Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2001-02 - Whether no person can carry on liquor business without a licence or permission - Held, yes - Whether such licence granted is not transferable - Held, yes - Whether even if transferable, it would be subject to conditions - Held, yes - Whether a partnership firm to carry on liquor business needs a licence or permission from authority under Excise Act - Held, yes - Whether if an individual transfers said licence to a partnership firm, it has to be in accordance with law, otherwise transfer would be contrary to section 23 of Indian Contract Act and void - Held, yes - Whether however, if a partnership firm chooses to obtain a licence in name of one of its partner and licence granted to such partner is treated as partnership asset expressly in partnership deed even before acquiring such licence and partnership firm pays fee for obtaining such licence, said licence granted is a partnership asset and is not personal property of such partner - Held, yes - Whether no transfer is involved in such a transaction - Held, yes - Whether thus partnership firm would be eligible for deductions under heading business expenditure under section 37(1) - Held, yes FACTS The assessee a partnership firm was carrying on the business of liquor on wholesale basis. The liquor licence stood in the name of one of the partners. The licence was not transferred in the name of the assessee and it continued to be in the name of the partner. The assessee carried on this wholesale business using the licence not owned by the firm and, therefore, the assessing authority disallowed the remuneration paid to the partners and the interest on capital. Aggrieved by the same, the assessee filed an appeal before the Commissioner (Appeals). The appeal came to be allowed. Aggrieved by the same, the revenue preferred an appeal before the Tribunal, which came to be dismissed affirming the order passed by the Commissioner (Appeals). On revenue's appeal: HELD No person can carry on a liquor business without a licence or permission. Such licence granted is not transferable. Even if transferable, it would be…

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