S.K. Mal Lodha, J.
1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ('the Tribunal' herein), has referred the following question for the opinion of this court:
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that there was no contravention of the provisions of the Rajasthan Excise Act and that the assessee-firm was validly constituted and was entitled to registration '
2. The assessment year involved is 1973-74. The assessee is a partnership concern which during the relevant assessment year derived income from sale of country liquor. In the relevant previous year it had three partners, Svs. Rooplal Danchand, Ladharam Murandmal and Khemchand Tekchand. The licences of the three main shops of the assessee-firm were in the names of all the three partners. Besides these three shops, there were, however,two other shops of which the licences were not in the names of all the three partners. The Income-tax Officer held that the assessee-firm had contravened the provisions of the Rajasthan Excise Act, 1950 (No. XXIV of 1950) (which will for the sake of brevity hereinafter be referred to as ' the Excise Act '), and also the licence issued thereunder to the assessee. He also found that the assessee had not filed the application for registration in Form No. 11A which was the proper form and instead, application for continuation has been filed in Form No. 12 on June 25, 1973. He, therefore, vide his order dated February 21, 1976, passed under Section 185 of the Income-tax Act, 1961 (Act No. XLIII of 1961) (' the Act ' herein), made the assessment of the assessee-firm in the status of an unregistered firm. An appeal was filed before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner was of the view that the filing of the application for continuation of registration in Form No. 12 instead of Form No. 11A for registration constituted an irregularity which could be cured. By his order dated July 20, 1976, he directed the Income-tax Officer to give the assessee a month's time for filing the proper application for registration in Form No. 11 A. While disagreeing with the Income-tax Officer, the Appellate Assistant Commissioner held that there was no contravention of the provisions contained in the Excise Act and the Rajasthan Excise Rules, 1956 (' the Rules '), and the assessee-firm was valid in law and was entitled to registration. He also followed his earlier order which he passed in the assessee's case in respect of the assessment years 1971-72 and 1972-73. The Revenue filed further appeal before the Tribunal.
3. Before the Tribunal on behalf of the assessee as well as of the Revenue, it was submitted that the order passed by the Tribunal in respect of the assessment years 1971-72 and 1972-73 may be adopted. The Tribunal was of the opinion that as the order in respect of the assessment years 1971-72 and 1972-73 was passed in identical circumstances, the order of the Appellate Assistant Commissioner dated July 20, 1976, should be maintained. It may be stated here that the Tribunal, vide Income-tax Appeal No. 79/JP/1975-76 regarding the assessment year 1971-72 and Income-tax Appeal No. 1106/JP/1975-76 in respect of the assessment year 1972-73 in its order dated February 28, 1978, opined that the order of the Appellate Assistant Commissioner in directing the Income-tax Officer to grant registration to the firm for the assessment year 1972-73 was correct. It further held in that order that the Appellate Assistant Commissioner was justified in holding that the Income-tax Officer was not correct in not granting continuation of registration to M/s. Rooplal Danchand for the assessment year 1972-73. The Tribunal, in respect of the assessment year 1973-74, took the view that the assessee-firm was validly constituted and was entitled to registration. In these circumstances, the aforesaidquestion of law arising out of Income-tax Appeal No. 602/JP/1976-77 in respect of the assessment year 1973-74 has been referred.
4. We had the advantage of hearing Mr. B. R. Arora, learned counsel for the Revenue only, as nobody has appeared on behalf of the assessee.
5. The question of law referred to above will have to be determined on the basis of the following points which are not in dispute. Rooplal was granted a license for carrying on liquor business. A partnership firm, namely, M/s. Rooplal Danchand, was formed by him. In that firm, the partners were Rooplal, Khemchand and Ladharam. The aforesaid firm carried on the business for the assessment years 1971-72 and 1972-73 under the licence granted in the name of Rooplal. No permission in writing was obtained by Rooplal from the excise authorities for carrying on liquor business in partnership with others.
6. Now, we may notice the relevant provisions contained in the Rules. Chapter VII-A of the Rules deals with licence under the guarantee system. According to rule 67A, licence for retail shop of country liquor under the guarantee system can be granted to persons guaranteeing to draw from a Government warehouse and sell in a financial year or part thereof country liquor of a specified value which is called the amount of guarantee. The licences under the guarantee system can be granted :
1. by inviting tenders, or
2. by auction, or
3. by negotiation.
7. When the licence under the guarantee system is granted by inviting tenders, the amount of the tender accepted for the grant of license is payable by the licensee. The most important rule for our purpose is Rule 72B relating to transfer of a licence. It will be relevant to read Rule 72B, which is as under:
' 72B. Transfer of licence.--(a) Every licence shall be deemed to have been granted or renewed personally to the licensee and no licence shall be sold or transferred without obtaining previous permission iu writing from the licensing authority.
(b) if during the currency of a licence, the licensee desires to transfer his business to new premises, he shall intimate his intention to the licensing authority at least 15 days in advance, and get his licence suitably amended. The licence shall thereupon hold good in respect of the new premises.'
8. Section 62 of the Excise Act provides for penalty for offences not otherwise provided for. If any person is guilty of any act or intentional omission in contravention of any of the provisions of the Excise Act orany rule or order made under the Excise Act and not otherwise provided for therein he can be punished for each such act or omission with fine which may extend to two hundred rupees. It is clear from Section 62 of the Excise Act that, amongst others, contravention of any provision of the Act or any rule or order has been made punishable. Section 23 of the Contract Act makes mention of the consideration and objects that are unlawful arid what not. From the facts regarding which there is no dispute, it is clear that the licence was issued in the name of Rooplal alone. That licence was not transferred by him. What Rooplal did was that he entered into an agreement of partnership with other persons to carry on the business regarding which the licence was granted to him in his exclusive name. The Income-tax Officer passed an order under Section 185 of the Act, refusing to register the firm. The jurisdiction of the Income-tax Officer in dealing with an application for grant of registration is confined to the ascertainment of two facts:
(1) whether the application for registration is in conformity with the Act and the rules made thereunder, and
(2) whether the firm shown in the document presented for registration was a bogus one or has no real existence or has no existence in terms of the deed of partnership.
9. In other words, he has to go into the question of the genuineness of the firm. Rooplal had formed the partnership with other persons. One of the questions which the Income-tax Officer was required to determine was whether the partnership formed by Rooplal was in accordance with law or not. It is well settled that the essentials for the formation of a partnership are :
1. that there should be an agreement between the persons forming the partnership,
2. that the agreement should be for carrying on business,
3. that the profits or losses of the business are to be divided, and
4. that all the partners should be equally engaged in the business or one of them should act on behalf of the others.
10. It has not been urged by learned counsel for the Revenue that the partnership formed by Rooplal and others was not in accordance with law. The Income-tax Officer was of the opinion that when Rooplal and others have formed a partnership to carry on the business mentioned in the licence, it amounted to a transfer of the licence in favour of the other partners, for, it was prohibited under the Rules. In disagreement with the view taken by the Income-tax Officer, the Appellate Assistant Commissioner opined that there was no contravention of any of the provisionsof the Excise Act or the Rules. He, therefore, held that a valid partnership was formed by Rooplal with others. In view of this conclusion, following his earlier decision, he directed the Income-tax Officer to grant registration. On appeal, the Tribunal followed its earlier decision as the circumstances were the same and maintained the order of the Appellate Assistant Commissioner.
11. The principal attack made by learned counsel for the Revenue is that the formation of the partnership without obtaining the previous sanction of the competent authority was against public interest and so the Income-tax Officer was justified in refusing registration. On the other hand, on behalf of the assessee, it was submitted before us that there was no prohibition in the conditions of the licence and so the partnership firm is valid.
12. We may first examine the cases which support the view taken by the Tribunal. The Supreme Court in Umacharan Shaw & Bros. v. CIT : 37ITR271(SC) , while considering Section 26A of the Indian Income-tax Act, 1922 (Act No. XI of 1922) (' the old Act '), while reversing the view taken by the Tribunal that there was no genuine partnership, held that the partnership should be registered. It may be stated that the Tribunal took the view that there was no genuine partnership as the existence of the partnership was not disclosed to the bankers or to the excise authorities who issued the licence for the shop and the formation of the partnership was in violation of the Bengal Excise Act, 1911. It further held that there was no evidence of transgression of the provisions of the Bengal Excise Act, 1911, and that there was nothing affecting the validity of the partnership.
13. The Tribunal in its earlier order has referred to Jer & Co. v. CIT : 79ITR546(SC) , wherein Section 26A of the old Act and rules 322, 574, Form FL II of the U.P. Excise Rules, 1910, were examined. The question referred by the Tribunal to the High Court of Allahabad was : ' Whether, on the facts and in the circumstances of the case, the firm was entitled to registration under Section 26A of the Indian Income-tax Act, 1922 ' The High Court had answered the question in the negative. An appeal was filed by the firm. In that connection. Shah C.J., speaking for the court, observed as under (at page 548):
' The Commissioner and the High Court proceeded on the footing that the licence was governed by rule 322 which prohibited the holder of the licence from entering into a partnership with another person. But the licence, it is clear from the record, was in Form FL II issued under the U.P. Excise Manual. The licence does not prohibit the holder from entering into partnership by the holder of the licence; it merely provides that thelicence shall not be Sub-let or transferred. 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 firm was entitled on that account to registration.'' (underlining ours)
14. It is thus clear from fer & Co.'s case : 79ITR546(SC) that if the licence does not provide prohibition from entering into partnership by the person who holds the licence and that it merely provides that the licence shall not be transferred, then, there is no prohibition against entering into partnership by the holder of the licence and, in such circumstances, there will be no question of the partnership being illegal. Before the Full Bench of the Allahabad High Court in P.C. Kapoor v. CIT : 90ITR172(All) , a somewhat similar question to that with which we are concerned in this reference arose. In that case, a licence was obtained by D.P. and B.P. for the retail sale of country liquor. They formed a partnership with five others under a partnership deed dated April 9, 1961. That partnership deed provided that the firm was to do business of excise contract which may be taken in the name of any partner or partners and such business would be deemed to be the business of the firm. The firm applied for registration under the Act in respect of the assessment year 1962-63 and further filed a declaration under Section 184(7) of the Act claiming continuance of its registration for the assessment year 1963-64. The Income-tax Officer was of the opinion that under the provisions of the Excise Act, only the persons in whose names the licence stands can deal with the sale and purchase of country liquor and, therefore, the partnership was illegal and was not entitled to registration or continuance of registration. On further appeal, the Appellate Tribunal agreed with the Income-tax Officer. Thereafter, there was a reference and it was submitted on behalf of the Revenue that the 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 the previous approval of the Excise Commissioner in respect of an excise licence and that the formation of the partnership without the previous approval of the Excise Commissioner was in contravention of the rules and was void. The Allahabad High Court held that merely because D. P. and B.P. entered into a partnership agreement with five others, it did not mean that those five others were given a right to sell country liquor in contravention of the provisions of the licence and that it could not be said that any interest in the licence was transferred in favour of the other partners. In that case, it was also ruled that there was no transfer of licence as contemplated by the rules. In coming to this conclusion, the Allahabad High Court followed CIT v. Prakash Ram Gupta : 72ITR366(Patna) and Md. Warasat Hussain v.CIT : 82ITR718(Patna) . CIT v. Pagoda Hotel and Restaurant : 93ITR271(MP) , on which reliance was placed by learned counsel for the Revenue, was distinguished on the ground that in that case there was an express statutory bar to the formation of any such partnership. CIT v. Union Tobacco Co. : 41ITR115(Ker) was also distinguished. In CIT v. Manick Chandra Dey : 106ITR860(Cal) , the Tribunal held that for the purpose of income-tax assessment, the constitution of the firm which was legal at the inception did not become illegal because it exploited a licence which could not have been transferred to it, or, for the matter of that, it transacted rice business without obtaining a requisite licence (in its name). On a reference, at the instance of the Revenue, the Calcutta High Court held that the provisions of the Control Order did not prohibit entering into a partnership or make the formation of a partnership illegal. Reliance was placed on Jer & Co.'s case : 79ITR546(SC) , CIT v. Gian Chand and Co. and Kapoor's case : 90ITR172(All) ,
15. Now, we advert to the decisions relied on by learned counsel for the Revenue. The first authority to which reference may be made is Union Tobacco Co.'s case : 41ITR115(Ker) . In that case, some partners obtained licences for dealing in tobacco. A partnership was formed to exploit the licences. The question arose whether the partnership was legal. In that case, rights under the licences were transferred in contravention of the rules contained in the notification. A finding was recorded that as the partnership merely amounted to such contract, it cannot be registered. Uwacharan Shaw's case : 37ITR271(SC) was also referred to. The view taken by the Punjab High Court in CIT v. Benarsi Das and Company was that where a person obtained a licence for the sale of opium in his own name and, later on, formed a partnership with others for carrying on the business and applied for registration of the firm under Section 26A of the Indian Income-tax Act, the firm should not be registered under Section 26A of the Act as the object of the firm was unlawful. In Mohapatra Bhandar v. CIT : 58ITR671(Orissa) , one U held a licence in his own name for excise shops in ganja and opium for the year ending on March 31, 1952. Forgetting finance for the said excise shops, he entered into a partnership with five others. An application for registration of that firm under Section 26A of the old Act was filed and that was rejected by the income-tax authorities on the ground that the transfer of the excise business by U to the firm without the previous sanction of the Collector was prohibited under the Rules made under the Bihar and Orissa Excise Act. A contention was raised on behalf of the assessee that so long as the actual business of possessing and selling the excisable goods was done by the licensee, thepartnership with others would not amount to a transfer of the licence. On those facts, it was held that there was a transfer against the provisions of the excise rules, and the Income-tax Officer was justified in refusing registration to the firm under Section 26A of the old Act, Union Tobacco Co.'s case : 41ITR115(Ker) and Benarsi Das & Co.'s case were referred to.
16. Learned counsel for the Revenue placed considerable reliance on Pagoda Hotel & Restaurant's case : 93ITR271(MP) . We propose to examine it in detail. In that case, four persons were carrying on the business in partnership. They were also running a hotel and a restaurant. Partners Nos. 1 and 3 were each running a foreign liquor shop with licences in their separate names. From April 1, 1959, the liquor shops were also handed over to the firm and along with the hotel, the partnership started running both the shops as a firm. Rule VI of the C.P. Excise Rules relating to General Licence Conditions provided that no privilege of supply or sale shall be sold, transferred or Sub-leased, nor shall the holder of any such privilege enter into a partnership for the working of such privilege in any way or manner without the written permission of the Collector, which shall be endorsed on the licence. In those circumstances, the question cropped up whether the partnership was illegal and the firm was consequently not entitled to registration under the Income-tax Act. It was ruled by the Madhya Pradesh High Court that in the Excise Rules, the prohibition from entering into partnership regarding the working of the privilege had been made absolute and was couched in wide terms and that it could not be truncated simply because the partners who did not have the privilege in their names were not taking any active part in the working of the privilege. It was found that the partnership in the liquor shops was illegal and could not be registered. But the partnership with regard to the running of the hotel was a valid partnership and could be registered. It is clear that there was a condition prohibiting entering into partnership regarding the working of the privilege. In CIT v. Hardit Singh , while considering the provisions of the Punjab Excise Act, 1914, and the Punjab Liquor Licence Rules, 1956, which, inter alia, provided that if the licensee is a firm, it is prohibited from taking in new partners without the approval of the concerned authorities. There was also a rule which prohibited anybody from selling on behalf of the licensee unless the name of such person is approved and endorsed on the licence. The persons who had secured licence in their names took other partners for carrying on the liquor business. The firm applied for registration which was refused by the Income-tax Officer but was granted by the Tribunal. On a reference, after distinguishing PagodaHotel & Restaurant's case : 93ITR271(MP) , Oudh Cocogem and Provision Stores v. CIT : 69ITR819(All) and Jer & Co.'s case : 79ITR546(SC) and after taking into consideration the provisions of the Punjab Excise Act and the Punjab Liquor Licence Rules, it was held that the firm carried on the business of possessing and selling liquor in violation of the provisions of the Punjab Excise Act and the Rules framed thereunder as also of the conditions of the licence. It is clear that there was a statutory prohibition in that case.
17. In Narsaiya & Co. v. CIT : 143ITR304(MP) , the excise contract was taken by an individual. That individual formed a partnership. The agreement of partnership related to a liquor contract. There were conditions under rule VI of the M.P, Excise Rules. No written permission of the Collector was obtained and the permission was not endorsed on the licence. It was held that the Tribunal was right in holding that as the written permission of the Collector was required under rule VI and it had not been obtained by the firm and the permission was not endorsed on the licence, the petitioner-firm was not validly constituted to carry on the excise business and the firm was not entitled to registration under Section 184 of the Act. It would thus be clear that it was essential to obtain the permission which was not obtained. On those facts, it was held that the partnership was not valid and the firm was not entitled to registration under Section 184 of the Act.
18. It will be relevant to refer to CIT v. Narpathi Khan and Co. : 97ITR645(Patna) . Before the Patna High Court, an identical question arose. In that case, the licence for trading in liquor stood in the names of only some of the partners of the firm. The licence was not transferred to the firm which carried on the business. It was held that there is no illegality in the partnership and the firm is entitled to registration under Section 26A of the old Act. The learned judges followed Umacharan's case : 37ITR271(SC) , CIT v. K.C.S. Reddy : 38ITR560(Patna) , Prakash Ram Gupta's case : 72ITR366(Patna) , CIT v. N. C. Mandal & Co. : 72ITR769(Patna) and Md. Warasat Hussain's case : 82ITR718(Patna) . In respect of Umacharan Shaw's case : 37ITR271(SC) , it was stated that the Supreme Court has laid down therein that a partnership firm could carry on the business of selling foreign liquor though the licences were held by individual members constituting the partnership with regard to different shops. It was further stated that the Supreme Court made reference to Section 42(1)(a) of the Bengal Excise Act and held that such a partnership could not be said to be illegal on account of any contravention of the provisions.
19. The authorities that have been referred to by learned counsel for the Revenue cannot be availed of by him, for, in those cases, after construing the relevant provisions of the Act or the Rules or the conditions, it was inferred that there was a prohibition and when there was a prohibition against entering into partnership, the partnership so entered was illegal.
20. In the case on hand, we have already reproduced rule 72B of the Rules. Rule 72B of the Rules only provides that the licence shall not be transferred without obtaining the previous permission in writing from the licensing authority. In this case, the licence was granted to Rooplal. That licence was not transferred. Rooplal merely took other partners in the business. There was no prohibition from taking partners in the business. The partnership that was formed by Rooplal was not a transfer of the licence in favour of the other partners. The firm consisted of various partners along with Rooplal in whose favour the licence was granted and it merely carried on the business under the licence granted to Rooplal. The prohibition envisaged by rule 72B is that the licence shall not be transferred without obtaining the previous permission in writing from the licensing authority. As the licence was not intended to be transferred in favour of the other partners of the firm, there was no necessity for obtaining any permission by Rooplal from the excise authorities. As stated above, for granting registration under Section 185, the Income-tax Officer is to satisfy himself whether the following conditions which are essential for the registration of a firm exist or not:
1. that the application has been made on behalf of the firm before the end of the accounting year and it is in conformity with the Act and the Rules;
2. that the firm is evidenced by an instrument of partnership ;
3. that the instrument of partnership specifies the individual shares of the partners ;
4. that the partnership is valid and genuine and has actually existed in conformity with the terms and conditions of the instrument.
21. If all the conditions are satisfied, the Income-tax Officer is left with no option but to register the firm. In the case on hand, the aforesaid four conditions are fulfilled and as the formation of the partnership was not prohibited by the Excise Act or the Rules made thereunder, it is valid.
22. We find ourselves in complete agreement with the principles laid down in Jer & Co.'s case : 79ITR546(SC) , P. C. Kapoor's case : 90ITR172(All) and N.C. Mandal & Co.'s case : 72ITR769(Patna) as they are in conformity with the law laid down by the apex court of the country in Umacharan Shaw's case : 37ITR271(SC) and Jer &Co.;'s case : 79ITR546(SC) . The decisions that have been relied on by learned counsel for the Revenue were rendered on their own facts and the provisions of law under consideration. They are distinguishable and are of no assistance for answering the question referred by the Tribunal.
23. For the reasons aforesaid, we hold that them was no contravention of the provisions of the Rajasthan Excise Act and, as such, the firm that was constituted by Rooplal by taking other partners in the business was valid and as the conditions provided for registration under Section 185 of the Income-tax Act are satisfied, it is entitled to registration.
24. The question referred by the Tribunal is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
25. As nobody has appeared on behalf of the assessee, we make no order as to costs.
26. Let a copy of the judgment be sent to the Tribunal as required by Section 260(1) of the Income-tax Act, 1961.