Law:

Section:

Section 184 of the Income-tax Act, 1961 [Corresponding to section 26A of the Indian income-tax Act, 1922] - Firm - Position prior to 1-4-1993 - Assessment year 1944-45 - Whether where a partnership was entered into for purpose of conducting a business in arrack or today, object of partnership being illegal partnership contract was void ab initio and, therefore, partnership firm was not entitled to registration under section 26A of 1922 Act - Held, yes FACTS Seven persons entered into an agreement had been carrying on an arrack business for several years. For the relevant assessment year, an instrument of partnership executed on 20-3-1944, by these seven persons was sought to be registered with the ITO under section 26A. The arrack shops stood, some in the names of some of these individuals and some in the names of strangers. The ITO refused registration on the ground that the firm as such was not a licensee, that the conditions under which the arrack licences were issued prohibited the sale, transfer or sub-renting of the licence without the Collector's permission, that such permission had 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 1922 Act. The partnership was declared to be illegal on the ground that it violated Rule 27 of the rules framed under the Abkari Act. On appeal the Tribunal upheld the refusal for registration. On reference: HELD It has been held by a recent decision of a Full Bench of this Court in Velu Padayachi v. Sivasooriam Pillai, (C.R.P. No. 23 of 1947; since reported in [1950] 1 MLJ 315, 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, was void ab initio whether the partnership contract was entered into before the licence was granted or afterwards. In the instant case it must be held that the object of partnership was illegal and therefore the partnership contract itself was void ab initio . That being the case it was open to the ITO to refuse to register a firm whose object…

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