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Motilal Chunnilal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberF.B. Income-tax Reference No. 2 of 1976
Judge
Reported in1987(2)WLN126
ActsIncome Tax Act, 1961 - Sections 185; Rajasthan Excise Act, 1950 - Sections 34, 42E, 54 and 58; Rajasthan Excise Rules, 1956 - Rules 57, 67 and 93
AppellantMotilal Chunnilal
RespondentCommissioner of Income-tax
Appellant Advocate Rajendra Mehta, Adv.
Respondent Advocate B.R. Arora, Adv.
Cases ReferredBrij Mohan v. N.V. Vakharia
Excerpt:
computers service - computers and telex be introduced to coordinate decisions of different benches of high court.;(b) income tax act, 1901 - section 185--registration of firm and contract act--section 23 and rajasthan excise act, 1950--section 34, 54 & 58(c)--prohibition of new partnership without written permission--agreement defeating public policy--held, tribunal was right in holding that firm was not valid and was not entitled to registration.;since there is express prohibition of new partnership without written permission; and therefore such a partnership is forbidden by law and therefore, it is unlawful for section 23 of the indian contract act, as also section 34(c) of the rajasthan excise act renders the licence liable to cancellation on breach of conditions of licence; and.....dwarka prasad, j.1. this is a reference by the income-tax appellate tribunal, jaipur bench, jaipur, by which the following questions of law were referred to this court for its opinion :'1. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the firm was not valid and that the object of the agreement was of such a nature that, if permitted, it would defeat the public policy as contained in the provisions of the rajasthan excise act, 1950 ? 2, if the answer to the above is in the affirmative, whether the tribunal was justified in holding that the firm was not valid and, therefore, not entitled to registration under section 185 of the income-tax act, 1961 ?' 2. the government of rajasthan granted a licence for the retail sale of country liquor.....
Judgment:

Dwarka Prasad, J.

1. This is a reference by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, by which the following questions of law were referred to this court for its opinion :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm was not valid and that the object of the agreement was of such a nature that, if permitted, it would defeat the public policy as contained in the provisions of the Rajasthan Excise Act, 1950 ?

2, If the answer to the above is in the affirmative, whether the Tribunal was justified in holding that the firm was not valid and, therefore, not entitled to registration under Section 185 of the Income-tax Act, 1961 ?'

2. The Government of Rajasthan granted a licence for the retail sale of country liquor during the year 1966-67 at Bhilwara including the shops situated at Bhupalganj, Gulmandi and Dhanmandi, in the joint names of Motilal, Chunnilal and Bhanwarlal, son of Motilal. It appears that with a view to carry on the aforesaid business of retail sale of country liquor, the aforesaid licensees entered into a partnership with five other persons and constituted the firm, M/s. Motilal Chunnilal, Bhilwara, consisting of the following eight partners :

1. Motilal,

2. Chunnilal,

3. Bhanwarlal,

4. Smt. Vijaylaxmi, wife of Satishchandra,

5. Poonamchand, son of Gangaram,

6. Bhuralal, son of Devilal,

7. Ram Nath, son of Magniram, and

8. Smt. Kamala, wife of Mangilal.

3. On the basis of the deed of partnership dated August 8, 1966, entered into by the aforesaid eight persons, the assessee, M/s. Motilal Chunnilal, applied for registration of the firm. However, registration of the firm was refused by the Income-tax Officer on the ground that the partnership was not legal as it violated the provisions of Clause (3) of the terms of the licence issued by the Excise Department of the State. Clause (3) of the licence translated into English runs as under :

'The licence-holder shall not be entitled to transfer the licence of the shop to any person without the written permission of the officer granting the licence and shall not be entitled to take a partner and such permission shall not be given till such time as the licence-holder pays all dues outstanding against him.'

4. During the course of an enquiry, the Income-tax Officer found that the licence-holders had not obtained the permission in writing from the authorities of the Excise Department of the State for entering into a partnership with five other persons. Thus, the Income-tax Officer held that the failure on the part of the licence-holders to take permission inwriting from the excise authorities to form the partnership amounted to violation of the conditions of the licence and the provisions of the Rajasthan Excise Act, and, therefore, the contract of partnership was hit by Section 23 of the Indian Contract Act. The Appellate Assistant Commissioner of Income-tax confirmed on appeal the order passed by the Income-tax Officer. On further appeal by the assessee, the Income-tax Appellate Tribunal held that there was a clear prohibition in Clause (3) of the licence in respect of the formation of a partnership by the licence-holders without the prior permission of the excise authorities. Thus, the provisions of the excise law have been violated as there was public policy involved in the provisions of the Excise Act and the Rules and the agreement of partnership was entered into in violation of such public policy and should, therefore, be held to be invalid. The Tribunal thus dismissed the appeal and maintained the order of refusal of registration of the assessee-firm.

5. It was submitted before us by learned counsel for the assessee that no public policy was involved in incorporating Clause (3) in the licence and that the violation of the provisions of Clause (3) would not automatically mean that the contract was violative of the provisions of Section 23 of the Indian Contract Act or was void ab initio. It was urged that the object of imposition of penalty and the provision for cancellation or suspension of licence in the case of breach of any terms or conditions of the licence have been provided to safeguard the excise revenue and not for the purpose of protection of the public generally or a section of the public. Learned counsel for the assessee relied upon a decision of a Division Bench of this court in Durga Madira Sangh v. CIT in support of his contention. On the other hand, learned counsel for the Revenue submitted that entering into a partnership with strangers is prohibited as Section 54 of the Rajasthan Excise Act provides penalty for contravention of the provisions of the licence granted under the Act and Section 34(c) provides for cancellation or suspension of the licence for breach of the conditions thereof, with the view of protecting public health and not merely safeguarding excise revenue.

6. The question which really arises in the present case is as to whether there is a prohibition either by the provisions of the Rajasthan Excise Act or the Rules made thereunder or by the terms of the licence against the holder of the licence entering into a partnership with third parties. If there is a prohibition, the partnership entered into in contravention of the prohibition would ipso facto become illegal or unlawful. We have to determine whether the imposition of a condition upon the licence-holder of obtaining the written permission of the competent excise authority before entering into a partnership with third parties would amount to prohibition, particularly when the breach of such condition exposes the licence-holder to imposition of penalty and also to the cancellation of the licence. In Durga Madira Sangh's case , a Bench of this court, after quoting condition No. 3 of the licence, held that even the aforesaid condition of the licence did not 'totally' prohibit the licensee from entering into a partnership but it only requires that the licensee should obtain written permission for entering into a partnership. Thus the partnership was held to be permissible but with the written permission. It was thus held that the business carried on by the partnership firm for and on behalf of the partners, including the persons in whose names the licence was granted, cannot be held to be illegal or void as it was neither forbidden by law nor was in contravention of the provisions of Section 23 of the Contract Act, as there is nothing immoral or against public policy in taking some more persons as partners in the firm.

7. Lindley in his treatise on the Law of Partnership, Fifteenth edition, summed up the law on the subject as under :

'although a statute may in terms apparently prohibit an actor omission, and affix a penalty in case of disobedience, it does not necessarily follow that all transactions to which the penalty attaches are illegal. They are so if the statute is really prohibitory as is the case if the penalty is imposed for the protection of the public, but they are not so if the true construction of the statute is that the penalty is, as it were, the price of a licence for doing what the statute apparently forbids.'

8. The law on the point has been summed up in Halsbury's Laws of England, III edition, Vol. 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 considered 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.'

9. There appears to be a sharp divergence of judicial opinion on the question as to whether the licensee entering into partnership with strangers without obtaining the permission of the excise authorities renders such a partnership illegal and the firm is not entitled to registration under the Income-tax Act.

10. In Gordhandas Kessowji v. Champsey Dossa AIR 1921 PC 137, it was held by their Lordships of the Privy Council that a licensee of salt manufacture cannot be said to contravene the terms of the licence or the provisions of Section 11 of the Bombay Salt Act, 1890, whereby he is prohibited from 'alienating the interest', simply because the licensee admitted members of his family and others as partners for sharing the profits of the business.

11. The decision of their Lordships of the Supreme Court in Jer & Co. v. CIT : [1971]79ITR546(SC) , where a similar question about partnership in the matter of licence for wholesale vending of foreign liquor came up for consideration may also be referred to in this context. In that case, the assessee-firm had two partners, one of whom had obtained a licence for the wholesale vending of foreign liquor which was renewed from year to year. The question being raised as to whether the firm was entitled to registration under Section 26A of the Income-tax Act, 1922, it was held by their Lordships of the Supreme Court that the licence did not prohibit the holder from entering into a partnership, but it merely provided that the licence shall not be sub-let or transferred. It was also held that as there was no prohibition against the holder entering into a partnership, the question whether the partnership was illegal did not arise and the firm was entitled to registration. It appears that after the aforesaid decision of their Lordships of the Supreme Court in Jer & Co.'s case : [1971]79ITR546(SC) , a term that the licence-holder should obtain permission in writing from the excise authorities concerned before entering into a partnership has been added in liquor licences.

12. The Bench deciding Durga Madira Sangh's case followed the line of reasoning adopted by the Full Bench of the Allahabad High Court in P.C. Kapoor v. CIT : [1973]90ITR172(All) . That was also a case of licensee of a liquor shop entering into partnership with other persons. It was held that merely because other persons were taken into partnership by the licensee, it could not be held that any interest in the licence was transferred in favour of the other partners. Various partners agreed to carry on the business of excise contracts on the basis of the licence standing in the name of some of the partners. It necessarily implied an agreement that the business activity would be done in a lawful manner and that the sale of liquor will be carried on by the partners on behalf of all the partners in accordance with law. It was held inP.C. Kapoor's case : [1973]90ITR172(All) , that when an enactment merely imposes a penalty without declaring a contract made in contravention thereof to be illegal or void, the imposition of penalty by itself and without more does not necessarily imply a prohibition of the contract ; but the commission of the act leading to the contravention of the conditions of the licence exposes the person to imposition of penalty and if the excise authority thinks it proper, it may cancel the licence. But the agreement to enter into a partnership could not be held to be forbidden by law and the income-tax authorities were not justified in refusing registration to the firm.

13. The view taken in P.C. Kapoor's case : [1973]90ITR172(All) , by the Full Bench of the Allahabad High Court was also taken by the Patna High Court in CIT v. Prakash Ram Gupta [1969] 72 ITR 368 and in Md. Warasat Hussain v. CIT : [1971]82ITR718(Patna) and in CIT v. N. C. Mandal & Co. : [1969]72ITR769(Patna) and in CIT v. Narpati Khan and Co. : [1974]97ITR645(Patna) .

14. The view was also shared by the Calcutta High Court in CIT v. Manick Chandra Dey [1977] 106 ITR 850, wherein the view taken by the Full Bench of the Allahabad High Court in P. C. Kapoor's case : [1973]90ITR172(All) was followed.

15. In CIT v. Gian Chand & Co. , the decision of their Lordships of the Supreme Court in Jer & Co.'s case : [1971]79ITR546(SC) was followed as, under the Punjab Fisheries Rules, there is no prohibition in entering into a partnership so far as the fishing licences are concerned. The Madras High Court also took the same view in T.K.P.R. Ramanatha Chettiar & Brothers v. CIT : [1969]73ITR811(Mad) and in National Roadways v. CIT : [1975]99ITR97(Mad) , in the case of a partnership firm running a transport business on the basis of permits standing in the name of one of the partners, as there was no prohibition against the partnership in the Motor Vehicles Act, although there is a prohibition against the transfer of the permit. The same view was taken by a Division Bench of the Madhya Pradesh High Court in Dayabhai & Co. v. CIT : [1966]59ITR364(MP) and by a Full Bench of the Madhya Pradesh High Court in Smt. Janki Bai Chunnilal v. Ratan Melu : AIR1962MP117 , in the case of a partnership relating to transport business.

16. The opposite view was taken by a Full Bench of the Madras High Court in Velu Padayachi v. Sivasooriam Pillai, AIR 1950 Mad 444, which related to a partnership entered into for the purpose of conducting a business for vending arrack or toddy on a licence granted to only one of the partners. It was held in that case that the partnership was ab initio void as the entering into a partnership involved either transfer of the licence which was prohibited under the provisions of the Abkari Act and was made punishable or because the unlicensed partner by himself or through his agent sold excisable goods without a licence. The same view was also taken in another decision of the Madras High Court in D. Mohideen Sahib and Co. v. CIT : [1950]18ITR200(Mad) and it was held that as the partnership contract was itself void ab initio, the Income-tax Officer was justified in refusing registration to the partnership firm. These decisions of the Madras High Court were followed by the Kerala High Court in CIT v. Union Tobacco. Co. : [1961]41ITR115(Ker) .

17. The decision in Velu Padayachi's case AIR 1950 Mad 444, of the Madras High Court, was also followed by the Andhra Pradesh High Court in CIT v. Krishna Reddy : [1962]46ITR784(AP) . The same view was also taken by the Andhra Pradesh High Court in V. Basavayya v. N. Kottaya AIR 1966 AP 145, that a partnership entered into by a dealer of cloth in contravention of the provisions of the relevant control orders was illegal and void. The Andhra Pradesh High Court also took the same view in Dinsawji v. Abdul Rasool Khan : AIR1967AP119 , and held that the agreement to run the business of supplying liquor in partnership on a licence in the name of one of the partners was void being opposed to the provisions of the Abkari Act and the rules made thereunder.

18. The Madras Full Bench decision in Velu Padayachi's case AIR 1950 Mad 444, was also followed by the Punjab High Court in CIT v. Benarsi Das & Co. and it was observed that where there is some express prohibition by law or rule having the force of law against the action of the contracting party, the contract will be held to be void ; where there is no such prohibition, it will be upheld. The decision in Benarsi Das & Co.'s case was followed by the Punjab and Haryana High Court in Lalchand Mohan Lal Fazilka v. CIT . The Punjab and Haryana High Court again took the same view in CIT v. Hardit Singh Pal Chand & Co. and followed the earlier decisions of that court in Benarsi Das' case and Lalchand Mohan Lal Fazilka's case .

19. In CIT v. Pagoda Hotel and Restaurant : [1974]93ITR271(MP) , the Madhya Pradesh High Court distinguished the decisions of the Bombay and Patna High Courts holding that mere entering into partnership with outsiders did not interfere with the actual working of the privilege and did not amount to transfer of the privilege on the ground that, under the Central Provinces Excise Rules, entering into partnership in any way ormanner without the written permission of the Collector is expressly prohibited. The decision in Pagoda Hotel's case : [1974]93ITR271(MP) was followed by the Madhya Pradesh High Court in CIT v. Sheonarayan Harnarayan 0065/1972 : [1975]100ITR213(MP) and the decisions of that court in Dayabhai and Co.'s case : [1966]59ITR364(MP) and Janki Bai Chunnilal's case : AIR1962MP117 , were distinguished on the ground that the prohibition of transfer or lease of a privilege stood on a footing different from the case of prohibitionun respect of entering into a partnership. It was observed that under the M.P. Excise Rules, 1915, there could not be a partnership for the working of a privilege of supply or sale of liquor granted to an individual unless a written permission was endorsed on the licence. A partnership formed in contravention of the aforesaid provision would be void ab initio. Thus, in a case where a licence was granted to an individual for carrying on business in liquor and he entered into partnership with another person without obtaining the written permission of the Collector, the partnership was held to be void, in so far as it related to liquor business and the firm was held not to be entitled to registration in respect thereof. The same view was reiterated by the Madhya Pradesh High Court in Narsaiya and Co. v. CIT : [1983]143ITR304(MP) and CIT v. Kondra Durgaiya : [1983]143ITR315(MP) .

20. The same view was also taken by the Orissa High Court in Mohapatra Bhandar v. CIT : [1965]58ITR671(Orissa) and it was held that the income-tax authorities were justified in refusing registration to a partnership firm where no leave of the Collector was sought to carry on the excise business in partnership, while the licence for the excise shop and for sale of ganja and opium stood in the name of one of the partners. The Madras, Punjab and Kerala decisions were followed and it was held that the agreement of partnership was unlawful as possession and sale of ganja was prohibited by the Bihar and Orissa Excise Act and the rules made thereunder and similar is the position of opium, where the prohibition was contained in the Opium Act and the rules made thereunder. In Oudh Cocogem and Provision Stores v. CIT : [1968]69ITR819(All) , the assessee-firm consisting of three partners carried on the business of selling provisions, medicines and wines, but as the licence for sale of wines stood in the name of one of the partners, the registration of the firm under the Income-tax Act was cancelled holding that the deed of partnership was void. It was held that the partnership carried on business in stores, provisions, medicines and wines and so the partnership could not fail in its entirety simply because three brothers also proposed to sell wines in addition to provisions and medicines. In this view of the matter, it was held that the deed of partnership was not void and the mere fact of selling of wine did not make the entire partnership itself void or illegal andregistration of the firm could not be cancelled on the ground that the partnership was void. The facts of this case are clearly distinguishable as it is apparent that the partnership was not only for the purpose of doing business of selling wines but it was also for doing business in provisions and medicines for which there was no prohibition for entering into partnership.

21. The two decisions of the Supreme Court are relevant in the context of the present discussion, though none of them is directly on the point in issue before us. In Umacharan Shaw and Bros. v. CIT : [1959]37ITR271(SC) , three brothers formed a joint Hindu family governed by the Dayabhaga law and held licences for sale of foreign liquor in their individual names, but not in the name of the family. After the disruption of the joint family, the three brothers entered into a deed of partnership by which they agreed to carry on a liquor business in partnership for which they kept separate account books. It was held by their Lordships of the Supreme Court that if a business was carried on by some members of the joint Hindu family, it was open to them to enter into a partnership, so long as they did not contravene the provisions of the Excise Act prohibiting transfer or sub-lease and such a partnership could not be said to be illegal or void ab initio. It was held by their Lordships of the Supreme Court, while upholding the validity of the partnership agreement in that case, that there was no evidence that the excise licences themselves were transferred or sub-let. Another decision of the Supreme Court in the case of Jer & Co. v. CIT : [1971]79ITR546(SC) has already been noticed by us above. In that case, their Lordships of the Supreme Court reversed the decision of the Allahabad High Court in Jer & Co. v. CIT : [1966]60ITR335(All) . In that case, it was held that the conditions of the licence did not prohibit the holder from entering into a partnership with an outsider, but merely provided that the licence shall not be sub-let or transferred and since there was no prohibition against the holder of the licence entering into a partnership, the question whether the partnership was illegal did not arise and so the firm was entitled to registration. In that case, it was observed that Rule 322 of the Uttar Pradesh Excise Manual prohibited the holder of a licence from entering into a partnership with another person, but the rule had no application as the licence issued in that case did not contain any such condition.

22. An earlier Division Bench of this court in Brij Mohan v. N.V. Vakharia , held that as a business for manufacture of medicines and toilet preparations could not be lawfully carried on without a proper licence in accordance with the provisions of Section 6 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, read with Rule 85(4) of the Rules made thereunder, the partnership entered into without the permission of the concerned authoritywas illegal. In that case also, the licence for manufacture of medicines and toilet preparations stood in the name of one of the partners, but later on the licensee entered into a partnership with two more persons and the partnership took over the entire business which was earlier carried on by the licensee alone. The Division Bench of this court held that the collective effect of the relevant provisions of the Act and the Rules led to the unmistakable result that a business of the nature of manufacture of medicinal and toilet preparations cannot be carried on without a proper licence in the name of the partnership. Rule 85(4) referred to by their Lordships provided that if the holder of a licence wished to enter into a partnership in regard to the business covered by the licence, he could do so after obtaining the sanction of the licensing authority and the licence would thereafter be suitably amended. Thus, in that case, it was also permissible to enter into a partnership subject to obtaining the sanction of the licensing authority. But the production or manufacture of dutiable goods by any person without a licence was made punishable.

23. A resume of the various decisions on the subject go to show that cases where the relevant law under which the licence or permit was issued prohibited the licensee or permit-holder from entering into partnership for carrying on the business under the licence without the written permission of the concerned authority have to be distinguished from cases where the licensee was not authorised under the relevant law to sub-let, transfer, sell or otherwise alienate the privilege granted under the licence. This principle was laid down by their Lordships of the Privy Council in Gordhandas Kessowji's case AIR 1921 PC 137, where Section 11 of the Bombay Salt Act prohibited the licensee from 'alienating the interest'. The same principle was clearly brought about by their Lordships of the Supreme Court in Jer & Co.'s case : [1971]79ITR546(SC) , where it was observed that the licence did not prohibit the holder thereof from entering into partnership, but merely provided that the licence shall not be sub-let or transferred. The decision of the Punjab High Court in Gian Chand & Co.'s case relating to fishing licence and the decisions of the Madras High Court in Ramanatha Chettiar & Bros. case : [1969]73ITR811(Mad) and National Roadways' case : [1975]99ITR97(Mad) relating to transport licences, therefore, stand on a different footing from the cases relating to liquor licences as they fall within the same line as the decision of the Privy Council in Gordhandas Kessowji's case AIR 1921 PC 137, and the decision of the Supreme Court in Jer & Co.'s case : [1971]79ITR546(SC) . As a matter of fact, the aforesaid cases were distinguished in subsequent cases by the Punjab and Haryana High Court and the Madras High Court themselves, as mentioned earlier. In the same class of cases fallsthe decision of the Supreme Court in Umacharan Shaw & Bros.' case [1959] 37 ITR 271, where also the prohibition was in respect of transferring or sub-letting the business covered by the licence. The decisions of the Patna High Court in Prakash Ram Gupta's case : [1969]72ITR366(Patna) , Md. Warasat Hussain's case : [1971]82ITR718(Patna) and N. C. Mandal & Co.'s case : [1969]72ITR769(Patna) also fall in the same category of cases, as Section 23 of the Bihar and Orissa Excise Act only prohibited the grantee of an exclusive privilege from sub-letting or assigning the same or any portion without the express permission of the concerned authority. In those cases, the view taken was that the prohibition was against letting or assignment and there was no bar against the licence-holder entering into a partnership with third parties.

24. However, the cases where the law specifically prohibits the licence-holder from entering into partnership with strangers without the express permission in writing of the licensing authority and makes the breach of the condition of the licence punishable and also exposes the licence to cancellation stand on an entirely different footing. The taking of a partner by the licence-holder may not amount to transfer of licence or sub-lease or sale thereof but it would enable the unlicensed partner by himself or through his agent to sell excisable articles without holding a licence.

25. It may be pointed out that in cases of fishing licences and motor transport permits, the prohibition that the licence-holder shall not transfer or sub-let or otherwise assign the business under the licence or the permit is meant for the protection and convenient collection of revenue. But it is different in cases of abkari, opium and liquor licences, as the prohibition has a material bearing on the working of the exclusive privilege granted to the licensee and the provision in the licence that it shall not be assigned, sub-let or transferred and that no partners shall be taken without the express permission in writing of the licensing authority appears to have been introduced in furtherance of public policy.

26. A Bench of this court in Brij Mohan's case , where the prohibition contained in Rule 85(4) of the Medicinal and Toilet Preparations (Excise Duties) Rules was couched in almost similar language, had taken the view that the business like the one which the parties were carrying on could not be lawfully carried on without a licence in the name of the partnership. Unfortunately, that decision was not brought to the notice of the Bench deciding Durga Madira Sangh's case . In our view, in such cases, the question always is whether the Legislature intended to prohibit the contract which must be decided on 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 would be construed asimplying a prohibition of the contract. On the other hand, if the object of imposition of penalty is merely the protection of the revenue, then mere imposition of penalty would not necessarily imply a prohibition of the contract. The Full Bench of the Allahabad High Court in P. C. Kapoor's case : [1973]90ITR172(All) took the view that the only object of annexing the condition attached to the licence was that the excise authorities be always kept acquainted with the real persons who were conducting the business and the question of public policy was not involved. The Allahabad High Court's view which was followed in the decision of the Patna High Court and the Calcutta High Court referred to by us above was also relied upon by the Bench of this court deciding Durga Madira Sangh's case . But the other view taken by the Full Bench of the Madras High Court, which was followed by the decisions of the Andhra Pradesh, Kerala, Punjab and Haryana, Madhya Pradesh and Orissa High Courts cited above, appeals to us, that in the case of licences issued for the sale of excisable articles, the object of imposing the condition of prior permission in writing of the licensing authority for entering into partnership and of imposition of penalty on failure of obtaining such permission, is not only for the protection of the revenue but also the protection of the public in general. The intention of the Legislature appears to be that the business of sale of liquor or other intoxicants may not fall into the hands of unsocial elements or undesirable persons. Condition No. 3 of the licence provides that the licence-holder shall not transfer or assign the business or enter into partnership with third parties without obtaining the written permission of the licensing authority. The licensing authority is entitled to verify that the persons who are proposed to be inducted as partners by the licence-holder are not unscrupulous people. Thus public policy is clearly involved in providing a check against the introduction of persons having a shady background and in safeguarding the public from the leaders of the underworld gaining control over the liquor trade in the State or a specified area. That is why Section 54 of the Rajasthan Excise Act provides a penalty for contravention of the provisions of the licence and Section 34(c) exposes the licence-holder to cancellation or suspension of the licence for breach of a condition thereof. Further, Section 62 also makes the contravention punishable with fine. In our view, it is necessary in order to protect public health that unscrupulous people or persons with shady background may not be inducted by the licence-holder in the liquor trade by entering into partnership with them. The Bench deciding Durga Madira Sangh's case [19851 153 ITR 226 has observed that the Act and the rules did not contain a direct prohibition but the same is contained merely in the terms of the licence. But the decision of their Lordships of the Supreme Court in Jer & Co.'s case : [1971]79ITR546(SC) ,makes it clear that if the licence contained a prohibition and breach of the conditions of the licence is made punishable by the provisions of the Act and the rules made thereunder, then it cannot be said that there was no prohibition contained in the law against entering into partnership without the express permission of the licensing authority. In Durga Madira Sangh's case , it was also observed that there is nothing immoral or against public policy in taking other persons as partners. However, with great respect to the learned judges, as pointed out by us above, the entry of unsocial elements in the liquor trade by the back door by entering into partnership with the licence-holder may lead to causing injury to public health and is likely to affect public policy. The licensing authority is entitled to consider the background or the previous conduct of the person who has applied for a liquor licence under the provisions of the Rajasthan Excise Act and the same vigilance has to be maintained while permitting the licence-holder to enter into partnership with other persons or in allowing the licensee to transfer or sub-let the business carried on under the licence. In this view of the matter, we are of the view that the decision by the Bench of this court in Durga Madira Sangh's case requires reconsideration. Moreover, it appears that the view taken in that case is also not in conformity with the view taken by the earlier Bench in Brij Mohan's case [1965] RLW 254 : AIR 1965 Raj 172, and the decisions of the Madras, Kerala, Andhra Pradesh, Madhya Pradesh, Punjab and Haryana and Orissa High Courts, referred to above by us, many of which do not appear to have been brought to the notice of the Bench which decided Durga Madira Sangh's case .

27. As we are inclined to take a view different from the view taken in Durga Madira Sangh's case , it would be proper that the case should be decided by a larger Bench. As the question involved in the present case involves a pure question of law, it would be proper that the entire case may be referred to a larger Bench for decision. We are, therefore, of the view that the case may be placed before the Hon'ble Chief Justice for seeking appropriate directions in this respect.


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