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Whether the income of one firm should be included in the assessment of another firm with common partners. Analysis: The case involved a question referred to the High Court by the Income-tax Appellate Tribunal regarding the inclusion of income from one firm in the assessment of another firm with common partners. The Tribunal had allowed appeals directing the deletion of the income of the second firm from the total income of the first firm, stating that both firms were separate entities under the Income Tax Act, even though they had common partners. The Tribunal found no interlacing or interlocking between the businesses of the two firms, and both were registered under the Act. The High Court analyzed the definition of "firm," "partner," and "person" under the Income Tax Act. It noted that both firms in question were separately registered and conducted independent businesses without interlacing. The Revenue relied on previous court decisions that suggested common partners in different firms should be treated as one entity. However, the High Court disagreed with these views, citing cases where it was held that common partners could constitute separate firms for tax purposes. The High Court considered various judgments from different High Courts, including those from Bombay, Madras, and Andhra Pradesh, which held conflicting views on the treatment of firms with common partners. It also referenced a Supreme Court decision emphasizing that a firm is a separate assessable entity for tax purposes. The Court ultimately concluded that the two firms with common partners should be treated as separate assessable units for tax assessment purposes. In light of the above analysis, the High Court answered the reference in favor of the assessee and against the Revenue. The judgment would be forwarded to the Income-tax Appellate Tribunal for further action.
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