BIHARI LAL JAISWAL versus THE COMMISSIONER OF INCOME TAX

Citation: [1995] SUPP. 5 S.C.R. 285 · Decided: 16-11-1995 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

BIHARI LAL JAISW AL 
A 
v. 
THE COMMISSIONER OF INCOME TAX 
NOVEMBER 16, 1995 
[B.P. JEEVAN REDDY AND B.N. KIRPAL, JJ.) 
B 
Income Tax Act, 1961 : 
Sections 184 and 185-Registration of a Jinn-Genuineness of partner-
ship-Detemiination of-Income Tax Officer competent to look to law C 
governing partnership-Partnership prohibited under State Excise Enact-
ments-Bar to registration. 
Contract Act, 1872: 
Section 23-Agreement to enter into partnership which is prohibited D 
under State Excise Enactments-Held : unlawful and void-Bar to registration 
under Income Tax Act, 1961 being opposed to public policy. 
The appellant - assessee had obtained a licence for retail sale of 
country spirit under the Madhya Pradesh Excise Rules, 1960. He entered E 
into a partnership with ten other persons to conduct the business under 
the said licence. He filed an application under sections 184 and 185 of the 
Income Tax Act, 1961 for grant of registration to the said firm. The Income 
Tax Officer rejected the application on the ground that the partnership 
was prohibited under clause (VI) of the General Licence conditions 
prescribed by the Rules since no permission from the Collector was taken. F 
On appeal the Appellate Assistant Commissioner directed the Income Tax 
Officer to grant registration. The tribunal reversed this order. Thereupon 
the appellant applied to the Tribunal to refer two questions under section 
256(1) of the Act which was refused. The application to the High Court 
under section 256(2) of the Act to refer the aforesaid questions was also G 
rejected. Aggrieved by the High Court's judgment the appellant - assessee 
preferred the present appeals. 
On behalf of the appellant it was contended that the prohibition 
contained in the General Licence Conditions has no relevance in the 
matter of grant of registration. 
H 
285 
A 
B 
c 
D 
286 
SUPREME COURT REPORTS (1995] SUPP. 5 S.C.R. 
On behalf of the respondents it was contended that the partnership 
being prohibited cannot be recognised in law; that this is so even if the 
partnership is prohibited by a State enactment and registration is sought 
under a Parliamentary enactment, and that the partnership is unlawful 
under section ~3 of the Contract Act, 1872. 
Allowing the appeals, this Court 
HELD : 1. No person has a fundamental right to deal or trade in 
intoxicating liquors. The State is entitled to prohibit and or closely regu-
late their production, manufacture, possession, transport, purchase and 
sale. The right of a citizen to deal in these intoxicating liquors is only to 
the extent it is provided for and permitted by the Act and the Rules made 
thereunder. (297-C-E] 
Khoday Distilleries Ltd. & Ors. v. State of Kamataka & Ors., (1995] 1 
sec 574, relied on. 
2.1. Clause (VI) of the General Licence Conditions which are 
Statutory in character provides expressly that a holder of a licence/privilege 
shall not enter into a partnership for the working of such privilege in any 
way or manner without the written permission of the Collector. This condi-
E 
tion is binding upon the Iicencee. If so, he cannot enter into a partnership; 
nor can there be, in law, a partnership with respect to the privilege (busi-
ness) granted under the licence. No person, and no licensee can claim any 
right contrary to the said provision. (297-E-F] 
F 
2.2. The object underlying the said Clause is self- evident. Since the 
licence is granted for dealing in intoxicating liquors, the business wherein 
is res extra commercium - and also because they are supposed to be 
harmful and injurious to health and morals of the members of the society 
- close control is envisaged and provided over the business carried on 
under the licence. This object will be defeated if the licensee is permitted 
G to bring in strangers into the business, which would mean that instead of 
the licensee carrying on the business, it would be carried on by others - a 
situation not conducive to effective implementation of the excise law and 
consequently deleterious to public interest. It is for this very reason that 
transfer or sub-letting of licence is uniformly prohibited by several State 
H Excise enactments. (297-G-H; 298-A] 
.. 
B.L.JAISWALv. C.l.T. 
237 
2.3. Any agreement whereunder the licence is transferred, sub-Jet or A 
a partnership is entered into with respect to the privilege/business under 
the said licence, contrary to the prohibition contained in the relevant excise 
enactment, is an agreement 

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