B.N Jha and B.D Singh, JJ.:— Two brothers Rahmat Ali and Liakat Hassain held excise licences under their own names, but the business of all the licensed shops were carried on jointly and assessments were made on the status of association of persons. After sometime the two brothers constituted a partnership under the name and style of Rahmat Ali on the basis of a partnership deed dated September 30, 1949 and they continued, to carry on the said excise business on the licences held by them in their individual names as partners with equal shares. The Income Tax Department granted registration of the firm under Section 26-A of the Income Tax Act, 1922 for the year 1949-1950. Renewal of the registration of the said firm was also granted in subsequent assessment years 1950-1951, 1951-1952 and 1952-1953. Rahmat Ali died on December 27, 1951 and after his death the firm was reconstituted with effect from January 1, 1952 under the name and style of Liakat Hussain and a fresh partnership deed was executed on May 21, 1952, according to which Liakat Hussain held eight annas share and the two sons of Rahmat Ali, namely, Mohammad Warasat Hussain and Sheikh Hefazat Ali 3 annas 6 pies each and Mossomat Bibi Majidan widow of Rahmat Ali held one anna share.

2. Under the provisions of the Bihar and Orissa Excise Act, 1915, the licences held under the name of Rahmat Ali were transferred by the Excise Department to Mohammad Warasat Hussain and Sheikh Hefazat Ali, sons of Rahmat Ali, in their names and as such Bibi Majidan, one of the partners of the firm, did not hold any licence in her own name. The newly constituted firm carried on the said excise business in partnership and registration of the firm was again allowed by the Income Tax Department under Section 26-A of the Income Tax Act for the assessment year 1952-1953 for the accounting year January to March, 1952. Renewal of the registration of the partnership firm was allowed by the Department for the subsequent assessment years 1953-1954 and 1954-1955. Liakat Hussain died on August 7, 1953 and in his place his two sons Mohammad Amanat Hussain and Mohammad Sharafat Hussain and his widow Bibi Aliman became the partners of the firm and the said Liakat Hussain firm was reconstituted with effect from September 1, 1953 under the name and style of Mohammad Warasat Hussain and a fresh partnership deed incorporating the terms of the firm was executed on September 1, 1953. As before, the licence of the shop held in the name of Liakat Hussain were transferred in the names of his two sons Amanat Hussain and Sharaf at Hussain. The relevant provisions of the partnership deed are as follows:—

“2. That the partnership business shall be carried on under the name of Mohammad Warasat Hussain, Sheikh Hefazat Ali, Mohammad Amanat Hussain and Mohammad Sharaf at Hussain or in any other name and style as the parties mutually agree.

3. That the business of the partnership shall be mainly excise business in the State of Bihar or elsewhere as Licence-holders under Government rules i.e sale of liquor, Ganja etc. in licensed shops receiving rent from immovable properties interest etc. The scope of the business may be extended or restricted from time to time as mutually agreed between the parties.

4. That the capital of the business has been and shall be provided by the parties as and when necessary.

5. That the profit or loss of the business shall be divided or borne by the parties in the following proportion:—

Rs. a.p

(i) Mohammad Warasat Hussain of the first part. …. 0-3-6 (ii) Sheikh Hefazat Ali of the second part. …. 0-3-6 (iii) Mosammat Bibi Majidan of the third part …. 0-1-0 (iv) Mohammad Amanat Hussain of the fourth part …. 0-3-6 (v) Mohammad Sharaf Hussain of the fifth part …. 0-3-6 (vi) Mosammat Bibi Aliman of the sixth part …. 0-1-0

6. That the management of the business shall be in the hands of all the partners.

7. That usual books of accounts has been and shall be maintained as usually maintained in business like nature. Each party shall at all material times be entitled to have free access thereto and to read, inspect and to take copy of the same.

8. That the accounts of the partnership shall be closed on the 31st March each year or any other date each year if the parties hereto so agree when a Balance sheet shall be prepared, assets and liabilities determined and profit or loss divided between the parties in proportion to their respective shares as set forth in para five above.

9. That in the event of death of any of the partners the partnership business shall not stand dissolved but shall be carried on by the surviving partners and the next heir or legal representative of the deceased partner if the surviving partners so agree to admit into the partnership such heir or legal representative of the deceased partner.”

3. The said reconstituted firm of Mohammad Warasat Hussain and others was registered by the Income Tax Department under Section 26A for the assessment year 1954-1955 and renewal of the registration was granted for the assessment year 1955-1956. During the assessment year 1956-1957 the firm applied for the renewal of the registration, but the Income Tax Officer, Special Circle, Patna, refused the renewal of the registration on the ground that the partnership was illegal and it violated the provisions of the Bihar and Orissa Excise Act, 1915, and the rules made thereunder, by his order dated October 30, 1956, inasmuch as though the two ladies Bibi Majidan and Bibi Aliman had no excise licences in their names but in terms of the partnership deed they are to carry on excise business without obtaining any licences which offended the provisions of Sections 13 and 47 of the Act and as they would be dealing in excisable goods without requisite licences. He further held that the partnership deed amounted to the transfer of the licences in the names of the two ladies without obtaining requisite previous permission of the Collector. The appeal of the assessee before the Appellate Assistant Commissioner of Income Tax, Patna Range, also failed. The Appellate Assistant Commissioner also held that the agreement dated September 1, 1953, authorised the six partners to carry on business in wine, the licences of which stood in the individual names of four partners excepting the two ladies. This amounted to transfer of the licences which is in contravention of the provisions of the Bihar and Orissa Excise Act, 1915 and, as such, it was void ab initio and hence, no registration on the basis of such document could be allowed. The assessee, therefore, went up in appeal before the Income Tax Appellate Tribunal, Patna Range. It was contended by the assessee before the Appellate Tribunal that by the alleged partnership deed the excise licences were not transferred but the individual shops were carried on under the responsibilities of the respective licensees and as the capital of the business was contributed by the six partners in proportion to their shares they shared the profits of the business in that proportion. The formation of partnership by the licensees with others was not prohibited under the Act. The only prohibition made in the Act was the transfer and sub-lease of the licences. This contention was over-ruled by the Appellate Tribunal and it upheld the order of the Income Tax Authorities refusing the registration. Hence, on the application of the assessee the Appellate Tribunal has referred under Section 66(1) of the Income Tax Act, 1922; the following question of law for the opinion of this Court:—

“Whether on the facts and circumstances of the case, the alleged firm constituted under an agreement dated 1.9.53 was entitled to registration under Section 26A of the Indian Income Tax Act?”

4. The matter at one stage came before Chaudhary and A.B.N Sinha, JJ. It was contended then on behalf of the Department that the two lady partners of the firm had no licence in their favour, either for being in possession of for sale of the intoxicants; whereas under the partnership deed these two ladies had control over possession and sale of intoxicants which was not permissible under the Act and, as such, the partnership deed was void under Sections 19 and 20 of the Contract Act. On behalf of the assessees it was urged that there was no such finding that the two ladies were ever in possession or had any hand in the sale of the intoxicants. The simple case before the Tribunal was that the partnership deed amounted to the transfer of the licences in favour of the two ladies who held no licence from before. From the statement of facts it is clear that the four male partners held licences in their names for various shops and the business of all the licensed shops were duly carried on under the responsibility of the licences, vis-a-vis, the licence department, but the business was financed and carried on by the partners of the firm who contributed their capital to the partnership in proportion to their respective shares. The profit or loss in the share was shared in proportion to their shares. From this statement of fact it is clear that there was no case before the Tribunal nor was there any finding to the effect that the two lady partners were ever in possession of excisable goods but still their Lordships allowed the new point to be raised in this Court and in order to decide that point their Lordships called for a further finding as to whether the two ladies had any control over the management or possession or sale of the excisable materials in the shops in question, from the Tribunal under Section 66(4) of the Income Tax Act with a direction that the parties might adduce such evidence on the point as they thought proper. After remand, the Tribunal came to the conclusion that the two ladies have had no control or possession over the taxable articles dealt in by the partnership. But is view of the decision of the Supreme Court in the (1) Keshav Mills Limited v. The Commissioner of Income Tax, Bombay (A.I.R 1965 Supreme Court 1936), learned counsel for the parties rightly conceded that the High Court had no jurisdiction to call for a finding under Section 66(4) of the Income Tax Act on fresh evidence which was not on the record before. In such circumstance the finding by the Tribunal after remand that the two ladies have had no control or possession over the excisable article dealt in by the partnership which proceeded on fresh evidence has got to be ignored. The tribunal itself observed that there was no evidence to the contrary. Therefore, now the position is that there is no evidence on the record that the two lady partners were ever in possession or had any control over the excisable article.

5. Learned counsel for the assessees Mr. Brajeshwar Prasad Sinha contended that the formation of the partnership ipso facto does not amount to the transfer of licence. There must be some evidence of such transfer. There was no prohibition in the Act against the formation of the partnership by the licenses with the persons who held no licence and, as such no illegality was committed by the formation of a partnership and the deed of partnership could not be a void document. Lastly, he urged that there was no evidence on the record to show that the two lady partners ever handled the excisable commodities and, therefore, no provision of the Act was infringed by the constitution of the partnership. On the other hand, Mr. Ugra Singh, learned counsel for the Department, contended that the partnership clearly shows that two ladies, who admittedly held no licence, had full control over the management and business of the firm which dealt in excisable commodities and his further contention was that the formation of partnership by persons who held licences with persons who held no licence amounted to transfer of the licences in favour of those partners who held no licence and, as such, the partners contravened the provisions of Section 23 of the Act. Therefore according to him, the partnership is void under Sections 19 and 20 of the Contract Act.

6. In order to appreciate the points raised before us, Sections 22 and 23 of the Bihar and Orissa Excise Act may be quoted here:

“22. Grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs:

(1) The State Government may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege

(a) of manufacturing, or supplying wholesale, or

(b) of manufacturing and supplying wholesale, or

(c) of selling, wholesale or retail, or

(d) of maufacturing or supplying wholesale and selling retail, or

(e) of manufacturing and supplying wholesale and selling retail, any country liquor or intoxicating drug within any specified local area:

Provided that public notice shall be given of the intention to grant any such exclusive privilege, and that any objections made by any person residing within the area affected shall be considered before an exclusive privilege is granted.

(2) No grantee of any privilege under Sub-section (1) shall exercise the same unless or until he has received a licence in that behalf from the Collector or the Excise Commissioner.

23. Transfer of exclusive privilege.— (1) A grantee of an exclusive privilege under Section 22 shall let or assign the same or any portion thereof unless he is expressly authorised by condition made under that Section to do so.

(2) Such letting or assignment shall be made only to a person approved by the Collector or (if the letting or assignment extends to more than one district) the Excise Commissioner.

(3) The lessee or assignee shall, not exercise any rights as much unless and until the Collector has upon his application, granted him a licence to do so.”

7. The aforesaid provisions require that unless a person takes out a licence he is not competent to deal in excisable commodities. The licence so taken cannot be transferred or sublet without the approval of the Collector or the Excise Commissioner, as the case may be. In the prescribed form of licences appended to the Bihar and Orissa Excise Rules made under the Act, the terms and conditions of a licence, amongst other things, provided that a licensee shall sell excisable articles at the place or on the premises prescribed for it, himself or at his behalf and not at any other place. The name of the person who would be selling the excisable commodities will have to be endorsed on the licence form in the writing of the licensee. A licence cannot be transferred or sublet entirely or partially except with the previous permission of the Collector. The licensee shall keep the reserved stock of excise articles which is authorised to sell, sealed at the time of procuring packets and dibias and buttling liquor. Therefore, in this case, the case of the assessee was that four male partners i.e the two sons of Rahmat Ali and the two sons of Liakat Hussain held licences in their names for various shops and the business of all the licensed shop was duly carried on under the responsibility of the licensees vis-a-vis the Licence Department. There is no evidence to the contrary that besides the four male partners, the two lady partners ever carried on the business of the licensed shops. Their only case was that they contributed the capital and received proportionate amounts of profits of the business.

8. Mr. Ugra Singh drew our attention to Paragraph 6 of the partnership deed which provides that the management of the business shall be in the hands of the partners and, therefore, he contended that the partnership deed gave control and possession, though constructive, to the two ladies over the excisable commodities for which they held no licence. Under Section 47 of the Act, possession of excisable articles without permit or licence is an offence. Therefore, the partnership must be held invalid in law. It is difficult for us to accept this contention. In view of the fact that there is no evidence to show that the two ladies ever handled the excisable commodities, it cannot be said merely from Paragraph 6 of the partnership deed that the two ladies could be deemed to be in possession of the excisable articles within the meaning of Section 47 of the Act. The management of the business, as provided in Paragraph 6 of the partnership deed does not mean handling of the excisable commodities. The unlicensed partner may look after the management without handling or without being in possession of the excisable articles so long as they do not contravene the terms and conditions of the licence. Section 42(1)(c) of the Act provides that a licence may be cancelled by the authority in the event of any breach by the holder thereof or by any of his servants or by any one acting on his behalf with his express or imp Led permission of any of the terms or conditions thereof. Therefore, the aforesaid provision clearly shows that there is no absolute bar in looking after the business by a person who himself had no licence on behalf of the licensee with his express or implied permission. Acting on behalf of the licensee is also a part of the management of the business which is permissible under the law so long the terms and conditions of the licence are not infringed. Moreover, in this case male partners who are licensees were looking after the business of the licensed shops. Therefore, it cannot be said that by the mere formation of the partnership, the provisions of the Act were contravened and the partnership was invalid in law.

9. Learned counsel for the assessee submitted that as there is no express provision in the Act against the constitution of such a partnership for carrying on the business for dealing in excisable articles, the partnership could not be held invalid. In support of his contention, he relied on a decision of this Court in (2) Commissioner, Income Tax v. K.C.S Reddy (XXXVIII I.T.R 560). In that case a question arose as to whether the partner who held the licence for carrying on business in mica committed an act of illegality by taking someone without licence as a partner and whether the said partnership could be registered under Section 26-A of the Income Tax Act. In that case also the business had to be carried on under the terms and conditions of a licence granted under the Act. This Court observed that as there was no express prohibition under the Bihar Mica Act that such a partnership could not carry on a business to deal in Mica provided, of course, the person who actually sells or who actually purchases and who actually is in possession of mica held the dealer's licence as required under Section 4(1)(d) of the Mica Act. In that view, the partnership was held to be legally valid and entitled to be registered under Section 26A of the Act. The principle laid down in that case was applied by this Court in (3) Commissioner of Income Tax, Bihar v. N.C Mandal and Co. (LXXII I.T.R 769). In that case, a person holding a licence under the Excise Act took three other persons as partners who hid no such licence for carrying on the business of Pachwai shops. It was held in that case that as there was nothing in the Excise Act prohibiting formation of a firm for running a business of excisable commodities, the formation of the partnership firm could not be held illegal.

10. The main ground for refusal of the registration by the Department is that the formation of partnership by some persons who held licences with persons who held no licence amounted to the transfer of the privilege or licence granted for the purpose of carrying on business in excisable articles and for this reliance was placed on a decision of the Madras High Court in (4) D. Mohideen Sahib & Co. v. Commissioner of Income Tax, Madras (XVIII I.T.R 200) where similar view was held by the Madras High Court and on that ground registration under Section 26-A was refused. Learned counsel for the Department relied on the aforesaid decision of the Madras High Court as well as on a decision of the Orissa High Court in (5) Mahapatra Bhandar v. Commissioner of Income Tax (LVIII I.T.R 671) in support of his contention that the formation of the partnership by the licensees with others amounted to the transfer of the privilege or the licence within the meaning of Section 23, quoted above. Similar argument was advanced before the Supreme Court in (6) Umacharan Shaw and Bros. v. The Commissioner of Income Tax, West Bengal (XXXVII I.T.R 271) but it was repelled. The Supreme Court took the view that mere formation of partnership by someone who held licence with others who had no such licence does not amount to transfer of the licence within the meaning of Section 42 of the Bengal Excise Act which provision is similar to the provision under Section 23 of the Bihar and Orissa Excise Act. The facts of the Supreme Court case are almost identical to the facts of the present case. In that case originally Bhuban Mohan Shaw held excise licence for dealing in foreign liquor. After his death the business descended to his three sons who extended their business and held several other shops. Later on, some of the heirs who held licences formed partnership with other heirs who had no such licence. The partnership in that case was found to be real and genuine. In such circumstances, the Supreme Court allowed the registration of the firm. In the present case, the business of dealing in excisable commodities was carried on by the two brothers Rahmat Ali and Liakat Hussain who held licences. After the death of the two brothers, the business is carried on by the heirs and the sons of the two deceased brothers who held licences. They formed partnership with the two widows of the two brothers who were also entitled to the capital and profits of the business for certain shares. Therefore, in such circumstances and in view of the facts and circumstances of the Supreme Court case, it cannot be said here that the formation of partnership amounted to the transfer of the privilege or licences for carrying on the business in excisable commodities. It is true that in some cases the formation of partnership by taking someone as a partner by the licensees may amount to the transfer of the privilege. In (5) Mahapatra Bhandar's case, relied upon by learned counsel for the Department, the licensee, in substance, transferred the licence to the partner who had no licence. The licensee did not contribute any capital and the main control of the business passed on to the partner who held no licence. In such circumstances, the partnership was held to be illegal as it contravened the provisions of the Bihar and Orissa Excise Act and the rules framed thereunder. Therefore, the principle laid down in that case cannot be applied to the facts of the present case.

11. A similar matter came up for consideration before this Court in (7) Commissioner of Income Tax, Bihar & Orissa v. Prakash Ram Gupta (LXXII I.T.R 366). In that case Prakash Ram Gupta held licence for four country liquor shops. In respect of two liquor shops he took one Mahadeo Ram as his partner. According to the partnership deed, the management of the two liquor shops was entrusted to Mahadeo Ram. The Appellate Tribunal allowed the registration of the firm under Section 26-A of the Act. Hence, the matter was referred to this Court under Section 66(1) of the Income Tax Act. This Court on a review of the authorities, held that the formation of such a partnership was not illegal as it did not amount to the transfer of the privilege or licence and did not contravene any provision of the Act and the rules made under it. In that case a reference was also made to the Bombay case in (8) Champsey Dossa v. Gordhandas Kessowji (A.I.R 1917 Bombay 250) where some members of the family who held no licence were taken in partnership by the members of the family who held licence. It was held that the admission of the partner to a share in the profit cannot be considered as subletting or alienation. This decision was upheld by the Privy Council in the case reported in (9) A.I.R 1921 Privy Council 137. In (7) Prakash Ram Gupta's case this Court did not accept the view of the Madras High Court in (4) Mohideen Sahib's case (XVIII I.T.R 200) as laying down the correct principle of law in view of the Supreme Court decision in (6) Umacharan's case (XXXVII I.T.R 271). We respectfully agree with the view taken in (7) Prakash Ram Gupta's case and hold that the Department was not justified in refusing the registration.

12. In view of the facts and circumstances of this case, we are of the opinion that the partnership deed in question does not contravene any of the provisions of the Bihar and Orissa Excise Act and, as such, it is not invalid in law. The assessee is, therefore, entitled to be registered under Section 26-A of the Income Tax Act, 1922, and we, accordingly, answer the reference in the affirmative. There will, however, be no order as to costs.

Reference answered in favour of assessee.