BIHARI LAL JAISWAL vs. THE COMMISSIONER OF INCOME TAX

CIVIL APPEAL No. 1825/1977Supreme Court1995 INSC 74016 November 1995Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, B.N. KIRPAL LAL JAISW AL A15 pages
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What were the facts?

The assessee, Bihari Lal Jaiswal, obtained a licence for the retail sale of country spirit under the Madhya Pradesh Excise Rules, 1960. He then entered into a partnership with ten other individuals to conduct this business. The assessee applied for registration of this firm under Sections 184 and 185 of the Income Tax Act, 1961. The Income Tax Officer rejected the application, citing a prohibition under clause (VI) of the General Licence conditions, which required the Collector's permission for such partnerships. The Appellate Assistant Commissioner directed registration, but the Tribunal reversed this. The assessee's subsequent applications to the Tribunal and the High Court for referring questions of law were rejected, leading to the present appeals before the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the prohibition in clause (VI) of the General Licence Conditions is statutory and binding on the licensee. Entering into a partnership without the Collector's permission, for a business dealing in intoxicating liquors (res extra commercium), defeats the purpose of excise law, which aims for close control due to the harmful nature of the commodity. Such an agreement is unlawful and void under Section 23 of the Contract Act, 1872. Consequently, there can be no genuine partnership agreement of this nature, and the question of its genuineness does not arise. The Income Tax Officer is competent to consider the law governing the partnership. Granting registration would allow one arm of law to defeat another, which is opposed to public policy. The Court clarified that this does not preclude taxing such an entity as an unregistered firm or association of persons, but it cannot claim registration under the Income Tax Act. The appeals were allowed, and the applications for reference were answered in favour of the Revenue.

What were the issues?

1. Whether the prohibition contained in clause (VI) of the General Licence Conditions, made under the Excise Rules, is relevant to the grant of registration under Section 185 of the Income Tax Act, 1961, even if no action was taken by the Collector for licence cancellation? (Mixed law and fact) Assessee's contention: The prohibition in the General Licence Conditions has no bearing on the grant of registration. Revenue's contention: The partnership is prohibited by law and therefore cannot be recognised. This prohibition under a State enactment is relevant even when seeking registration under a Parliamentary enactment. The partnership is unlawful under Section 23 of the Contract Act, 1872, as it is opposed to public policy.

Which sections of the Income-tax Act were involved?

Section 184,Section 185,Section 256(1),Section 256(2),Section 23,Section 8

AI-generated summary — verify with the full judgment below

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

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