Viswanatha Sastri, J.
1. The question that has been referred to us for our opinion is as follows :
Whether the Bench was correct in law In refusing to register the applicants as a firm under Section 26A, Income-tax Act ?'
Seven persons entered into an agreement for and bad been carrying on, an arrack business for several years. For the assessment year, 1944-45 an instrument of partnership executed on 20th March 1944 by these seven persons was sought to be registered with the Income-tax Officer under Section 26A of the Act. The arrack shops stood, some in the names of some of these individuals and some in the names of strangers. The Income tax Officer refused registration on the ground that the firm as such was not a licensee, that the conditions under which the arrack licenses were issued prohibited the sale, transfer or sub-renting of the licence without the Collector's permission, that such permission bad not been obtained in this case, that the agreement of partnership entered into between the partners was unlawful and therefore the partnership could not be registered under Section 26A of the Act The partnership was declared to be illegal on the ground that it violated Rule 27 of the Rules framed under the Abkari Act. The learned counsel for the assessees argues that the Income-tax Officer would normally be assessing and would be entitled to assess the profits of any business though it happened to be illegal and that while making an enquiry under Section 26A of the Act, all that he has to see is whether a business is being carried on by persons who had agreed to share the profits without concerning himself with the question whether the business or the combination of persons was legal or illegal. He contends that if the contract of partnership or the business was illegal the partners could not enforce the rights flowing from the contract of partnership but for purposes of income-tax the profits of the partnership could be assessed to tax as the profits of a business and therefore the firm should be registered under Section 26A, Income-tax Act. In our opinion, the registration of a partnership formed for an illegal purpose stands on a different footing from taxation of the profits of a business tainted with illegality.
2. It has been held by a recent decision of a Full Bench of this Court in Velu Padayachi v. Sivassooriam Pillai : AIR1950Mad444 that a partnership entered into for the purpose of conducting a business in arrack or toddy on a licence granted, or to be granted, to only one, or some of the partners, is void ab initio whether the partnership contract was entered into before the licence was granted or afterwards. The reason for this conclusion is stated to be that such a partnership arrangement either involves a transfer of the licence which is prohibited under Rule 27 and punishable under Section 56, or is a breach of Section 15 Abkari Act punishable under Section 55 because the unlicensed partner, by himself, or through his agent the other partner, sells without a license, The learned Judges also held that even though a partnership was lawful at its inception because it was not intended to infringe any of the provisions of the Contract Act, it nevertheless, became unlawful when it intended to conduct the business jointly on a licence granted to one only of the partners In view of this opinion we must hold that the object of the partnership was illegal and therefore the partnership contract itself was void ab initio. That being the case it was open to the Income-tax Officer to refuse to register a firm whose object was unlawful and the partnership contract under which the firm was constituted was wholly void. We therefore answer the question referred to us in the affirmative and against the assessees. The Commissioner of Income-tax will get his costs of this reference which we fix at Rs. 250.