JUDGMENT : U.N. Sinha, J. These two references under Section 66(1) of the Indian Income Tax Act, 1922, have been heard together and this JUDGMENT : will govern both the cases. The question of law which has been referred to this Court, covering both the cases, is as follows :- "Whether on the facts and circumstances of the case the assessee firm was legally entitled to registration under Section 26A of the Indian Income Tax Act for the assessment years 1959-60 and 1960-61 ?" 2. The relevant facts are as follows: One Prakash Ram Gupta used to carry on business in country liquor and Pachwai at Jharia, Bararee, Bhagatdih and Rourkella and by an agreement in writing dated the 1st April, 1959 he agreed to take one Mahadeo Ram as a partner in the Bararee country liquor shop in the Pachwai shop at Bhagatdih, on certain terms, and thereafter these two persons entered into a partnership by a registered deed executed on the 21st November, 1959. In due course, the firm named Prakash Ram Gupta applied under Section 26A of the Income Tax Act, 1922 for registration of the firm for the assessment year 195960. This application was rejected by the Income Tax Officer by an ORDER :dated the 29th February, 1960. It was held that by the partnership deed Sri Prakash Ram Gupta sought to transfer the business of the firm and as the Excise law prohibited such a transferred licence the firm did not have any legal existence and it cannot be recognised. For the assessment year 1960-61 the firm named Prakash Ram Gupta had again applied for registration under the same provision of law and this was also refused by the Income Tax Officer by his ORDER :dated the 24th January, 1961. By this ORDER :it was held that the licensee was Sri Prakash Ram Gupta and as the Excise law prohibited transfer of a licence from one person to another, the transfer by Sri Gupta to a firm consisting of himself and Sri Mahadeo Ram was illegal. The assessee firm went up in appeal with respect to the assessment year 1959-60 and by ORDER :dated the 19th July, 1960 the appeal was dismissed. The assessee firm went up in appeal with respect to the assessment year 1959-60 and by ORDER :dated the 19th July, 1960 the appeal was dismissed. It was held by the Appellate Assistant Commissioner that the transfer of licence by Sri Prakash Ram Gupta was illegal and, therefore there was no legal firm in existence during the accounting year under consideration. It may be stated here that the assessee firm had also filed an appeal against the ORDER :of the Income Tax Officer dated the 24th January, 1961 with respect to the assessment year 1960-61. From the ORDER :of the Appellate Assistant Commissioner with respect to the assessment year 1959-60 the assessee firm went up in appeal before the Income Tax Appellate Tribunal, and by ORDER :dated the 14th December, 1961, the Patna Branch of the Tribunal allowed the appeal and remanded the case to the Appellate Assistant Commissioner. The relevant portion of the ORDER :may be quoted here :- "Therefore, before deciding whether a valid partnership exists or not there has to be a finding of fact as to whether the excise licence obtained by Prakash Ram Gupta has been transferred to the partnership. This is a matter on which the fact has to be found with reference to the account books of the firms. Since neither the Income Tax Officer nor the Appellate Assistant Commissioner have adverted their mind to this aspect of the matter, we would set aside the ORDER :of the Appellate Commissioner and direct him to dispose of the appeal de novo after recording a finding as to whether the excise licence obtained by Prakash Ram Gupta has in fact been transferred to the partnership." In view of the directions given in the ORDER :of remand, a report was called for by the Appellate Assistant Commissioner regarding the alleged transfer of licence and a report dated the 30th May, 1963 was sent by the Income Tax Officer stating that the licence obtained by Sri Prakash Ram Gupta had not been transferred at any time during the years 1959-60 to 1961-62. Thereafter the Appellate Assistant Commissioner by his ORDER :dated the 5th July, 1963 decided the two appeals with respect to the assessment years 1959-60 and 1960-61. Thereafter the Appellate Assistant Commissioner by his ORDER :dated the 5th July, 1963 decided the two appeals with respect to the assessment years 1959-60 and 1960-61. He dismissed the appeals by the assessee firm although he came to the conclusion that the objection that had been raised by the Income Tax Officer for refusing registration for these two years was no longer valid. He, however, held that on the facts of the case the alleged partnership between Sri Prakash Ram Gupta and Sri Mahadeo Ram was not a genuine and valid one. Two appeals were preferred by the assessee firm and the Income Tax Appellate Tribunal, Patna Bench allowed them by a consolidated JUDGMENT : dated the 10th July, 1964, directing that the appellant firm should be registered for both the years 1959-60 and 1960-61. The reasons given by the Appellate Assistant Commissioner for refusing registration were not accepted to be valid reasons. Thereafter, the Commissioner of Income Tax, Bihar and Orissa, Patna, applied under Section 66 (1) of the Indian Income Tax Act, 1922, in these two cases for referring the question of law arising on the facts and circumstances of the two cases to this Court and the reference has thus arisen. 3. In ORDER :to appreciate the contentions raised by the parties in these two cases, the following clauses of the deed of partnership dated the 21st November, 1959 are quoted : "The first party refers to Sri Prakash Ram Gupta and the second party refers to Sri Mahadeo Ram. "1. The first party above named has obtained the necessary Excise licence in his name to carryon the business of sale of country liquor at Bararee and Pachwai at Bhagatdih. 2. The said business will be carried on under the name of the first party from its Head Office at Jharia with shops or branches at Bararee and Bhagatdih within the District of Dhanbad. 3. The working and management of the said liquor shop business shall be under the supervision of the second party who will remain in sole charge of the business as a working partner. 4. The first party shall invest the entire capital for carrying on the said business properly and the second party will not have to contribute any money for the said purpose. 5. 4. The first party shall invest the entire capital for carrying on the said business properly and the second party will not have to contribute any money for the said purpose. 5. The second party shall devote the whole of his time and attention to the proper management of the said liquor shops and shall attend diligently to the business and shall not be entitled to work else where during the period of this partnership. 6. …………………………………… 7. The second party shall carryon the liquor shop business in a profitable and business like way shall duly observe and all rules and regulations of the Excise Act in force or to be in force during the continuance of the partnership. 8. ……………………………………... 9. Further investments required from time to time for purchase of liquor and other necessary articles for carrying on the liquor shop business shall be made by the first party alone. 10. The second party shall have no right to the assets of the liquor shop business and shall make over charge of all such assets to the first party on the termination of this partnership. ………………………….. …………………………… 14. A general account of the assets, liabilities and transactions of the liquor shop business mentioned above shall be taken at the end of each English Financial year and the net profit of the business shall be divided between the parties according to the following shares :- 1. Shri Prakash Ram Gupta (1st party) 3/4th (three fourth). 2. Mahadeo Ram (2nd party) 1/4th (one-fourth) and if there be any loss, the entire loss will be borne by the first party and the second party will not be liable to bear any part of such loss nor the second party will be required to refund the monthly advance withdrawn by him the same will be treated as a remuneration for his work and labour." Learned counsel appearing for the Commissioner of Income Tax has referred to Sections 22 and 23 of the Bihar and Orissa Excise Act, 1915 (Act No. 11 of 1915) and they are reproduced below :- Section 22. "Grant of exclusive privilege OF MANUFAOTURE AND SALE OF OOUNTRY LIQUOR OR Intoxicating drugs.- (1) The State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege. "Grant of exclusive privilege OF MANUFAOTURE AND SALE OF OOUNTRY LIQUOR OR Intoxicating drugs.- (1) The State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege. (a) of manufacturing, or supplying wholesale, or (b) of manufacturing and supplying wholesale, or (c) of selling wholesale or retail, or (d) of manufacturing or supplying wholesale and selling retail, or (e) of manufacturing and supplying wholesale and selling retail any country liquor or intoxicating drug within any specified local area: Provided that such public notice shall be given of the intention to grant any such exclusive privilege, and that any objections made by any person residing within the area affected shall be considered before an exclusive privilege is granted. (2) No grantee of any privilege under Sub-section (1) shall exercise the same unless or until he has received a license in that behalf from the Collector or the Excise Commissioner." (1) Section 23. "Transfer of exclusive privilege (1) A grantee of an exclusive privilege under Section 22 shall not let or assign the same or any portion thereof unless he is expressly authorized by a condition made under that section, to do so, (2) Such letting or assignment shall be made only to a person approved by the Collector or (if the letting or assignment extends to more than one district) the Excise Commissioner. (3) The lessee or assignee shall not exercise any rights as such unless and until the Collector has, upon his application granted him a licence to do so." 4. It is contended by the learned counsel for the Commissioner of Income Tax that the formation of the partnership in question amounted to a transfer of the privilege given to Sri prakash Ram Gupta under Section 22 of the Excise Act, that is to say, the excise licence, and secondly, the business of the two shops mentioned in the partnership deed having been transferred by Sri Prakash Ram Gupta to the firm, there has been a contravention of Section 23 of the Excise Act. The first question raised by the learned counsel is fully answered by the Supreme Court decision of (1) Ramcharan Shaw and ors. V. Commissioner of Income Tax, East Bengal, reported in (1959)37 Income Tax Reports 271. The first question raised by the learned counsel is fully answered by the Supreme Court decision of (1) Ramcharan Shaw and ors. V. Commissioner of Income Tax, East Bengal, reported in (1959)37 Income Tax Reports 271. The following observations of their Lordships at page 276 may be noted – “Though the Tribunal stated that it had not proceeded on the ground that the partnership was illegal being against the Bengal Excise Act, 1911, the argument was referred to as supporting the conclusion that the firm was not genuine. Section 42 (1) (a) of the Bengal Excise Act reads: 42. (1) Subject to such restrictions as the State Government may prescribe the authority who granted any licence, permit or pass under this Act may cancel or suspend it....... (a) If it is transferred or sub>let by the holder thereof without the permission of the said authority." There was no evidence that the excise licences were transferred or sub-let." If mere formation of a partnership in which the licensee is a partner amounts to a transfer or sub-lease of the licence, then their lordships of the Supreme Court would not have stated that there was no evidence that the excise licences were transferred or sub-let. Therefore, the real question in these two cases for consideration is whether Sri Prakash Ram Gupta had sub-let or assigned the licence obtained by him to the firm. This point is really the second point raised by the learned counsel for the Commissioner of Income Tax, although he has put his argument in the manner mentioned above, that is to say, he has referred to the transfer of the business of the two shops to the firm as constituting a tran8fer of the licence. On this point, the principal case on which reliance has been placed by the learned counsel is a case of the Orissa High Court (2) Mohapatra Bhandar V. Commissioner of Income Tax reported in (1965) 58 Income Tax Reports 671. In my opinion, Mohapatra Bhandar's case is distinguishable on facts and the principle applied by the learned judges of the Orissa High Court will not apply on the terms of the partnership deed of these cases. The learned judges stated as follows : "This finding clearly shows that the firm did not merely take over the financial part of the business but the entire business including its management. The learned judges stated as follows : "This finding clearly shows that the firm did not merely take over the financial part of the business but the entire business including its management. The business here consists merely in storing and selling excisable goods like opium and ganja and when the Income-tax authorities have categorically held that this business was handed over by the licenses to the firm and the firm managed this business during the year in question. It must be held that there was complete transfer of the business against the provisions of the Excise rules prevailing in the State." Then the learned judges, after distinguishing a decision of this Court, in the case of (3) Commissioner of Income Tax V. K.C.S. Reddy, reported in (1960) 38 Income Tax Reports, 560, stated that the partnership deed of Mohapatra Bhandar's case showed that the firm carried on "business", which would necessarily mean securing, possessing and selling of excisable articles in question. The distinctions between Mohapatra Bhandar's case and the instant cases are these: (a) The licensee of the Orissa case was unable to finance the excise business individually and he had made over the business to the firm in lieu of finance. It was agreed that the partners would share the profit or loss according to the share of each partner in the firm. In the instant cases, the entire capital as to be invested by Sri Gupta and Sri Ram was not called upon to contribute any money for carrying on the business. Sri Ram had no right to the assets of the liquor shop business. He was entitled only to the one• fourth of the profit, if any, and he was not liable for any loss. (b) The learned judges held in Mohapatra Bhandar's case that the work of securing, possessing and selling of excisable articles had been transferred to the firm. In the instant cases, it was stated in the partnership deed that the working and management of the liquor shop business was under the supervision of Sri Ram and he had to observe all rules and regulations of the Excise Act in force or to be in force during the continuance of the partnership. In the instant cases, it was stated in the partnership deed that the working and management of the liquor shop business was under the supervision of Sri Ram and he had to observe all rules and regulations of the Excise Act in force or to be in force during the continuance of the partnership. Therefore, it is not possible to hold that Sri Ram could actually conduct the sale of the country liquor and Pachwai covered by the licence, in contravention of Section 22 of the Excise Act, it is clear that under the agreement Sri Ram was (sic) entitled to the supervision of the working and the management of the business only. (c) In Mohapatra Bhandar's case the licensee was Sri U.N. Mohapatra, whereas the firm was described as Mohapatra Bhandar and that firm had applied far registration under Section 26A of the Income-tax Act. In the instant cases, Clause (2) of the partnership deed states that the business will be carried on under the name of Sri Prakash Ram Gupta. In the circumstances, it is difficult to hold that by the partnership deed there was contravention of Section 23 of the Excise Act in - the sense that the excise licence had been let or assigned to the firm by Sri Gupta. 5. Learned counsel for the Commissioner of Income Tax has relied upon a decision of the Madras High Court in (4) D. Mohideen Sahib & Co. V. Commissioner of Income Tax, Madras, reported in (1950) 18 Income Tax Reports 200 which was based on an earlier Full Bench decision of the same High Court in the case of (5) Velu Vadayadhi V. Sivasooriam Pillei (FB), reported in A.I.R. 1950 Madras 444. Sri A.K Sen appearing for the firm has argued that the principle followed by the learned Judges of the Madras High Court is obliterated by the decision of their lordships of the Supreme Court in Umacharan Shaw's case. Sri A.K Sen appearing for the firm has argued that the principle followed by the learned Judges of the Madras High Court is obliterated by the decision of their lordships of the Supreme Court in Umacharan Shaw's case. In D. Mohideen's case the learned Judges of the Madras High Court referred to the Full Bench decision and stated that the Full Bench decision of that Court held that a partnership entered into for the purpose of conducting business in arrack or toddy on a licence granted to only one or some of the partners was void ab initio, because such a partnership arrangement involved a transfer of the licence or was a breach of the Abkari Act punishable under that Act, because the unlicensed partner, by himself, or through his agent, the other partner sells without a licence. The argument of Sri Sen based on the decision of their Lordships of the Supreme Court challenging the correctness of the decisions of the Madras High Court cannot be said to be without force and Sri Sen has drawn our attention to a decision of the Andhra Pradesh High Court in the case of (6) Chandaji Sukhraj & Company V. Lal and Company, reported in A.I.R. 1960 Andhra Pradesh 444, where the Full Bench decision of the Madras High Court was not accepted as correct. Sri Sen has also relied upon a decision of the Bombay High Court in the case of (7) Champsey Dossa and others V. Gordhandas Kessowji and others, reported in A.I.R. (1917) Bombay 250 affirmed by the Privy Council in (8) A.I.R. 1921 Privy Council 137 and the decision of this Court in the case, (3) Commissioner of Income Tax V. K.C.S. Reddy, reported in (1960) 38 Income Tax Reports 560, for contending that Section 23 of the Excise Act has not been contravened by the partnership deed entered into by Sri Gupta and Sri Ram. In my opinion, the contention raised by Sri Sen are valid. I shall first deal with the decision of the Andhra Pradesh High Court, reported in (6) AIR 1960 Andhra Pradesh 444. Under the law that was involved in Chandaji Sukhraj's case, every licence shall be deemed to have been granted or renewed personally to the licensee and no licence could be sold or transferred. I shall first deal with the decision of the Andhra Pradesh High Court, reported in (6) AIR 1960 Andhra Pradesh 444. Under the law that was involved in Chandaji Sukhraj's case, every licence shall be deemed to have been granted or renewed personally to the licensee and no licence could be sold or transferred. On transfer of the business of the licensee to another person, the transferee had to take fresh licence. If the holder of a licence entered into partnership in regard to the business covered by the licence, he had to report the fact to the licensing authority and get his licence suitably amended. The appeal in the Andhra Pradesh High Court arose out of a suit instituted by the plaintiff firm for settlement of account of his partnership entered into with the first defendant firm for a period of one year, or, in the alternative for• dissolution of the partnership and for settlement of account. The first defendant had licence from the Government for dealing in tobacco, The trial court dealing with the question of illegality of the partnership decided the matter against the plaintiff in view of a fresh licence not having been obtained after the: formation of the partnership and the suit was dismissed. The High Court had to deal with the question as to whether the plaintiff's participation in the tobacoo business as a partner was illegal or not. In that context the learned Judges of the Andhra Pradesh High Court were not inclined to follow the principle laid down in the Madras Full Bench decision and an earlier decision of that Court reported in (9) 21 Madras Law Journal 425. No doubt in Chandaji Sukhraj's case the learned Judges of the Andhra Pradesh High Court had put some stress on the act that liberty had been given to the licensee to enter into partnership but reference was made to the case (7) Champsey Dossa and others V. Gordhandas Rescowji and others reported in A.I.R. 1917 Bombay 250 and the affirming decision of the Privy Council reported in (8) A.I.R. 1921 Privy Council 137, mentioned above, and it is clear that the learned Judges of the Andhra Pradesh High Court went on the broad principle as to the significance of the prohibition of the transfer of lincences. In (7) Champsey Dossa's case a licence was not authorised to sub-let, sell mortgage or otherwise alienate whole or in part, the privilege granted under a licence, without the written permission of the Collector; nevertheless, some members of the family and others were taken in partnership and the Bombay High Court held that the admission of the partner to a share in the profit cannot be considered as sub-letting or alienation unless there was a document directly transferring to the partners or attempting to transfer to the partners a put of the right to manufacture or vend. In the instant cases, as stated" earlier, Clause (7) of the partnership deed compelled Sri Ram to observe the rules and regulations of the Excise Act and, therefore he cannot possibly claim to sell licensed commodity, as he himself was not a licensee, and, therefore, on the broad principle, I am inclined to agree with the principle laid down by the learned Judges of the Andhra Pradesh High Court, In (7) Champsey Dossa's case, the learned Judges of" the Bombay High Court stated thus: "The admission of partner to share in the profits cannot be considered as a sub-letting or alienation of a part of the privilege, unless there has been a document directly transferring to the partners or attempting to transfer to the partners a part of the right to manufacture or vend." This decision was affirmed by their lordships of the Privy Council. The next case to which our attention has been drawn by Sri Sen is the case of Dayabhai & Co. V. Commissioner of Income Tax. W.B. a decision of the Madhya Pradesh High Court reported in (1965) 59 Income Tax Reports 364. That was a case under the Motor Vehicles Act of 1939, and in substance, it was held that where a statute does not prohibit a licensee or permit-holder from taking partner, but simply prohibits a transfer or sub-lease of the licence or the permit, then the licensee or the permit-holder by merely admitting a partner or partners in the business to which the licence or the permit relates, does not transgress the prohibition against transfer or sob-lease and the partnership is valid. That was also a case of registration under Section 26A of the Indian Income-tax Act. That was also a case of registration under Section 26A of the Indian Income-tax Act. The case was decided on the principles laid down by the Supreme Court in Umacharan Shaw's case and those laid down by the Bombay High Court affirmed by the Privy Council in (8) A.I.R. 1921 Privy Council 137 and on the decision of this Court in the case of (3) Commissioner of Income Tax V. K.C.S. Reddy reported in (1960) 38 Income Tax Reports 560. The principles laid down in (5) A.I.R. 1950 Madras 444 (FB) and (4) (1950) 18 Income Tax Reports 200 and other cases of the same nature were dissented from. It now remains for me to consider this Court's decision in (3) Commissioner of Income Tax V. K.C.S. Reddy [ (1960) 38 I.T.R. 560 ]. That was also a case of an application for registration under Section 26 A of the Indian Income Tax Act. I must state at this stage that there is a slight distinction between this earlier decision of this Court and the instant cases, inasmuch as, under the partnership deed of the earlier case, one K.C.S. Reddy had obtained a licence under the Bihar Mica Act of 1947 and thereafter, a partnership had been formed with him and others, under the terms of which K.C.S. Reddy was the man aging partner. But, it would not make any difference in principle, because, as stated earlier under Clause (7) of the partnership deed in question, the rules and regulations of the Excise Act had to be observed and the working and the management of the liquor shop business had only been put under the supervision of Sri Ram. Therefore, it was in the contemplation of the two partners that the law regarding sale of liquor had to be observed as provided by Section 22 of the Excise. Act. Hence registration under Section 26 A was rightly ORDER :ed on the principle laid down by this decision. 6. On a consideration of the facts and circumstances of the case, I am of the opinion that the JUDGMENT : of the Income Tax Appellate Tribunal dated the 10th July, 1964 was correct. As the assessee firm was legally entitled to registration under Section 26 A of the Indian Income Tax Act, 1922 for the years 1959-60 and 1960-61, the reference is answered against the Commissioner of Income Tax. As the assessee firm was legally entitled to registration under Section 26 A of the Indian Income Tax Act, 1922 for the years 1959-60 and 1960-61, the reference is answered against the Commissioner of Income Tax. The opposite party, the applicant for registration, will be entitled to costs which I assess at Rs.250. Reference answered in affirmative