Law: Income Tax Act, 1922

Section: 26A

Income-tax----Firm - Registration of firm-Excise licensee entering into partnership-Other partner subscribing no capital but supervising business-Whether partnership illegal-Indian Income tax Act, 1922, S. 26-A--Bihar & Orissa Excise Act, 1915, Ss. 22 & 23. One PRG, who had an excise licence in his name to carry on the business of the sale of country liquor, entered into a partner ship with one MR under a document which provided, inter alia that the country liquor business should be carried on in the name of the first party that the first party should provide the entire capital, take three-fourths of the profits and bear the entire loss if any, that the second party should take one-fourth of the profits, that the working and management of the business should be under the supervision of the second party who should duly observe all rules and regulations of the Excise Act and that the second party shall have no right to the assets of the business. The Appellate Assistant Commissioner refused registration of the firm under section 26-A of the Act for the reason that, though the licence bad not been transferred by PRG, the partnership was not a genuine and valid one as MR was a mere employee and not a partner. On appeal, the Appellate Tribunal disagreed with the Appellate Assistant Commissioner and directed registration. On a reference to the High Court, it was contended on behalf of the Commissioner that the formation of the partnership amounted to a transfer of the licence granted to PRG and that, therefore, there was a contravention of section 23 of the Bihar & Orissa Excise Act, 1915, which provides that the licensee shall not let or assign the privilege unless expressly authorized: Held, that, as MR did not contribute any money for carrying on the business and he had no right to the assets of the business and under the partnership deed, the rules and regulations of the Excise Act had to be observed, the working and manage ment of the liquor shop business had only been put under the supervision of MR and it was in the contemplation of the two partners that the law regarding the sale of liquor had to be observed as provided by section 22 of the Excise…