High Court Of Kerala
CIT Vs. Hotel New Indraprastha
Section : 184
C.N. Ramachandran Nair And Bhabani Prasad Ray, Jj.
ITA Nos. 175, 157, 389, 546, 547, 649, 702, 793, 800, 992, 1018, 1564 And 1709 Of 2009
NovemberÂ 29, 2010
C.N. Ramachandran Nair, J. – The question raised in the connected appeals filed by the Revenue is whether the assessees which are partnership firms running bar hotels with a single bar licence obtained from the Excise Department in the name of only one of the partners, are entitled to registration as a firm or could be regarded as genuine firm under section 185 of the Income-tax Act, 1961 for the purpose of assessment in the status of registered firm/firm. We have heard standing counsel appearing for the appellant and senior counsel Sri V. Ramachandran and advocate Sri P. Balakrishnan appearing for the assessee-firms.
2. There is no controversy on the facts inasmuch as all the assessee-firms carried on retail business in liquor in the bar hotels run by them with a single abkari licence (FL-3) obtained by one of the partners and the other partners did not have separate individual licences issued by the excise authorities. While counsel for the Revenue relied on earlier three-member Bench decision of the Supreme Court in Bihari Lal Jaiswal v. CIT reported in  217 ITR 746 (SC), counsel for the assessees relied on the later judgment of the Supreme Court in CIT v. Rangila Ram reported in  254 ITR 230 (SC), which was rendered on December 4, 2002 by a two-member Bench. The later decision of the Supreme Court does not refer to the earlier three-member Bench judgment and so much so, standing counsel for the Revenue contended that the earlier judgment referred to above should be taken as the law declared by the Supreme Court and if the same is followed, liquor business in bar hotels carried on by a firm with several persons without licence obtained by all the partners should be treated as illegal business disentitling the partnership for registration under section 185 of the Income-tax Act and such firms cannot be treated as even genuine firms for assessment in the status as firm.
3. On going through the above two judgments of the Supreme Court, we find that detailed provisions of the Abkari Act and Rules are not stated in the three-member Bench decision, whereas in the later decision of the two-member Bench, the provisions of the Kerala Abkari Act and Rules are referred to and the decision is rendered in the context of the abkari laws of Kerala. However, we do not think there is any need for us to consider which of the above two decisions should be followed in these cases because for the reasons stated hereunder. We are of the view that the assessee-firms are entitled to registration under section 185 and are entitled to be treated as genuine firms which carried on liquor business in bar hotels in accordance with the provisions of the Abkari Act and Rules, no matter the licence was obtained only by one of the partners of the firms which carried on the business.
4. Rule 19 of the Foreign Liquor Rules framed under the Kerala Abkari Act and condition No. 13 of the FL-3 licence issued to bar hotels constituting the conditions of licence about which violations are alleged by the Department are extracted hereunder :
“Rule 19 :
Under no circumstances shall any licence obtained under this notification be sold, transferred or sub-rented without the previous sanction of the Excise Commissioner.”
“Condition No. 13 :
Licensee shall not lease out, sell or otherwise transfer his licence without the written consent of the Excise Commissioner.”
5. The contention of the Department is that when FL-3 licence issued to an individual is exploited for business purposes by a partnership firm constituted with the licensee along with other individuals as partners, it should be taken as a transfer or sub-renting of licence which is objectionable under rule 19. However, the case of the assessee-firms is that in every case of constitution of the firm and carrying on business in liquor in the bar hotel by the firm with licence obtained by one of the partners, prior sanction is obtained from the Excise Department and the same is approved by the Excise Commissioner. In fact, whenever there is a change in constitution of the firm, the same is also approved by the Excise Commissioner. So much so, the contention of the assessee-firms is that the exploitation of licence issued in the name of an individual by the firm consisting of partners with licensee as one of the partners is very well known to the Excise Commissioner and it is with his knowledge and permission that business is carried on by such firms. There is no dispute on this factual position by the Income-tax Department. If the provisions of the Abkari Act and Rules are gone into, it is clear that the liquor business is closely monitored by the Excise Department at all stages including verification of accounts. In fact, this court itself had occasion to consider several cases pertaining to approval of constitution and reconstitution of the firms for carrying on business with the licence obtained by one of the partners. All the assessee-firms in this case have been carrying on business in liquor in the bar hotels with the licence held by one of the partners and other individual partners do not have separate FL-3 licences. FL-3 licence issued under the Foreign Liquor Rules is only for one year and it is renewed on an year to year basis on payment of substantial amount towards annual licence fee. The Excise Commissioner granted renewal to all the assessee-firms knowing well that each and every partner of the firm does not have separate individual licences and the firm carries on business with the single licence issued in the name of one of the partners. So much so, the irresistible conclusion that the business is carried on by the partnership firms with licence held by only one of the partners is known to the Excise Commissioner and is done with his permission and approval. In view of this factual position, we have to necessarily conclude that the assessee-firms are carrying on business strictly in accordance with rule 13 of the Foreign Liquor Rules and Condition 13 of the FL-3 licence inasmuch as the constitution of the firm for carrying on business in liquor with the licence held by one of the partners is a permissible activity and the firms so constituted are genuine firms which are entitled to be assessed in the status of firms and for periods when registration is required under section 185, the firms are entitled to be assessed as registered firms subject to their satisfying other conditions. We, therefore, dismiss all the appeals filed by the Revenue.
[Citation : 335 ITR 87]