1949 (9) TMI 18 - HC - Income Tax

Summary

Issues:
1. Determination of whether the partners of an assessee firm can constitute another firm by having different shares in different businesses.
2. Clarification on whether the existence of two firms or one firm is a question of fact.

Analysis:

Issue 1:
The case involved an assessee firm comprising Jesingbhai, his sons Mangaldas and Manilal, and later his grandson Shantilal. The firm operated in Ahmedabad and Bhavnagar, engaging in various businesses. The Tribunal had to decide if the partners constituted one firm or two separate firms. The Tribunal concluded that under the ordinary law, a firm is not a distinct entity but a representation of the partners. However, under the Indian Income-tax Act, a firm is recognized as a taxable unit. The Tribunal relied on a previous case, but the Court disagreed, citing contrary decisions. The Court highlighted a Calcutta High Court case where the same partners operated two businesses and emphasized that whether there are two firms or one is a factual determination. The Court concluded that common partners can form two separate firms for income tax purposes, leaving the factual determination to the Tribunal.

Issue 2:
The second issue revolved around whether the question of two firms or one firm was a matter of fact. The Court agreed with the Tribunal that this determination is indeed a question of fact. The Court directed the Tribunal to assess the evidence and decide whether the businesses operated by the partners constituted two distinct firms or one firm under the Indian Income-tax Act. The Court reformulated the first question to address the legality of common partners forming two separate firms for tax purposes, answering it in the affirmative. The second question, regarding the factual determination of the number of firms, was also answered in the affirmative. The Court instructed that the case should proceed based on the Court's interpretation and directed the Commissioner to bear the costs.

In conclusion, the judgment clarified the legal standing of common partners forming separate firms for income tax purposes and emphasized that the determination of the number of firms is a factual inquiry left to the Tribunal. The Court's decision provided guidance for assessing similar cases under the Indian Income-tax Act.