JUDGMENT 1. The liquor licensee's alleged efforts to allow back door entry device, permitting new partners in firm without permission of the excise authorities has assumed another dimension on the question of such adulterated firms recognition by Income-tax authorities, under the provisions of the registration of firms, under section 185 of the income-tax Act. The excise authorities normally treats default of payment in other excise licences, conviction etc. as disqualification for taking a licence. Whether the boot-leggers, defaulters, unscrupulous unsocial elements, once prohibited from entering by front doors, can be allowed back door entry without scrutiny of their credential and credibility by excise authorities, is an important facet of this juristic debate to be examined for deciding the question, whether under the income-tax Act registration of such firms, should be allowed, where no scrutiny of such disqualifications is permissible.FACTS 2. This legal debate has gained added importance on account of the decisions of Division Benches of this court giving green signal and permitting registration any yet third Division Bench has not fallen in line with it and expressed a strong voice of dissent emphatically by making reference to Full Bench, for reversal of the earlier view of Durga Madira Sangh. We are therefore, required to have a complete comprehensive and thorough survey and study of the various relevant provisions of Rajasthan Excise Act and plethora of decisions from Privy Council to Supreme Court in addition to the divergent view of the High Courts sitting in Division Benches and Full Benches, about the various dimensions and facets of this debate. 3. Hon'ble Mr. Justice Dwarka Prasad Gupta and Hon'ble Mr. justice S. S. Byas, constituting a Division Bench of this Court, have therefore, referred this case for decision by a larger Bench on account of the conflicting views between different Benches of the Rajasthan High Court. Apparently there is a sharp divergence of judicial opinion on an important question of law regarding the registration of a partnership firm under the Income -tax Act when a licensee of Rajasthan having a licence under the Rajasthan Excise Act enters into a partnership with strangers or a third party without obtaining permission of concerned Excise Officer. 4. Apparently there is a sharp divergence of judicial opinion on an important question of law regarding the registration of a partnership firm under the Income -tax Act when a licensee of Rajasthan having a licence under the Rajasthan Excise Act enters into a partnership with strangers or a third party without obtaining permission of concerned Excise Officer. 4. A Division Bench of this Court in Brij Mohan v. N. V. Vakharia (1965 RLW 254) held that business for manufacture of medicines and toilet preparation could not be lawfully carried on without a proper licence under the Act of 1955 and therefore the partnership entered into without permission of the concerned authority would be illegal. 5. In Durga Madira Sangh v. Commissioner of Income-tax (1985) 44 C.T.R. Page 266); (153 I.T.R. 226) decided by another Division Bench, this court took the view that taking of a stranger in the partnership of an Excise Licence, without permission of the Excise Authority under the Rajasthan Excise Act would not make the partnership illegal and the Income-tax authorities can recognise it as a partnership firm, with the stranger for income tax purpose. 6. Yet another Bench of this court consisting of Hon'ble Justice S. K. Mal Lodha and Hon'ble Justice I. S. Israni in Commissioner of Income Tax v. Roop Lal Dan Chand Chi orgarh (D. B. Income Tax Reference No. 15 of 1980) decided on February 10, 1986. held that such a firm would be valid, as the conditions provided for registration under Section 185 of the Income-tax Act are satisfied and it is entitled to registration. It also held that there was no contravention of provisions of the Rajasthan Excise Act when Roop Lal took over as partner in the business of Excise Licence. 7. It would thus be seen that there are two Division Bench Judgments of this Court in M/s Roop Lal (supra) decided on February 10, 1986 and curiously enough after the reference was made on May 6, 1985 in Motilal Chunnilal's case which is now to be decided; and the earlier view in Durga Madira's case (supra). Need for Introduction of Computers in Judiciary 8. Need for Introduction of Computers in Judiciary 8. The present case would amply show the importance of introduction of facility of computers to coordinate the different Benches of the same High Court and for the requirement of legal awareness of the latest decision of other High Courts and Supreme Court which can be readily made available on telex and computers. 9. Even if the telex or World Processor facility would have been available then the judgment of Motilal Chuni Lal case making reference on May 6, 1985 and expressing opinion different from Durga Madira Sangh's case which was decided earlier (1985 (44) C.T.R. 266) could not have remained unnoticed, by the Division Bench sitting at Jodhpur, when they decided the case on February 10, 1986 of Roop Lal Danchand's case (supra). "In Rema, there is 'Supreme Court Electronics Centre. It has got a net work of carrying judicial data on 800 terminals. The data contains statutes, judicial precedents, legal literature decisions of the Constitutional, Civil and Criminal courts, legal courts of the European countries. The computerised data Supply of Italy Electronics Centre can be utilised throughout Europe/America on terminals, which act like Visual Display Unit (V.D.U) in answering your legal queries. Japan has, inspite of destruction by atomic blast of Heroseema and Nagasaki in 1985 year rebuilt itself and started electronics and computerisation in Judiciary in 1951 year with data bank. In America and England "Lexis" is having thousands of terminals where legal opinion is computerised and displayed on V.D.U. Now one can know of the latest precedents within 48 hours on V.D.U. throughout the world, but we in India still have to spend all our energy in search and research from digests in plethora of precedents. Italian Supreme Court Electronics Centre For Legal Documentation. (Court Suprema Dia Cia Ssazeone Centro Electronico Di Documentazione) Italian Supreme Court has the Electronic Documentation Centre which provides Judges, Magistrates. Lawyers and general public all the legal data with all necessary information about law and its application. The centre is equipped with a sperry Univac 1100/81 computing system; a data transmission network with approx. 800 elivetli TCV-275 terminals. 1. 211-Terminals:--At the Supreme Court-all law courts and number of magistrate courts terminals located in court buildings in open to Magistrates, Lawyers, Attorneys at Law, Notaries and Chartered Accountants. 2. 201-Terminals:--In other jurisdictions--State Administrative Offices, various public libraries and Institutions. 3. 800 elivetli TCV-275 terminals. 1. 211-Terminals:--At the Supreme Court-all law courts and number of magistrate courts terminals located in court buildings in open to Magistrates, Lawyers, Attorneys at Law, Notaries and Chartered Accountants. 2. 201-Terminals:--In other jurisdictions--State Administrative Offices, various public libraries and Institutions. 3. 339-Terminals:--At other private and public Institutes on payment of different tariffs. The management of centre arranged Training courses in Rome ( 2 monthly course in Rome on an experimental basis), forign users are presently connected to the centre through the European Network. Mead Data Central International The world is advancing for more and more technology development and to make use of these developments in our daily life or to make the work with greater pace and case, Mead data Central International is just example. Now instead of looking through a library of thousands upon thousands of news papers, books and periodicals, law journals, we can get the same within vast amounts of information available electronically. To keep abreast of the news that affect the decisions, lawyers spend over 80% of their day manning information, which comes from outside sources such as the news media, journals, industry and trade press, the world of science and technology and the law. Mead Data Central offers a wide variety of publications that comes legal and general information and news in full text, which stores entire magazine and news papers articles, complete legislation and statutes, patents and books. Moreover lawyers and Judges do not need experience with computers to use the system easily and effectively. These informations were created especially for people like Judges/Lawyers. Thus the computer terminal at our desk or workstation can give us a wealth of information, that can help us to make better decisions, learn more about law. This centre collects information in various fields some of them are as follows : Legal Information : 1. They contain American, English, French case law (reported and unreported cases). 2. U.S. Federal Statutes, Codes and Regulations. U.K. Statutes and statutory instruments, French laws and regulations. 3. Both reported and unreported cases of the European court of Justice. 4. Nearly 3 million cases and other documents which keeps updated continuously and quickly (some of them within 48 hours of decision). 5. World's largest legal research remarks. 6. Special libraries on tax, securities, energy, labour, bankruptcy trade regulations, international trade, admirally, communications Patent, copyright and trademark. 7. 3. Both reported and unreported cases of the European court of Justice. 4. Nearly 3 million cases and other documents which keeps updated continuously and quickly (some of them within 48 hours of decision). 5. World's largest legal research remarks. 6. Special libraries on tax, securities, energy, labour, bankruptcy trade regulations, international trade, admirally, communications Patent, copyright and trademark. 7. World's largest legal research services. 8. Identify cases tried before a particular Judge or by a certain lawyer. 9. Find quickly every way in which a case has been cited in the U.S. or English courts. Quite simply, Mead Data Central offers the largest full text data base in the world. One can read or scan more than 15 million articles, legal cases, patents and references without even leaving our desk or trace the development of legal doctrine by following a case from decision to appeal. It's all possible and affordable with the power of Mead Data Central information services. In the U.S.A., the legal profession was one of the first to recognise the time saving benefits of computer assisted information retrieval. Attorneys in England, the United States and France use LEXIC Daily, to determine the most and recent precedent on a specific question of law, keep track of a bill's progress in the Congress, examine the analysis of experts in British and America Legal reviews, or seen the Journal Officials for the French Government's latest action on a specific pions of law." "The computer terminal at our desk or work station can unlock a wealth of information, we never before knew was available. Information that can help us make better decisions, learn more about our judicial world and keep on top of what's happening in our profession. From the world's most prestigious newspapers to detailed technical news-letters, we can find what we need to know through Mead Data Central's information service at our fingertips, it place world of knowledge and ex parties 'Lexis' is the World's largest legal research service, of nearly three million cases and other documents, quickly, continuously updated (some cases are added within 48 hours of decision). It contains Americal, English, French cases law (reported & unreported cases) & U.S. Federal Statutes Codes & Regulations U.K. Statutes & Statutory instruments, French law & regulations both reported and unreported cases of the European court of justice, special libraries on tax securities, energy labour bankruptcy, trade, regulations international trade, admiralty, communications, patent, copyrights and trade marks, and decisions of the Commission of the European Communities relating to competition. If you have got lexis terminal with Indian Taxation Law decisions feeding, you would take a few minutes only to know that the Supreme Court in Indian and Eastern News Papers Society v. Commissioner of Income Tax 119 I.T.R. 996 has disapproved Kalyanji Mavji & Co. v. Commissioner of Income Tax, 102 ITR 287 and I.T.O. Versus Kesurabhai Lalbhai. 109 I.T.R. 537 on the principles of reassessment. If you want to know the latest view of the Supreme Court on speculations, the V. D. U. would tell you to not to refer to the Raghunath Prasad Poddar v. Commissioner of Income Tax, 90 I.T.R. 140 and to refer to Deven Port & Co. v. Commissioner of Income Tax, 100 I.T.R. 715 . The electronics Centre would immediately point out that for 'Trusts' the tax practitioner must refer Addl. Commissioner of Income Tax v. Suraj Art Silk Cloth Mfrs. Association, 121 I.T.R. 1 , as the decision of Indian Chamber of Commerce v. Commissioner of Income-Tax 101 I.T.R. 796 is no longer good law. For all latest reference, a lawyer or Judge need not burn mid night oil in Digests and references now The latest text of tax laws, rules, notifications, decisions of tribunals all can be known from them within 48 hours of the birth." 10. If the Division Bench view of Hon'ble D.P. Gupta, J. and Hon'ble S S. Byas J. would have been available before Hon'ble Justice S.K Mal Lodha and Hon'ble I.S. Israni J. then they could not have given a judgment affirming the view of Durga Madira Sangh's case (supra). 11. If the Division Bench view of Hon'ble D.P. Gupta, J. and Hon'ble S S. Byas J. would have been available before Hon'ble Justice S.K Mal Lodha and Hon'ble I.S. Israni J. then they could not have given a judgment affirming the view of Durga Madira Sangh's case (supra). 11. If the computer's facilities would have been available, the computer and/or World Processors immediately on putting query by the Judges or the advocates about validity or illegality of recognition to a firm under the Income- tax Act, when it has taken stranger partner without permission of the Excise authorities, the computers would have displayed that the Full Bench is ceased of the matter in Motilal's case and the Durga Madira Sangh's case view is to be reconsidered by a Full Bench and therefore, the judges considering the case of Roop Lal (supra) decided on February 10, 1986 would have immediately obtained the judgment under reference and then normally would have passed an order for awaiting decision of the Full Bench or referred it to Full Bench. 12. The absence of telex facilities and computerisation and further ignorance of the learned Advocate appearing for the revenue on February 10, 1986 in Roop Lal Dan Chand's case (supra) about the reference to Full Bench in the same High Court, resulted in this very anamolous peculiar situation of there being a judgment on February 10, 1986 during the pendency of reference of May 6, 1985, confirming the judgment of Durga Madira Singh case (supra) which has been dissented by the Division Bench in Moti Lal Chunilal case (supra). 13. Be that as it may, we have made passing reference to the pressing necessity of immediate introduction of electronic technology in legal judicial discipline, so that not only great precious time of all concerned is saved but further such serious errors are avoided and law becomes certain, specific precise and upto date. We hope this aspect would attract the attention of the State authorities and the top brass of judiciary who in coordination would bring the Indian Judiciary on the World Judicial map of electronics and technology. 14. Now before we proceed to discuss in detail the various facets of this controversy, let us have a resume of the facts of the instant case and the questions referred by the Income-tax Appellate Tribunal for decision by the High Court. "1. 14. Now before we proceed to discuss in detail the various facets of this controversy, let us have a resume of the facts of the instant case and the questions referred by the Income-tax Appellate Tribunal for decision by the High Court. "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm was not valid and that the object of the agreement was of such a nature that, if permitted, it would defeat the public policy as contained in the provisions of Rajasthan Excise Act, 1950. 2. If the answer to the above is in the affirmative, whether the Tribunal was justified in holding that the firm was not valid and therefore, not entitled to registration under Section 185 of the Income Tax Act, Act 1961." 15. The Government of Rajasthan granted a licence for the retail sale of country liquor during the year 1966-67 at Bhilwara, including the, shops situated at Bhopalganj. Gulmandi, and Dhanmandi in the joint names of Motilal Chunilal and Bhanwarlal son of Motilal. It appears that with a view to carry on the aforesaid business of retail sale of country liquor, the aforesaid licensees entered into a partnership with live other persons and constituted the firm M/s Motilal Chunnilal, Bhilwara consisting of the following eight partners: 1. Motilal, 2. Chunnilal, 3. Bhanwarlal, 4. Smt. Vijalaxmi wife of Satishchandra, 5. Poonamchand son of Gangaram, 6. Bhuralal son of Devilal, 7. Ram Nath son of Magiram, and 8. Smt. Kamla wife of Mangilal. 16. On the basis of the deed of partnership dated August 8, 1966 entered into by the aforesaid eight persons, the assessse M/s Motilal Chunnilal applied for registration of the firm. However, registration of the firm was refused by the income-Tax Officer on the ground that the partnership was not legal as it violated the provisions of clause (3) of the term of the licence issued by the Excise Department of the State. Clause (3) of the licence translated into english reads as under:- "The licence holder shall not be entitled to transfer the licence of the shop to any person without the written permission of the officer granting the licence and shall not be entitled to take a partner and such permission shall not be given till such time as the licence holder pays all dues outstanding against him." 17. During the course of enquiry, the Income Tax Officer found that the licence holder had not obtained the permission in writing from the authorities of the Excise Department of the State for entering into a partnership with five other persons. Thus, the Income-Tax Officer held that failure on the part of the licence holders to take permission in writing from the excise authorities to form the partnership amounted to violation of the conditions of the licence and the provisions of the Rajasthan Exsise Act, and, therefore, the contract of partnership was hit by Section 23 of the Indian Contract Act. The Appellate, Assistant Commissioner of Income-tax confirmed on appeal the order passed by the Income-tax Officer. On further appeal by the assessee, the Income-tax Appellate Tribunal held that there was a clear prohibition an clause (3) of the licence in respect of the formation of a partnership by the licence holders without the prior permission of the excise authorities. Thus, the provisions of the Excise law have been violated as there was public policy involved in the provisions of the Excise Act & Rules and the agreement of partnership was entered into in violation of such public policy and should, therefore, be held to be invalid. The tribunal thus, dismissed the appeal and maintained the order of refusal of registration of the assessee firm. Submission of Mr. Mehta:- 18. Before us as also before the Division Bench which has made reference, Shri Rajendra Mehta has argued for the assessee as follows. 19. It was submitted before us by the learned counsel for the assessee that no public policy was involved in incorporating clause (3) in the licence and that the violation of the provisions of clause (3) would not automatically' mean that the contract was violative of the provisions of Section 23 of the Indian Contract Act or were void abinitio. It was urged that the object of imposition of penalty and provision for cancellation or suspension of licence in the case of breach of any terms or conditions of the licence have been provided to safeguard the excise revenue and not for the purpose of protection of the public generally or a section of the public. Learned counsel for the assessee relied upon a decision of a division bench of this court in Durga Madira Sangh v. Commissioner of Income-tax (1) in support of his contention. Learned counsel for the assessee relied upon a decision of a division bench of this court in Durga Madira Sangh v. Commissioner of Income-tax (1) in support of his contention. On the other hand, learned counsel for the Revenue submitted that entering into a partnership with strangers is, prohibited as Section 54 of the Rajasthan Excise Act provides penalty for contravention of the provisions of the licence granted under the Act and Section 34 (c) provides for cancellation or suspension of the licence for breach of the conditions' thereof, with the view of protecting public health and not merely safeguarding excise revenue. 20. Mr. Mehta then referred to us that according to Section 184, 185 Income Tax Act (corresponding to Section , 26-A of the Income Tax Act. 1934) the following conditions are required to be fulfilled in order that a firm gets rehistration under the Act:- (1) That the firm should be constituted under an Instrument of Partnership, specifying the individual shares of the partys, (2) That an application on behalf of, and signed by all the partners containing all the particulars as set out in the Rules has been made. (3) that the application has been made before the assessement of the income of the firm made under Section 23 of the Act, for that' particular year. (4) that the profits (or loss, if any) of the business relating to the previous year, that is to say, the relevant accounting year, should have been divided or credited as the case may be, in accordance with the terms of the Instrument; and lastly, (5) that the partnership must have been genuine, and must actually have existed in confirmity with the terms and conditions of the instrument. 21. In M/s R.C. Mittar & Sons v. Commissioner of Income Tax- AIR 1959 SC 868 . this view has been consistently followed and in this connection reference was made to Agarwal & Co. v. C.T.R. (77 I.T.R. 10 S.C.) and A.I.R. 1985 S.C 1572 page 1576 . 22. Mr. Mehta further submitted that once the said conditions are fulfilled then the I.T.O. is under obligation to register the firm and in support of it he referred to a decision of 77 I.T.R. 10 S.C. and of A.I.R. 1985 SC 1572 (supra). 23. v. C.T.R. (77 I.T.R. 10 S.C.) and A.I.R. 1985 S.C 1572 page 1576 . 22. Mr. Mehta further submitted that once the said conditions are fulfilled then the I.T.O. is under obligation to register the firm and in support of it he referred to a decision of 77 I.T.R. 10 S.C. and of A.I.R. 1985 SC 1572 (supra). 23. On fulfilment of the said conditions the I.T.O. is bound and under an obligation to register the firm under the Act, as held in 77 ITR 10 (S.C.) and A.I.R. 1985 S.C. 1572 at page 1576, D.B.I.T. Ref. No. 15/80 Commissioner of Income Tax v. Rooplal Danchand decided on 10.2.86 at pages 15 and 16 of the certified copy. 24. In the present case all the aforesaid conditions are fully satisfied and therefore there was no jurisdiction for the refusal of the registration, argued Mr. Mehta. 25. Mr. Mehta then pointed out the following features: The partnership in the present case is legal and valid. Rajasthan Excise Act, 1950 of the rules made thereunder do not in any manner prohibit or forbid forming of partnership and taking of other persons as partners by the licence holders. Rule 72 B of the rules only provides that no licence shall be sold or transferred without obtaining previous permission in writing from Licensing Authority. The said rule does not even prohibit/forbid transfer or sale of a licence. It authorises the same subject to written permission of the authority. 26. In the present case licence has neither been transferred nor sold, only some other persons have been taken as partners. There is no prohibition of taking other persons as partners in the said rule or under any other provision of the Excise Act or the rules. The Partnership that was formed by the licence holders did not amount to transfer or sale of licence and therefore the restrictions envisaged by rule 72 B is not at all attracted. 27. Now condition No. 3 of the licence may be noticed which interalia contains a restriction regarding taking of partners. The condition No. 3 reads as under: " ykbZlsUl/kkjh bl ykbZlsUl dks ykbZlsUl nsus okys vf/kdkjh dh fyf[kr Lohd`fr ds fcuk fdlh nwljs O;fDr dks gLrkUrfjr ugha dj ldsxk vkSj u blesa fdlh dks lkHksnkj gh cuk ldsxkA bl rjg dh Lohd`fr rd ykbZlsUl/kkjh vius ftEes dh dqy 'ks"k jde vnk u dj nsaA " 28. The condition No. 3 reads as under: " ykbZlsUl/kkjh bl ykbZlsUl dks ykbZlsUl nsus okys vf/kdkjh dh fyf[kr Lohd`fr ds fcuk fdlh nwljs O;fDr dks gLrkUrfjr ugha dj ldsxk vkSj u blesa fdlh dks lkHksnkj gh cuk ldsxkA bl rjg dh Lohd`fr rd ykbZlsUl/kkjh vius ftEes dh dqy 'ks"k jde vnk u dj nsaA " 28. Firstly, it is submitted that the said condition is beyond the scope of the Excise Act and the rules, and therefore, in so far as it restricts the entry of partners, the same cannot be enforced. Therefore the said restriction contained in condition is of no consequence. Further the word 'Law' as used in clause (1) of Section Contract Act means judicial Law, i.e., the law enacted by any competent legislature, The terms contained in the licence cannot be 'law'. Entering of partnership without permission may have violated condition No. 3 of the licence but that is not violative of any law and therefore Section Contract Act is not hit in any manner. Reference was made to Full Bench judgments reported in A.I.R. 1939 Rangoon page 305 (headnote (G) and A.I.R. 1964 All. Page 1 (Headnote). 29. Even if we take into account restrictions contained in rule 72 B and the condition No. 3 of the licence, the position which emerges is that partner- ship is not prohibited or forbidden. On the other hand the condition itself permits partnership with outsiders subject to the written permission. Therefore it cannot be said that the taking of partners is forbidden by law. 30. It will be relevant to mention here that there is no provision in the Act, rules or licence that any transfer made in violation of rule 72 or any partner taken in violation of condition No. 3 would make such partnership illegal. Further there is no provision in the Excise Act and the rules that if a partnership is formed for liquor business then the business can only be carried on with licence obtained by such firm itself. Mr. Mehta then invited our attention to the following decisions : (a) A.I.R 1921 Privy Council page 137: Goverdhandas v. Chamelli . The Privy Council decision which was a judgment in appeal from the Bombay High Court judgment reported in A.I.R. 1917 Bam. 250, clearly laid down that formation of partnership does not amount to transfer. Mr. Mehta then invited our attention to the following decisions : (a) A.I.R 1921 Privy Council page 137: Goverdhandas v. Chamelli . The Privy Council decision which was a judgment in appeal from the Bombay High Court judgment reported in A.I.R. 1917 Bam. 250, clearly laid down that formation of partnership does not amount to transfer. In that case licence of Salt Manufacturer took other persons as partners and the relevant clause only prohibited sale or alienation of interest. (b) Uma Charan Sah & Bros. v. Commissioner of Income Tax 37 I.T.R. 271 (S.C.) In Umacharan Shah's case reported in 37 I. T. R. 271 (S.C.) the liquor licences for three shops were in different names but not in the name of the family. The partnerships were formed with persons other than licence holders alongwith licence holders themselves. Section 42 (1) of Bengal Excise Act restricted transfer of licence without permission. Before Hon'ble Supreme Court it was urged that partnership was not genuine. The Supreme Court at page 276 observed that there was no evidence that the excise licences were transferred or sub-let. This decision is an authority for the proposition that partnership business can be carried on, on the strength of a licence held by a partner and that the prohibition regarding transfer of licence does not mean prohibition from taking a partner. Formation of partnership is not transfer of licence and such partnership is legal. (c) Jer & Co. v. Commissioner of Income Tax 79 I.T.R 546 (S.C.) In Jer & Co. v. Commissioner of Income Tax (79 ITR 546) the Hon'ble Supreme Court held that there was no positive prohibition against formation of partnership in clause 13 of the licence as it merely provided that the licence shall not be sublet or transferred. The Supreme Court therefore, held that the question regarding illegality of partnership did not arise and the firm was entitled to registration. In this case the Supreme Court reversed the Allahabad High Court judgment reported in 60 I.T.R. 335. The Allahahad High Court judgment was based on A.I.R. 1950 Mad. 444. A.I.R. 1957 Mad. The Supreme Court therefore, held that the question regarding illegality of partnership did not arise and the firm was entitled to registration. In this case the Supreme Court reversed the Allahabad High Court judgment reported in 60 I.T.R. 335. The Allahahad High Court judgment was based on A.I.R. 1950 Mad. 444. A.I.R. 1957 Mad. 186, 18 I.T.R. 200 (Madras), 41 I.T.R. 115 (Kerala), 44 I. T.R 835 (Punjab) and 46 I.T.R. 784 (A.P.) In view of the fact that Allahabad High Court judgment was reversed by Hon'ble Supreme Court, the authorities on which the Allahabad High Court judgment was based must be deemed to have been impliedly over ruled by the Supreme Court judgments, reported in 37 I.T.R. 271 and 79 I.T.R. 546. Madhya Pradesh High Court in 59 I. T R 364. Patna High Court in 97 I.T.R. 645, Punjab High Court in 87 I.T.R. 113 and Andhra Pradesh High Court in 145 I.T.R. 758 have already taken the view that the Madras Full Bench case A.I.R. 1950 Mad. 444 or the cases following the said Madras judgment must be deemed to be impliedly over ruled. (d) A.I.R. 1969 S. C. 493. In this case arising under Motor Vehicles Act, Hon'ble Supreme Court while holding that a stage carriage could be plied lawfully by the real owner even though the permit was in the name of benamidar, expressly dissented from the judgment of Madras High Court in A.I.R. 1961 Mad. 413 (refer para 10 of the Supreme Court judgment A.I.R. 1963 Mad. 473 is based on A.I.R. 1950 Mad. 444 (Refer para 9 at page 417 of A.I.R. 1963 Mad. 413). Thus, it is clear that dissent of A.I.R. 1963 Mad. 413 also extended to A.I.R. 1950 Mad. 444 and all other cases based on the said judgment. (e) A.I.R. 1964 All. page 1 (F.B.) In this case it was held that a contract of tenancy entered into 'without permission' of the concerned authority was not void even though the Statute penalised for not obtaining the permission in contravention of the provisions of the Act. (f) A.I.R. 1974 S. C. 1924 This decision A.I.R. 1964 All. I (F. B.) has been followed in 90 I.T.R. 172 (Allahabad-Full Bench) & 145 I.T.R. 759 (A.P.) and has been approved by Hon'ble Supreme Court in Murlidhar Agarwal's case AIR 1974 S.C. 1924 in paras No. 16 and 17. (f) A.I.R. 1974 S. C. 1924 This decision A.I.R. 1964 All. I (F. B.) has been followed in 90 I.T.R. 172 (Allahabad-Full Bench) & 145 I.T.R. 759 (A.P.) and has been approved by Hon'ble Supreme Court in Murlidhar Agarwal's case AIR 1974 S.C. 1924 in paras No. 16 and 17. The Supreme Court held the lease to be valid even without permission even though the breach was punishable. The agreement of partnership between the partners i. e., licence holders and outsiders is valid and binding. This might not have bound Excise authorities and they could have taken action regarding cancellation or suspension of licence or imposition of penalty, according to law. This has not been done in the present case. Thus, it is clear that mere non-obtaining of permission would not render the partnership invalid. (g) AIR 1959 S.C. 781 . Held that partnership agreement which was collateral agreement in respect of wagering contracts was valid between the partners. It was not hit by, Section of the Contract Act. In this case, scope of public policy under Section Contract Act was also examined and it was held that principles of public policy have already been laid down under different heads and they cannot be expanded and new heads should not be made out. Thus, it is quite clear that A.I.R. 1950 Mad. 444, 18 I.T.R. 200, 41 I.T.R. 115, 46 I.T.R. 784, 44 I. T.R. 835 and like other cases do not lay down good law and they stand impliedly over ruled by the aforesaid Supreme Court judgments. The judgment under reference is mainly based on the aforesaid decisions which already stand impliedly over ruled. (h) A.I.R. 1976 J & K 9 (D.B.) Assignment of lease hold rights to third person without Government sanction held not void. It is not against section Contract Act or against public policy. In para 13 it has been observed that there was no absolute prohibition on assignment which was only subject to permission. (i) 90 I.T.R. 172 (All. Full Bench) Formation of partnership does not amount to transfer of license. Held that condition contained in licence and excise law regarding previous sanction for entering into partnership is not statutory (at page 184) and therefore, it is not law which prohibits partnership. In any case absence of such permission would not render partnership invalid. (i) 90 I.T.R. 172 (All. Full Bench) Formation of partnership does not amount to transfer of license. Held that condition contained in licence and excise law regarding previous sanction for entering into partnership is not statutory (at page 184) and therefore, it is not law which prohibits partnership. In any case absence of such permission would not render partnership invalid. Penalty for breach of such condition without declaring a contract made in contravention of such condition to be illegal and imply prohibition. Held firm entitled to registration. In our case also penalty envisaged under Section of the Excise Act which makes wilful contravention punishable with fine extending to Rs. 200/-. The object of controlling sale of liquor seems to ensure realisation of excise revenue. Section 62 also does not cover penalty in case of breach of condition of the licence. Section of the Excise Act only gives power to cancel or suspend licence in case of breach of condition. No action has been taken in this respect. This power is discretionary. Until licence is cancelled, the licensee can carry on business. The formation of partnership itself is not prohibited. (j) 153 I.T.R. 226 (Raj.) Durga Madira Sangh v. State of Rajasthan . Held that there was no direct prohibition under the Rajasthan Excise Act and the rules that a licensee could not enter into partnership. Even the condition in the licence did not totally prohibit formation of partnership. Partnership was permitted with written permission. There is nothing immoral or against public policy in taking other persons as partners. The firm was held to be entitled to registration. (k) D B.I. T. Ref. No. 15/80-C.I.T. Vs Rooplal Danchand decided on 10.2. 1985 by Hon'ble S.K, Mal Lodha J. and Israni, J. Held that the partnership did not contravene any provision of Excise Act or Rule, Hence entitled to registration. In this case 90 I.T.R. 172 (All.). 72 I.T.R. 769 (Patna) were followed and the cases relied by the revenue including 120 I.T.R. 289 (Panjab), 143 I.T.R. 304 (M.P.) were distinguished. (l) 145 I.T R. 759 (A. P.) In this case all authorities on the point in issue have been taken into consideration and it has been held that even though permission of licensing authority not obtained before taking new partner, the partnership was not illegal, (Rule 19) (2) of the Andhra Pradesh Excise Rules 1969). (l) 145 I.T R. 759 (A. P.) In this case all authorities on the point in issue have been taken into consideration and it has been held that even though permission of licensing authority not obtained before taking new partner, the partnership was not illegal, (Rule 19) (2) of the Andhra Pradesh Excise Rules 1969). As between the partners it continues to be valid and entitled to registration under Income Tax Act. This authority fully applies to the present case and it clearly holds that the case laws on the basis of which reference has been made are no longer good law. In this case the Supreme Court judgment given in Govind Ram v. Nathmal on 11.4.62 has also been distinguished. It has also been held that the partnership is valid even though the permission of the excise authority was not obtained for taking partner and even though the authorities may have power to punish the parties for contravention of the Act and the rule. In this case it has also been held that the authorities reported in 100 I.T.R. 213 (M P.). 93 I.T.R. 271 (M.P.) 581.T.R. 671 (Orissa) (which have also been relied upon in the judgment under reference) were contrary to the principle laid down by Hon'ble Supreme Court. (m) 107 I.T.R. 397 (M.P.) An advocate became partner in firm in violation of Bar Council Act. Held even by partcipation of advocate the partnership is not rendered illegal. (n) 106 I.T. R . 860 (Cal) Provision did not prohibit partnership. Licensing Authority did not take any action against the licence. The I.T.O. could not decide about validity of firm. Following 79 I.T.R. 546, 87 I.T.R. 113 and 90 I.T.R. 172 held that firm is entitled to registration. (o) 64 I.T.R. 197 (Mysore) Mineral Concession Rules-Rule 37 providing for transfer of lease with previous sanction of State Government. No provision that transfer in contravention thereof would be void. Hence firm legal and valid. Rule does not forbid transfer. It authorises transfer with the previous sanction. There is a distinction between statutory provision which contains an express prohibition against the performance of a certain Act and one which enable its performance subject to prescribed conditions. Absolute prohibition against performance is forbidden by law but this is not so in the case falling under the second category. It authorises transfer with the previous sanction. There is a distinction between statutory provision which contains an express prohibition against the performance of a certain Act and one which enable its performance subject to prescribed conditions. Absolute prohibition against performance is forbidden by law but this is not so in the case falling under the second category. The partnership in this case is not prohibited by law, nor was such that permitted, would defeat the provisions of any law and the performance of contract was possible without dis-obeying law, and hence partnership was not illegal under Section of Contract Act. (p) 72 I.T.R. 366 (Patna) Excise Case-Held that formation of partnership is not transfer of licence. At page 373 observed that Madras High Court judgment was not correct. Firm entitled to registration. Mr. Mehta then referred to the decisions of Brijmohan's case which has been relien upon by the Division Bench making reference of other decisions while giving reply to the submission made by Mr. Arora. (q) 87 I.T.R. 113 (Punjab) Case of fishing licence-No prohibition of partnership-held page 115 that 44 I.T.R. 835, 58 I.I.R. 671 and 60 I.T.R. 335, no longer good law, registration granted. (r) 82 I.T.R. 718 (Patna) Excise Case-Formation of partnership does not amount to transfer of licence. The provisions of Excise Act not contravened, the firm entitled to registration. (s) 97 I.T.R. 645 (Patna) Excise Case Followed 72 I.T.R. 366, 82 I.T.R. 718 and held that 41 I.T.R. 115, 60 I.T.R. 335 and 18 I T.R. 200 is no longer good law. Mr. Mehta then distinguished the decision of 1965 RLW 254 (Brijmohan v. N.V. Vakharia) , then he submitted that this judgment has been relied upon by the D.B. in making the reference. This judgment is based on unreported decisions of Supreme Court in Govind Ram v. Nathmal decided on 11-4-1962 . In that case, Supreme Court held that licence in the name of the one partner cannot be accented as a licence, in the name of the partnership. There the Supreme Court laid emphasis on Section 3 (1) of the C.P. & Berar Food Grains Control Order, 1945 which prohibited any person to deal in food grain was defined as on ones own account or on account of any partnership. The Supreme Court held that the word 'person' includes a group or association of persons like a firm of partners. The Supreme Court held that the word 'person' includes a group or association of persons like a firm of partners. In this context the Supreme Court observed that as the partnership was not licensed, it could not deal in food grain. Thus in the case before Supreme Court there was specific prohibition against the formation of partnership by the licensee-partner. 31. Even with the permission of the competent authority licence in individual's name could not be used by the partnership. It was necessary for the partnership itself to have a licence. 32. The aforesaid position has been clearly brought out in Vasant Rao's case reported in (1970) 72 Bombay Law Reporter page 333. This decision has been followed in 145 I.T.R. 759 by the Andhra Pradesh High Court. The petitioner places reliance on them. 33. Therefore, the said Supreme Court judgment and 1965 R.L.W. 254 which is based on the said Supreme Court judgment are clearly distinguishable. Further 1965 RLW 254 is not in confirmity with the Supreme Court judgments reported in 37 I T.R. 271, 79 I.T.R. 546, AIR 1969 SC 493 A.I.R 1974 SC 1924 and A.I.R 1959 SC 781 & therefore the same cannot be considered to be a good law. Further in 1965 RLW 254 the word 'person' has been used in Section of the Act of 1955 and defined specially where there is no such provision under the Rajasthan Excise Law. Rule 85(4) also contained prohibition regarding partnership but under Rajasthan Excise Act or rules there is no such prohibition argued Mr. Mehta. 34. It is well settled that a decision of Supreme Court cannot be ignored on the ground that their Lordship have not considered the question of public policy. He referred A.I.R. 1970 SC 1002 para 4. 35. It is also settled that a decision of Supreme Court may not in so many words state that certain cases were wrongly decided, still when the Supreme Court decided the particular way, every previous decisions which had answered the same question in a different way cannot but be held to have been wrongly decided. Mr. Mehta referred to AIR 1960 SC 1118 -Jai Kaur v. Sher Singh . 36. Mr. Mehta referred to AIR 1960 SC 1118 -Jai Kaur v. Sher Singh . 36. In Commissioner of Income Tax v. M/s Abdul Rahim & Co., A.I.R. 1965 SC 1703 , it was held that even if it is found that one of the partners of the firm was benami for another person, still the firm is entitled to registration. The beneficial interest in the income pertaining to the share of the said benamidar may have relevance to the matter of assessment but not in regard to the question of registration (Para No. 13 of the report). 37. Thus the conclusion is that the partnership firm by the licensee partner without the permission of the competent authority cannot be considered to be illegal or void and in this connection, as already stated above the following judgments of Privy Council and Supreme Court are directly on the point apart from other cases stated above. A.I.R. 1921 P.C. 137 37 I.T.R. 271 (S.C.) 79 I.T.R. 546 (S.C.) A.I.R. 1969 S.C. 493. A.I.R. 1974 S.C. 1924. A.I.R. 1959 S.C. 781. A.I.R. 1965 S.C. 1703. 38. Further the agreement of partnership has to be construed in a manner in which it would be consistant with the provisions of the Excise Act and the Rules. The clause in the partnership deed entitling all the partners to manage and conduct the firms business does not necessarily mean that non-licensee partner claimed a right to sell liquor. Such partner would participate in the manner permissible by law. In this connection the following decisions are directly on the point. 90 I.T.R. 172 72 I.T.R. 366 38 I. T. R 560 82 13 R. 718 64 I.T.R. 197 & 1967 (1) All England Report page 241 (Relevant portion at page 250) 39. In the present case there is no material on record produced by the department to show that the non licensee partner had acted in contravention of the Act or the rules. Further even if it is so, the formation of the partnership at its inception being not in violation of the Act or the rules, the subsequent acts of the partners which may be in the firm illegal. There is always difference between illegality of a contract and illegality in its performance Therefore subsequent acts of the partner cannot make the partnership illegal. 40. There is always difference between illegality of a contract and illegality in its performance Therefore subsequent acts of the partner cannot make the partnership illegal. 40. That on the question of public policy under Section of the Contract Act, it would suffice to say that Hon'ble Supreme Court in 37 I.T.R. 271 and 79 I.T.R. 546 which were cases under the Excise Act held that the partnership were entitled to registration and thus there is no question of any public policy involved in the Excise partnerships. The fact that the Supreme Court did not consider the question of public policy is hardly of any consequence as already held in AIR 1970 S.C. 1002 . The agreement of partnership is not placed on record for coming to such conclusion. 41. Further no public policy is involved in this case as propounded by established decisions. The agreement in questions is not covered under any of the heads of the public policy and therefore, the question of its contravention does not arise. New heads of the public policy cannot be made out as already held in A.I.R. 1959 S.C. 868. 42. The licences are granted in order to have control over the persons who are authorised to sell liquor. The object of controlling the persons seems to ensure realisation of excise revenue. This is also explicit in condition No. 3 of the licence. Section of Rajasthan Excise Act, if at all the same is attracted on account of the contravention of any condition in the licence, only provides for imposition of penalty on wilful contravention. (This only shows that entering of partnership as such is not prohibited). Further the penalty is also only leviable (if at all that be so) once for all and it is not recurring. 43. The only case of the department is that the partnership is in violation of the condition of licence and therefore, illegal and hit by Section of the Control Act. This does not mean that the agreement of partnership is against public policy. 44. 43. The only case of the department is that the partnership is in violation of the condition of licence and therefore, illegal and hit by Section of the Control Act. This does not mean that the agreement of partnership is against public policy. 44. In the Division Bench judgment of this Hon'ble Court in 153 I.T.R, 226 (Raj.) and in other cases directly only the point namely 90 I.T.R. 172, I.T.R. 366 (Pat.), 64 I.T.R. 197 (Mys.) and 145 I.T.R. 759 (A.P.) and 106 I.T.R. 860 (Cal.), the question of public policy has been considered and it has been held that no such public policy was involved is agreements of partnerships relating to excise licences. 45. Abkari, opium or liquor licences are also for the protection and convenient collection of revenue. The fact that permission can be granted and that only wilful breach is penalised and that too only once clearly shows that constitution of partnership is permsible. The condition regarding permission in writing has nothing to do with public policy. No protection of public in general is involved. The learned Division Bench making the reference has merely relied upon conjectures, surmises and hypothetical situations namely that the sale of liquor should not fall in the hands of unsocial, undesirable and unscrupulous people. There is no question of protecting public from lenders of underworked. The laws of our country including the Excise Act are there to take care of such persons and situations. Such conjectures and surmises based on mere whims can not render the otherwise genuine; and valid partnership no genuine or invalid. It is no body's case that unscrupulous people were taken as partners. The partners have been taken for finances and efficent running of business. There is nothing immoral or against public policy in taking other persons as partners. The question of registration under the Income Tax Act has nothing to do with hypothetical situations, argued Mr Mehra. He contended that if in such circumstances a partnership is held to be void then partners or any of them or even outsiders will not be able to maintain any action say for example regarding recovery of money, rendition of accounts etc. He contended that if in such circumstances a partnership is held to be void then partners or any of them or even outsiders will not be able to maintain any action say for example regarding recovery of money, rendition of accounts etc. against the firm and the firm would be able to avoid it otherwise, legal liabilities and obligations under the cover of its so called illegal formation on account of the alleged violation of some provisions of the Excise Act and the rules. There are numerous restrictions under Excise law and their violation can't render firm invalid e. g, establishment of shop in particular areas. 46. Such a view would be against general public interest, spirit of law and such interpretation cannot therefore be given. 47. Cancellation of licence:-The licence is granted for one year under the Excise Act, and rules. The fact that licence was not cancelled during its currency or at any time shows that partnership rightly and validly carried on business. No penalty was also imposed. 48. The cancellation of licence on account of non obtaining of permission for taking partner (if permissible in law) would naturally lead to the closure of the business as the basis of the business namely the licence would not be there. In such case the question of registration under Income Tax Act would not arise. Submission of Arora : 49. We have mentioned above the submission of Mr. Mehta and not out (sic our) comments as we would give our comments and decision on them, after mentioning the reply of Mr Arora counsel for the revenue. Mr.Arora appearing for the Revenue has argued that the first partnership for which licence for sale of country liquor in the shops of Gopal Ganj Gul Mandi and Dhan Mandi of the town of Bhilwara for the year 1956-57 was granted consisted of Moti Lal son of Chunni Lal and Bhanwar Lal son of Moti Lal. However, after the grant more partners were included. The Income Tax Officer found that apart from Moti Lal and Chunni Lal son of Moti Lal and Bhanwar Lal they further included Smt, Vijay Laxmi, Poonam Chand, Bhoorlal, Ramnath and Kamla. The licensee never applied for permission to the Excise Officer for this inclusion and change of partnership and thus. However, after the grant more partners were included. The Income Tax Officer found that apart from Moti Lal and Chunni Lal son of Moti Lal and Bhanwar Lal they further included Smt, Vijay Laxmi, Poonam Chand, Bhoorlal, Ramnath and Kamla. The licensee never applied for permission to the Excise Officer for this inclusion and change of partnership and thus. the altered partnership firm functioned without permission of the Excise Authority, He found that this inclusion was not permissible or the provisions of Rajasthan Excise Act, were violated therefore, section 23 of the Indian Contract Act was attracted and the assessee was not entitled to registration under Section 85 of the Income Tax Act. 50. Mr. Arora pointed out that this view of the Income Tax Officer' refusing to grant registration was upheld by the appellant (sic appellate) Commissioner of Income Tax Udaipur and then afterwards it was further upheld by the Appellate Tribunal. The appellate authorities were of the opinion that various provisions of the Excise Act as well as rules and conditions framed thereunder regulating the consumption and sale of excisable articles were violated and the restriction & regulation were for the benefit of public, and therefore, the registration if granted would be against public policy. 51. The Tribunal also rejected the appeal and upheld the judgment of the Income Tax Officer. The reference was made by the Tribunal under Section 256(1) for the opinion of the High Court whether the rejection was valid, and whether the object of the agreement of inclusion of partnership was to defeat the public policy as contained under the provisions of the Rajasthan Excise Act. 52. The view which has found favour with the Division Bench consisting of Hon'ble Justice Gupta and Justice Byas being different from earlier view of Durga Madira Sangh's case (Supra) is based on the ground that the provisions of the Rajasthan Excise Act fail to recognise such partnership unless permission is given and taken. This view was consistent with ...case (supra) and the decisions of Madras, Kerala, Andhra Pradesh, Punjab and Haryana and Orissa High Court. 53. Mr. This view was consistent with ...case (supra) and the decisions of Madras, Kerala, Andhra Pradesh, Punjab and Haryana and Orissa High Court. 53. Mr. Arora submitted that Supreme Court in the decision of M/s Jeer and Company ( 1979 ITR 456 ) where a condition was added in the liquor licence which was applicable to the petitioner assessee, held such a licence holder before entering into partnership should obtain previous permission in writing from the Excise authorities, and since no such permission was taken in the present case, Mr. Arora submitted that this decision would also apply in support of the view of the Division Bench referring the case to the Full Bench. Mr. Arora also pointed out that the acceptance or refusal to include other persons as partners in the partnership for sale of country liquor depends upon the various factors or the Excise Department consideration and therefore, unless the inclusion is allowed by express permission the recognition of such partnership by the income Tax authorities would indirectly encourage unscrupulous persons from entering into partnership against the excise laws and carrying on the business in violation of the excise laws and against public interest and public policy. 54. In this connection Mr. Arora referred to Section 54, 34 (c) 62, 72-B of the Excise Laws imposing certain conditions. The intention of the entire scheme of the Rajasthan Excise Act and the Rules and the Conditions is that unscrupluous persons and anti-social elements, defaulters entry in the partnership firm should be avoided. In support of his contention that the change of partners without permission of the excise authority by a liquor licensee in Rajasthan is against public policy, Mr. Arora referred to the following decisions; Velu Padayachi v. Sivasceriam Pillai ( AIR 1950 Mad. 444 ) , M/s D. Mohideen Sahib & Co. v. Commissioner of Income Tax Madars and Travencore Coochin, Goorg and Bangalore v. Union Tobacco Co. ( AIR 1950 Mad. 451 and 1961 (41) ITR 115) , Commissioner of Income Tax v. Krishna Reddy (1962 (46) ITR 784) , V. Basavayya v. N. Kottya (AIR 1964 SC 145) , Dinshawji and others v. Abdual Baseel Khan ( AIR 1967 AP 119 ) . Commissioner of Income Tax v. Banarsi Das and Company (1962 ITR (44) 835) , Commissioner of Income Tax, Patiala v. Hardit Singh Pal Chand and Co. Commissioner of Income Tax v. Banarsi Das and Company (1962 ITR (44) 835) , Commissioner of Income Tax, Patiala v. Hardit Singh Pal Chand and Co. (1969 ITR (120) 289) , Commissioner of Income Tax, M. P. v. Pagoda Hotel and Restaurant (1974 ITR (93) 271) , Commissioner of Income Tax M. P. v. Sheerayan Harnarayan (1975 ITR (100) 313) , Commissioner of Income Tax v. Kandra Durgaiya (1983 ITR (143) 315) , Narsiya & Co. v. Commissioner of Income Tax (1983 ITR (143) 304) , Mahaputra Bhandar v. Commissioner of Income Tax (AIR 1965 Orissa 160) , Oudh Cocogem and Provisions Stores v. Commissioner of Income Tax, U. P. (ITR 1968 (69) 819) , Maharactra Bhandar v. Commissioner of Income Tax (1965 ITR (58) 671) , Umacharan Shaw & Bro. v. Commissioner of Income Tax W. Bengal (ITR 1959 (37) 271) . 55. It was pointed out that the above decisions would show that the decision of the Income Tax Officer upheld by the Appellate Assistant Commissioner and the Tribunal was in accordance with law and the refusal to register the partnership firm by the Income Tax Officer was justified. 56. We have summarised so far above the rival contentions only, so that now the decks are clear for our adjudication and decision. Nothing mentioned above and so far, be treated as our decision on the questions referred to us. Now, onwards, we would give our views and decision. Rajasthan Excise Law's extracts: 57. In order to decide the issues involved, we would first of all have a resume and study of the various provisions under the Rajasthan Excise Act and Rules about the relevant points involved in respect of licence of the liquor sale and the various regulations, registration, prohibitions, conditions etc. 58. The Rajasthan Excise Act, 1950 governs the possession and sale of the liquor in Rajasthan. In order to carry out the provisions of Excise Act. 1950 Rules have been framed in 1956 which are known as Rajasthan Excise Rules (hereinunder called as the Rules). 59. 58. The Rajasthan Excise Act, 1950 governs the possession and sale of the liquor in Rajasthan. In order to carry out the provisions of Excise Act. 1950 Rules have been framed in 1956 which are known as Rajasthan Excise Rules (hereinunder called as the Rules). 59. Under the Act, 'manufacture' and 'sale' have been defined under clause 17 and 20 of the Act Section 3 of the Act, which reads as under:- "Manufacture" includes every process, whether natural or artificial by which any excisable article is produced or prepared wholly or partly and also redistillation and every process for the rectification, reduction, flavouring blending or colouring of liquor."; "Sale" with its grammatical variations includes any transfer otherwise than by way of gift." 60. Section 13 empowers the Government to prohibit import, export and transport of excisable articles, section 16 prohibits manufacture of excisable articles, prohibited except under the provisions of this Act. Section 20 expressly prohibited the sale of excisable articles without licence. Sect ion 20 reads as under : "No excisable article shall be sold without a licence from the Excise Commissioner (or any Excise Officer duly empowered in that behalf) provided that ; (1) a person licensed under this Act to cultivate or collect the hemp plant (Cannabis-Satiya) may sell without a licence those portions of the plant from which any intoxi-......(illegible) licenced under this Act to deal in the same or to any officer who the Excise Commissioner may prescribed ; (2) a licence for sale in more than one district of (those parts of the State of Rajasthan to which this Act extends) shall be granted with the previous approval of the (state Government) and ; (3) nothing in this section applies to the sale of any foreign liquor legally produced by any person for his private use and sold by him or by auction on his behalf or on behaif of his representatives in interest upon his quitting a station or after his decease." 61. Licences are granted under Chapter VI. Section 37 prescribes form of conditions of licences. Section 34 provides power to cancel the suspected licence and so also section 35. Section 31, 34 and 35 reads as under:- Section 31. Licences are granted under Chapter VI. Section 37 prescribes form of conditions of licences. Section 34 provides power to cancel the suspected licence and so also section 35. Section 31, 34 and 35 reads as under:- Section 31. "Every licence, permit or pass granted under this Act, shall be granted : (a) by such authority, (b) on payment of such fees (if any) (c) subject to such restrictions and on such conditions, (d) in such form and containing such particulars ; and (e) for such periods ; as the (State Government) may prescribe by rules either generally or for any class of licences, permits or passes or as the (State Government) may direct for any particular licence. permit or pass." Section 34. "Power to cancel and suspend licences : (1) Subject to such restrictions as the (State Government) may prescribe, the authority granting any licence, permit or pass under this Act may cancel or suspend it (a) if it is transferred or subject by the holder thereof without the permission of the said authority ; or (b) if any dUty or fee payable in respect thereof be not duly paid ; or (c) in the event of any breach by the holder of such licence, permit or pass or by his servants, or by anyone acting on his behalf with his express or implied permission, or any of the term or conditions of such licence,permit or pass ; or (d) if the holder thereof is convicted of any offence punishable under this Act or any other law for the time being in force relating to revenue or of any cognizable and non-bailable offence punishable under the (Dangerous Drugs Act, 1930 (Central Act II of 1930) or any law relating to merchandise marks or of any offence punishable under Section 482 to 489 (both inclusive of the Indian Penal Code), or (e) where a licence, permit or pass has been granted on the application of the grantee of an exclusive privilege under this Act, on the requisition in writing of such grantee, or (f) if the conditions of the licence, permit or pass provide for such cancellation of suspension at will. (2) When a licence, permit or pass held by any person is cancelled under sub-section (w), the authority aforesaid may cancel any other licence, permit or pass granted to such person under this Act or any other law for the time being in force relating to excise, revenue or under (The Opium Act, 1878 (Central Act I of 1878). (3) The holder of licence, permit or pass shall not be entitled to any compensation for the cancellation or suspension thereof under this section or to a refund of any fee paid or deposit made in respect thereof." 62. Offences are given in Chapter IX and section 54 provides penalty for import, export transport, manufacture possession, and Section 58 provides penalty for certain offences. Sections 54 and 58 read as under:- Section 54 "Penalty for unlawful import, export, transport, manufacture, possession, etc. whoever, in contravention of this Act or any rule, or of conditions of any licence, permit or pass granted, thereunder: (a) imports, exports, transport, manufactures, collects, sells, or possesses any excisable articles; or (b) cultivates any hemp plant (Cannabis Sativa); or (c) constructs or works any distillery, pot still or brewary; (d) uses, keeps or has in his possession any materials still utensil, implements or appartus whatsoever for the purpose of manufacturing any excisable article other than tari; or (e) removes any excisable article from any distillery pot still (brewary) or were house established or licenced under this Act; or (f) bottles any liquor for the purposes of sale; or (g) taps or draws tari from many tary producing tree; shall be punishable with imprisonment for a term which may extend to two thousand rupees. (provided that if a person is so found in possession of a workable still for the manufacture of any excisable article or is found to be guilty of selling or possessing for sale any excisable article in contravention of the provisions of this Act or of any rule or order made or of any licence, permit or pass granted thereunder) he shall be punished with the minimum sentence of imprisonment for six months and fine of two hundred rupees). Section 58 Penalty for certain acts by licensee or his servants:-Whoever being the holder of a licence, permit or pass granted under this Act, or being in the employ of such holder and acting on his behalf : (a) fails to produce such licence, permit or pass on the demand of any Excise Officer or of any officer duly empowered to make such demand; or (b) in any case not provided for in section 54 willfully contravenes any rules made under Section 41 or 42; or (c) willfully does or omits to do anything in breach of any of the conditions of the licence, permit or pass not otherwise provided for in this Act; shall be published for each such offence with fine which may extend to five hundred rupees. Section 62 provides for offences not otherwise provided for which, reads as under:- "Penalties for offences not otherwise provided for:- Whoever is guilty of any act or intentional omissions in contravention of any of the provisions of this Act, or of any rule or order made under this Act and not otherwise provided for therein shall be punished for each such act or omission with line which may extend to two hundred rupees. Section 64 (1) When any excisable article has been manufactured or sold or is possessed by any person on account of any person and such other person knows or has reason to believe that such manufacture or sale was or that such possession is, on his account, the article shall for the purpose of this Act be deemed to have been manufactured, or sold it or to be in the possession. (2) Nothing in sub-section (1) shall absolve any person who manufactures, sells or has possession of an excisable article on account of another person from liability to punishment under this Act for the unlawful manufacture, sale or possession of such article." We then come to Excise Rules and Rule 72 provides for application for licence, which reads as under:- Section 72 "Who may grant licences-Except as otherwise provided in these rules all licensees under this Act shall......(illegible) Commissioner." 63. It is significant that Rule 72 B was introduced on 19th November, 1959 expressly prohibiting sale or transfer of licence without prior permission in writing from the licencing authority. It is significant that Rule 72 B was introduced on 19th November, 1959 expressly prohibiting sale or transfer of licence without prior permission in writing from the licencing authority. Rule 72-B reads as under:- Section 72-B "Transfer of a licence-(a) Every licence shall be deemed to have been granted or renewed personally to the licensee and no licence shall be sold or transferred without obtaining previous permission in writing from the licencing authority." 64. Rule 74 provides for disqualification for holding licences, which reads as under:- Section 74 "Persons debarred from holding-without the previous written sanction of the Excise Commissioner: (1) No person holding or having an interest in a licence for the manufacture, sale or supply or foreign liquor in a district may hold or possess any interest in a licence for the retail sale of country liquor in the district. (2) No person holding or having an interest in a licence for the retail sale of opium (denatured spirit) or intoxicating drugs in a district may hold or possess any interest in a licence for the wholesale or retail manufacture or sale of foreign or country liquor in the same district. (3) No person shall hold or have an interest in two or more ships for the retail sale of the same excisable articles in the same village, or in the same city or town, and (4) No person holding or having an interest in a licence for the manufacture of country liquor or supply thereof from a distillery or retail vendor shall hold or have an interest in a licence for the retail sale of country liquor in the area in which the distillery is established in any area supplied from such distillery. (5) No person whose tender or bid at an auction for grant of licence under the Act or these Rules has been accepted but who fails to deposit within the time allowed, the security amount required to be deposited according to the conditions of tender of auction in the financial year 1972-73 or thereafter shall be entitled to hold any licence under the Act or these Rules for a period of three years from the last date allowed for deposit of such security." Licence Forms Conditions: 65. The form of licences are prescribed under Rule 93 and Form C.L.I. is the form for sale of country liquor. The form of licences are prescribed under Rule 93 and Form C.L.I. is the form for sale of country liquor. Condition No. 3 of this licence form prescribed under Kule 93 reads as under: " ykbZlsUl/kkjh bl ykbZlsUl dks ykbZlsUl nsus okys vf/kdkjh dh fyf[kr Lohd`fr ds fcuk fdlh nwljs O;fDr dks gLrkUrfjr ugha dj ldsxk vkSj u blesa fdlh dks lkHksnkj gh cuk ldsxkA bl rjg dh Lohd`fr rd ykbZlsUl/kkjh vius ftEes dh dqy 'ks"k jde vnk u dj nsaA " Our Decision: 66. The above schemes of the Rajasthan Excise Act and Rules are relevant for the purpose of understanding and appreciating the question involved in the present reference namely, whether there is any prohibition for taking a partner after the licence is obtained in the name of a partnership firm in which newly introduced person was not originally partner at the time of taking of licence. Closely connected with it is the next important question whether the requirements of grant of permission taking of permission is a matter of substance or form for introducing of new partner. Yet another facet to be considered is whether the induction of new partner by Excise licence firm without permission of the excise authorities would be against public policy as contemplated by section 23 of the Contract Act. 67. On a thoughtful consideration of the various facets of this controversy and the principles of law as deduced in the various judgments referred to above, we are inclined to think that the decision referred to by Mr. Mehta for convincing us and appreciating us to hold that the view of this court in Brij Mohan's case (1965 RLW 254) based on the decision of the Supreme Court in Govind Ram v. Nathmal decided on 11-4-62 no longer hold the field is difficult to be accepted. 68. No doubt Nathmal's case was in respect of Food Grain (Central Order Order 1945) which prohibited by section 3 clause ( 1) for person to deal in food grains with a licence but Mr. Mehta's efforts to distinguish the case on the ground that the definition there was comprehensive as the word 'person' was incorporated to mean a group or association of persons like a firm of partners is without any distinction, and with no difference, and therefore, cannot succeed. 69. Mehta's efforts to distinguish the case on the ground that the definition there was comprehensive as the word 'person' was incorporated to mean a group or association of persons like a firm of partners is without any distinction, and with no difference, and therefore, cannot succeed. 69. As per the resume of the relevant provisions of the Excise Laws of Rajasthan extracted above, there is a prohibition for possession and sale of liquor without licence and further under section 16 (g) any material except on the terms and conditions of the licence. Similarly section 19 prohibits any person from possession and manufacture of articles, without licence to manufacture and sale of such articles Clause (iv) of section 19 mentions person or class of persons. Again Section 24 mentions the grant of a licence to a person and Section 31 provides for the form of licence, restrictions and framing of the rules. Under section 33 the authority granting licence would require execution of counter part agreement. Section 34 provides the authority to cancel and suspend the licence, if it is transferred or sublet by the persons holding the licence without permission of the authority or even if there has been any breach of the conditions of the licence or if the persons holding the licence is convicted. 70. It would thus be seen that the distinction which Mr. Mehta wants to draw from the case of Govind Rao v. Nathmal is not permissible in view of the above Excise Law of Rajasthan. 71. We may here also point out that the partnership deed in the present case further mentions that all the partners were to contribute not only their capital but also skill and labour, it would naturally mean that the partners who are licence holders would be entitled to deal with the country liquor. Section 19 and 20 of the Rajasthan Axcise Act 1950 expressly prohibits it. Section 54 (a) and section 58 clause (c) of the Act expressly provides that if infringment of any of the provisions of this Act is done, it would be punishable with imprisonment or line or with both. 72. Section 19 and 20 of the Rajasthan Axcise Act 1950 expressly prohibits it. Section 54 (a) and section 58 clause (c) of the Act expressly provides that if infringment of any of the provisions of this Act is done, it would be punishable with imprisonment or line or with both. 72. It is thus, clear that the authority to the newly inducted partners who were not earlier in the partnership at the time of grant of licence and for whom no permission has been taken by the Excise Authorities, would be offence by excise licences for all intents and purposes. This would mean that even a previous convict or a defaulter or a person having bad antecedents, or a person who is known as a boot legger for manufacture and sale of liquor by adulteration, playing with the life of several people innocent would also be able to sit as a licence at the liquor shop and sell it. These are all hazards and dangers against public and people,society and citizens as a whole, which are being safe guarded by the clause 3 in the licence which expressly mentions that no partner would be inducted in the partnership of such a licensee without permission in writing from the authorities. 73. This would all show that there are several factors which are relevant and which directly affect the public policy, public hygine and risk to people life in this matter. Mr. Meht's contention, that no public policy is involved in incorporating clause (3) in the licence and violation of it would not automatically mean that the contract is violative of provisions of the section 23 of the Indian Contract Act or void abinitio, cannot be accepted for the persons mentioned above. 74. In our opinion the object of imposition of penalty and provisions for cancellation, suspension of licence in the case of breach of any terms and conditions of the licence, is the safe guard not only excise revenue but also for protecting public generally from such dangerous hazards and from such unscrupulous persons who as antisocial elements can make back door entry in the liquor trade and play with the life of the people. We have therefore, no hesitation in holding that public policy is directly involved and the condition No. 3 introduced in the licence is not a formal matters only for excise revenue, but it is expanded on wider horizons and in its dimensions it covers public hygine, public morality, public ethics, public safety, public security and is therefore, public policy's various manifestations. 75. As mentioned above section 54 of the Excise Act provides penalty for contravention of the provisions of the licence granted under the Act, Section 34 clause (c) provides for cancellation,suspension and they are all provisions enacted by the legislature for protecting public health and public hygine and ensuring public morality and therefore they are all interlink connected with public policy and they are not at all limited to excise revenue only. 76. Mr. Mehta's contention that there is no prohibition and the only requirement is of permission and therefore the contract of the partnership agreement is not illegal nor unlawfull nor void abinitio now deserves consideration. The imposition of a condition in the licence for obtaining permission and that in writing of the competent excise authorities before entering into partnership with third parties is not a mere formality. It is a prohibition and the prohibition also is of serious nature. 77. In Durga Madira Sangh undoubtedly this Court after quoting condition No. 3 of the licence held that even the aforesaid condition of the licence no- where totally prohibits that the licence cannot enter into partnership but it only requires permission. In this view of the matter this court held that there was no prohibition. 78. We have given our thoughtful consideration to this aspect of the matter and we feel that conditional permission or permission by such authority and in the absence of that prohibition, cannot result in finding that the prohibition is not contemplated. The prohibition can be of various types and patterns and varieties. To illustrate, a foreign citizen cannot come or a citizen of India cannot travel abroad except without a passport and a visa. Then there are further restrictions. The emphasis may be different but the visa is a condition which is prohibitory in nature and except that there is a complete prohibition to enter foreign country. To illustrate, a foreign citizen cannot come or a citizen of India cannot travel abroad except without a passport and a visa. Then there are further restrictions. The emphasis may be different but the visa is a condition which is prohibitory in nature and except that there is a complete prohibition to enter foreign country. Similarly a person who comes here on visa can stay here only for that period or after that by extension by competent authority but it would be similifying the matter, if it is said that there is no prohibition and it is only regulation. Regulation, restrictions, limitations falters, may amount to prohibition because those conditions are basic bedrock and cannot be violated. 79. The object of insistence on permission is that certain unwarranted unscrupulous and unsocial elements defaulters or persons of the objectionable history should not be allowed to do the liquor business. If by back door they enter into partnership and thus become entitled, it would be mockery of the prohibition. 80. Yet another types of cases can be of previous convict or persons who are defaulters or persons against whom there are certain Government dues or persons whose bids have been refused or persons who have been declared to be disqualified under any law for holding a liquor licence. If such persons by indirect back door entry becomes partners with the licence, then it would mean that all the excise laws prohibitions, safe guard, restrictions would be thrown to winds, and unscrupulous persons would manage to enter by back door by first giving bid in the name of some persons banami and then entering partnership with such a licensee by inclusion and induction in the partnership, without even giving any intimation to the Excise authorities and without obtaining the permission. We therefore feel that this is a case of prohibition, and that too based on public policy. 81. Mulsbary's Law of England IIIrd Edition Volum-I para 2245 at page 141 sums up the law on the point as under : "Where the penalty is imposed by the statute upon any person who does a particular act which may or may not imply prohibition of that act. It is a question of construction in each case where the ligislature intended to prohibit the doing of the act altogether merely to make the person who did it liable to pay the penalty. It is a question of construction in each case where the ligislature intended to prohibit the doing of the act altogether merely to make the person who did it liable to pay the penalty. If the penalty is recurrent that is to say, if it is imposed not merely once for all but as often as the act, this amounts to a prohibition. Where the object of the legislature in imposing a penalty is merely a protection of the revenue, the statute will not be construed as prohibiting the.....in respect of which the penalty is imposed. But where the penalty is imposed with the object of protecting the public then it may also be taken to be prohibition and no action can be maintained by the offending party on a contract which is made in contravention of the statute. (Emphasis Supplied) The crux of the matter is as per the observations mentioned above, if the penalty is imposed with the object of protecting the public, then it is a case of prohibition and not a case of device of revenue earning only. 82. Mr. Mehta's reliance on judgment of Gordhan Dass Kesuji v. Chamesi Dosa, (1921 PC 137) where a licence of salt manufacture was held not to contravene the terms of the licence, in view of the provisions of the section II of the Bombay Salt Act where it was not prohibited, is not applicable in the instant case, because there the licensee admitted the members of his family and others as partners for saving the profits of the business. 83. In our opinion unless the licence conditions of that case are thoroughly seen. this judgment cannot enlighten us on the questions as to what was the condition and what were the words and whether they were mandatory or directory and in what context and for what purpose, the conditions were laid down so as to apply that judgment in the instant persent case of ours. 84. Then Mr. Mehta's reliance on Jai Chand and Co. v. Commissioner of Income-tax, U.P. judgment requires to be considered. There is no doubt that Jar & Co. case is of far reaching importance in this branch of law. 85. In that case the assessee firm had two partners one of whom had obtained a licence for the wholesale vending of foreign liquor, which was renewed from year to year. v. Commissioner of Income-tax, U.P. judgment requires to be considered. There is no doubt that Jar & Co. case is of far reaching importance in this branch of law. 85. In that case the assessee firm had two partners one of whom had obtained a licence for the wholesale vending of foreign liquor, which was renewed from year to year. The question being raised was whether the firm was entitled to registration under Section 26-A of the Income-tax Act, 1922. It was held by their Lordships of the Supreme Court that the licence did not prohibit the holder from entering into partnership and it merely mentions that when the licensee, entered into partnership, the question whether the partnership was illegal did not arise and the firm was allowed registration. 86. It appears that after the aforesaid decision of their Lordship of the Supreme Court in Jar and Company (supra) a term that the licence holder should obtain permission in writing from the excise authorities concerned before entering into partnership has been added for liquor licensee. This has watered down the effect of the Jar & Company's judgment, as now there is express requirement of permission which in that case was conspicously absent. 87. In Commissioner of Income Tax, Patiala v. Siyam Chand and Company , the Supreme Court followed Jar & Company's case judgment. The distinguishing feature from Rajasthan Excise Law in the Punjab Fisheries Rules was that there is no prohibition for entereing into partnership, so far as the fishries licence are concerned. The Madras High Court also took the same view in P.K.T.R. Ramanatha Chitiar v. Income Tax and National Roadways Commissioner Income Tax . In cases of partnership firm running transport business on the basis of the permit standing in the names of one of the partners as there was no prohibition against partnership in the Motor Vehicles Act. The same view was taken by the Division Bench of the Madhya Pradesh High Court in Daya Bahi and Company's case (supra). The Full Bench of the Madhya Pradesh High Court in Smt. Janki Chuni Bai v. Ratan Lal and others cases relating transport business took the same view. Here also there was no prohibition. 88. It may be mentioned that the Madras High Court in Mohidin Shah v. Commissioner of Income-tax (1950 ITR (182) 200) has discussed the matters in detail. The Full Bench of the Madhya Pradesh High Court in Smt. Janki Chuni Bai v. Ratan Lal and others cases relating transport business took the same view. Here also there was no prohibition. 88. It may be mentioned that the Madras High Court in Mohidin Shah v. Commissioner of Income-tax (1950 ITR (182) 200) has discussed the matters in detail. The Madras High Court in AIR 1950 Mad. 451 have also discussed the question of inclusion of partner in partnership rendering the partnership illegal. Full Bench decision of the Madras High Court in AIR 1950 Mad, 444 Waloo Padayachati v. Shiv Solian Pillar , further fortified the view that such a partnership becomes illegal and for illegal partnership the Income-tax Authorities cannot grant registration. 89. The Madhya Pradesh High Court in series of cases Commissioner of Income-tax v. Pagora Hotel and Restaurant (1974 ITR (93) 271) and Commissioner of Income Tax v. Shiv Narain Harinarain (1975 ITR (100) 213) and 1983 ITR (143) (Commissioner of Income Tax v. Coda Durgidia) have also affirmed the same view that when new partner is taken after the licence is given by the Excise authorities and permission is not taken for his inclusion then the licence partnership comes to an end because illegal unlawful and (sic act) cannot be enforced. It has been held by series of cases that in such cases of partnership one partner cannot sue the other for rendition of account, for the amount which he has taken because such partnership is unlawful and is against public policy. 90. The Madhya Pradesh Excise Law and Licence conditions are para- materia to licence condition No. 3 of Form No. C.L.I.E. prescribed under Section 42(E) of the Rajasthan Excise Act, 1950 and rules 57, 7(Jha) and 93 of Rajasthan Excise Rules, 1956 (page 495 of Rajasthan Local Laws by S.L. Gupta Vol. VI E. 1983 Edn; Govt. Notification dated 5th Feb. 1964 Rajasthan Gazette Extraordinary Part-IV dated 6th February. 1965) in respect of inclusion of new partners in liquor licence business. In our opinion the above judgment of Madhya Pradesh High Court squarely applies to the facts of the instant case and we express respectful agreement with the above view and hold that such partnership being 'illegal cannot be registered under the Income-tax Act. 91. 1965) in respect of inclusion of new partners in liquor licence business. In our opinion the above judgment of Madhya Pradesh High Court squarely applies to the facts of the instant case and we express respectful agreement with the above view and hold that such partnership being 'illegal cannot be registered under the Income-tax Act. 91. The view of the Orissa High Court in AIR 1965 Orissa 160 Mahaptra Bhandar v. Commissioner of Indian Income-tax is also the same and so is the case of Rajasthan in Brij Mohan v. Wakahria (1965 RLW 25a) . 92. The Kerala High Court in Commissioner of Income-tax v. Union Tobboco Co. 1961 ITR (16) 115 has taken the similar view and held that such a partnership is illegal and cannot claim registration as of right. 93. The Punjab and Haryana High Court in successive judgments, first being 1962 ITR page 135, I.T. v. Banarisi Das and then 1967 ITR page 418 Commissioner of Income Tax v. Banarsi Das and the third one 1979 ITR (120) 289 C.T.T. v. Hardeep Singh have taken the same view that such a partnership becomes illegal and no contract can be enforced even for red it ion of accounts by the partners. Such a partnership therefore cannot claim any registration, under the Indian Income- fax Act. 94. The Andhra Pradesh High Court in 1962 ITR 785 Commissioner of Income Tax v. Krishna Reddy and Bassrupya v. N. Kotaya: AIR 1964 AP (55) page 145 and AIR 1967 A.P. 119 Diushwji and ors. v. Abdul Rasool Khan have also taken similar view, supported the view which was taken earlier. It would thus be seen that so far as the cases of liquor licences are concerned, in view of the prohibition introduced by the Rajasthan Excise licencing conditions and the various provisions of the Excise Act and the Rules making it liable to punishment and also liable to confiscation and cancellation, suspension on this ground alone, goes to show that the legislature had expressed intention to treat such firm as illegal and unlawful. 95. 95. The Madras High Court in T.K.P.R. Ramanatha Chettiar & Brothers v. Commissioner of income tax (1969) 73 I.T.R- 811) and in National Roadways v. Commissioner of Income-tax (Madras) (1975) 99 I.T.R 97 , in cases of partnerships standing in the name of one partner as there was no prohibition against The partnership in the Motor Vehicles Act, although there is prohibition against transfer of permit, took the view that partnership is legal. A Division Bench of the Madhya Pradesh High Court in Dayabhai v. Commissioner of Income-tax Act (1966) 59 ITR 364 and Full Bench of the Madhya Pradesh High Court in Janki Bai Chunilal v. Ratan Melu and another AIR 1962 MP 117 , and other cases of partnership relating to transport business, also held partnership legal, as there was no prohibition in those laws. These cases are clearly distinguishable being based on different facts and laws as mentioned above. 96. On a thoughtful & thorough consideration of the important decisions relied upon by Mr. Mehra and also by the learned Judges deciding the two references earlier,we find that they are not applicable, as facts in the......(illegible) and conditions of licence having the force of law. 97. Let us now discuss and point out the distinguishing features of those case. 98. Umacharan Shah and Bros. v. Commissioner of Income Tax 37 I.T.R. 271 (SC) : An excise licence was operated by partnership of joint family members though the licence was in the name of individual members of family. Section 42 (1) of the Bengal I Excise Act prohibited transfer or subletting. There was no prohibition for inducting partners and therefore the Supreme Court directed the registration. It would thus be seen that the Bengal Excise Act was not at all violated. In the instant case the Rajasthan Law prescribes licence conditions and they are notified with every tender form and at the time of auction. Condition No. 3 extracted above expressly prohibits inclusion of any person as partner without written permission. It is further provided in Rajasthan Excist Act and Rules as well that conditions of violations would be treated as statutory violation and actionable. We cannot apply Bombay Excise Law to Rajasthan without having similar licence condition. 99. 79 ITR 546 Jar and Co. Condition No. 3 extracted above expressly prohibits inclusion of any person as partner without written permission. It is further provided in Rajasthan Excist Act and Rules as well that conditions of violations would be treated as statutory violation and actionable. We cannot apply Bombay Excise Law to Rajasthan without having similar licence condition. 99. 79 ITR 546 Jar and Co. v. Commissioner of Income Tax decision has not been correctly understood by most of the High Courts, on whose judgments reliance has been placed by Mr. Mehta. The crux of distinction based on non-application of rule 322 of the Excise Manual, where licence is in form FL 11, has tilted the fate from illegality of partnership to legality. The relevant discussion is as under: "The Commissioner and the High Court proceeded on the footing that the licence was governed by rule 322 which prohibited the holder of the licence from entering into a partnership with another person. But the licence, it is clear from the record, was in form FL II issued under the U.P. Excise Manual. The licence does not prohibit the holder from entering into partnership by the holder of the licence; it merely Provides that the licence shall be sub-let or transferred. Since there is no prohibition against entry by the holder of the licence into a partnership the question whether the partnership was illegal does not arise. The firm was entitled on that account to registration. It is somewhat unfortunate that the attention of the Commissioner and the High Court was not invited to the form in which the licence was issued by the excise authorities They proceeded to decide the case on the footing that rule 322 of the Excise Manual applied. But that rule has no application here." (Emphasis supplied) We have already pointed out that in our instant case unlike form FL II, the Rajasthan Form No. C.L.I.E. contains condition No. 3 which expressly prohibits new partners without written permission of Excise authorities. Therefore, all decisions of High Courts where relying upon Jar & Co.'s case judgment; (supra) registration has been allowed inspite of provisions like clause 3, of licence, are based on error of inexactitude, in understanding the implications of Jar (co's. case (supra). Therefore, all decisions of High Courts where relying upon Jar & Co.'s case judgment; (supra) registration has been allowed inspite of provisions like clause 3, of licence, are based on error of inexactitude, in understanding the implications of Jar (co's. case (supra). Our High Court's two judgments of Division Bench in Durga Madira Sangh's case (1985) 44 C.T.R. 266 and Commissioner of Income Tax v. M/s Roop Lal Dan Chand's case (D.B. Income Tax Reference No. 15 of 1980 decided on February 10, 1986 at Jodhpur) with due respect; fall in this category. 100. We may now turn to "wagering contracts" judgment in Gherulal Parakh v. Mahadeodas ( AIR 1959 SC 781 ) on which tremendous emphasis has been laid by Mr. Mehta. 101. In order to appreciate this decision we must analyse the deduction in para 28 which reads as under: "28. To summarise : The common law of England and that of India have never struck down contracts of wager on the ground of public policy, indeed they have always been held to be not illegal notwithstanding the fact that the statute declared them void. Even after the contracts of wager were declared to be void in England, collateral contracts were enforced till the passing of the Gaming Act of 1892 and in India, except in the State of Bombay, they have been enforced even after the passing of the Act 21 of 1848, which was substituted by Section 30 of the Contract Act. The moral prohibitions in Hindu Law texts against gambling were not only not legally enforced but were allowed to fall into detitude. In practice, though gambling is controlled in specific matters, it has not been declared illegal and there is no law declaring wagering, illegal, Indeed. some of the gambling practices are a perennial source of income of the State. In the circumstances it is not possible to hold that there is any definite head or principle of public policy evolved by Courts or laid down by precedents which would directly apply to wagering contracts. some of the gambling practices are a perennial source of income of the State. In the circumstances it is not possible to hold that there is any definite head or principle of public policy evolved by Courts or laid down by precedents which would directly apply to wagering contracts. Even if it is permissible for Courts to evovc a new head of public policy under extraordinary circumstances giving rise to incontestable harm to the society we cannot say that wager is one of such instances of exceptional gravity, for it has been recognised for centuries and has been tolerated by the public and the State alike if it is any such tendency, it is for the legislature to make a law prohibiting such contracts and declaring them illegal and not for this court to report to judicial legislation." Before the above in para 20 deduction No. 5 and 6 are relevant and they are as under: "5. Section 30 of the Indian Contract Act is based upon the provisions of Section 18 of the Gaming Act, 1945 and though a wager is void and unenforceable it is not forbidden by law and therefore the object of a collateral agreement is not unlawful under Section 23 of the Contract Act and (6) partnership being an agreement within the meaning of Section 23 of the Indian Contract Act, it is not unlawful though its object is to carry on wagering transactions. We, therefore, hold that in the present case the partnership is not unlawful within the meaning of Section 23 (a) of the Contract Act." 102. The above judgment is based on provisions of Gaming Act, and directly it has got no application in a case where partnership has been formed by inclusion of new partners in.........(illegible) of Excise Authorities. 103. We find that in Rajasthan Excise Law and as per licence condition 3 of Form No. C.L.I.E. & C.L. (I) G. prescribed under Section 42 E and Rule 57, 67 (Jha) and 93, since there is express prohibition of new partnership without written permission, and therefore such a partnership is forbidden by law and therefore it is unlawful for Section 23 of the Indian Contract Act, as also S, 34 (c) of the Rajasthan Excise Act renders the licence liable to cancellation on breach of conditions of Licence: and Section 54 and 58 (c) makes it punishable with imprisonment or fine. 104. We, therefore, are of the view that the view taken by this court in Durga Madira Sangh's case (198') 44 CTR 266 and Roop Lal Danchand's case (D.B.I.T. Reference No. 15 of 1980 decided on 10th Febuary, 1986) cannot be accepted as laying down correct law and with due respect we find unsurmountable legal hurdle in persuading us to agree to confirm it, as we are of contrary view. 105. The decision in K. M. Viswanatha Pillai v. K. M. Sharugham Pillai ( AIR 1969 SC 493 ) is on Motor Vehicles Act provisions-where the real owner holding the permit in Benamidar's name has been held to be entitled to be valid and lawful operation of permits. It fails to support Mr. Mehta's contention as the facts are quire different in our instant case. We are firmly of the view that none of the principles laid down in the decisions of Apex court in K. M. Vishwanatha Pillai v. K. M. Shanmugham Pillai ( AIR 1969 SC 493 ) Gherulal Prakash v. Mahadeodas (AIR. 1959 SC 781) , Umacharan Shah & Bros. v. Commissioner of Income Tax (37 ITR 271) , Jer & Co. v. Commissioner of Income Tax (79 ITR 546) and Gordhandas Kessowji v. Chamsey Dossa and others (AIR 1921 Privy Council 107) can result in treating the present partnership inclusion legal inspite of specific prohibition contained in licence condition No. 3, which is prescribed under Section 42 of the Act and Rules 93, 57 and 67 (jha) since it is illegal, the logical effect would be to not to recognise it for registration. An illegal act can never be treated as genuine and registration would result in providing protective umbrella to illegal activities which the judicial court should never do, by expanding the connotation 'genuine' unlawful, illegal, prohibited acts also. 106. Consequently, we hold that such a partnership cannot be registered under the Indian Income-tax Act. 107. The Division Bench making the reference to us have referred the entire case for decision as it was of the view that the view taken in Durga Madira Sangh v. Commissioner of Income Tax (1985) 44 C.T.R. 266 is not correct and requires re-consideration. 108. 107. The Division Bench making the reference to us have referred the entire case for decision as it was of the view that the view taken in Durga Madira Sangh v. Commissioner of Income Tax (1985) 44 C.T.R. 266 is not correct and requires re-consideration. 108. We are in agreement with the view of the Division Bench expressed in its judgment dated 6th May, 1985 in the instant case and on account of additional reasons which we have given above, we express our agreement with the view taken by the Madras High Court, Kerala High Court, Andhra Pradesh High Court, Madhya Pradesh High Court, Punjab and Haryana High Court and Orissa High Court in the above referred cases, in which it has been held that inclusion of new persons as partners in excise licence for country liquor without permission of excise authorities makes the partnership illegal and opposed to public policy. 109. We therefore, hold that the contrary view taken in Durga Madira Sangh's case (1985) 44 CTR also another judgment of this court in Income tax Commissioner v. M/s Roop Lal Danchand Chittorgarh (D.B. Income-tax Reference No. 15 of 1980 decided on February 10, 1986 at Jodhpur) holding that such firm is entitled to registration under section 185 of the Indian Income-tax Act, 1961 and the such firms are valid and the object of the agreement is not against public policy, cannot be accepted as good law. 110. We are of the opinion that on the facts and circumstances of the present case, the Tribunal was right in holding that the firm was not valid and that the object of the agreement was of such a nature that it permitted, it would defeat the public policy as contained in the Rajasthan Excise Act, 1950. We further, hold that the Tribunal was justified in holding that the firm was not valid and therefore, not entitled to registration under Section 185 of the Income- tax Act, 1961. 111. In this view of the matter, both the questions referred to by the income-tax Appellate Tribunal, Jaipur Bench, Jaipur are, therefore, answered in the affirmative. Since the questions of law are genuinely and seriously debatable, we make no order as to costs.Reference answered in favour of deptt. *******