that a partnership is not void under Section 23 of the Contract Act merely because it was contrary to what was prohibited in the Salt Act. This view has been sustained by Privy Council in Gordhandas Kessowji v. Champsey Dossa. AIR 1921 PC 137. In Venkatanandam v. Dhanaraju AIR 1929 Mad 689, a person obtaining contract in his own name but forming partnership to carry out its terras was held not illegal, though it was contrary to the provisions of the Forest Act. The counsel for the assessee also relies On Bhikanbhai v. Ramdinshet Marwadi, ILR 24 Bom 622, where the contract was in contravention of the Tolls Act and it was held not to be void. He further referred to Johnson v. Hudson, (1809) 103 ER 973 and Cope v. Rowlands, (1836) 150 ER 707. We do not think these cases lay down the broad proposition that a contract to do what is punished in order to safeguard revenue is never void. It is always a question of construction whether the punishment is intended by the legislature to make the act expensive or to prohibit it, and where the conclusion is reached that the intention is to prohibit the act the contract to do it would be void. A working test for finding whether the intention be to prohibit is to ascertain whether the punishment is repeated at each act and where that be done the act would be treated as forbidden. (Vide Buckley, J. in Victorian Daylesford Syndicate Ltd v. Dott, (1905) 2 Ch. 624,. The counsel for the assesses has not been able to satisfy us against the incorrectness of the aforesaid test and applying it to Section 6 of the Act, it is clear that a person is punished For each act contrary to the provisions of the Act or rule; It follows the act is forbidden and the contract to do so is void. The second ground therefore for upholding the order of the Appellate Tribunal fails.
9. Therefore the answer to the question referred to us is that the firm cannot be registered under Section 26A for the assessment year 1951-52. The reference is accordingly answered and the assesses will pay Rs. 50/ as the costs to the Department.