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- Interpretation of ownership of business for tax assessment purposes Analysis: The case involved a reference under section 256(2) of the Income Tax Act, 1961, where the Income-tax Appellate Tribunal, Patna Bench, sought the High Court's opinion on whether the Tribunal was correct in excluding the income of a business from the total income of an assessee-firm by holding that the said business belonged to an individual partner as a proprietary concern. The dispute arose from the assessment of M/s. Standard Mercantile Co., where the Income Tax Officer included income from a business conducted at Rajmahal in the name of the firm. The firm contended that the business exclusively belonged to a partner, Vasudeo Agarwalla, and all finances for the business were managed through his capital account. The Tribunal found that the investments in the business came from Vasudeo Agarwalla's separate account, no profits were shared with other partners, and the Commercial Taxes Department treated the business as separate. The Tribunal concluded that the business belonged to Vasudeo Agarwalla and should be assessed in his hands only, leading to the exclusion of its income from the firm's total income. The Revenue contended that Vasudeo Agarwalla's prior statement to the Commercial Taxes Department, suggesting the business be assessed as part of the firm, should estop him from claiming sole ownership later. However, the High Court rejected this argument, stating that no question of estoppel arises in taxation matters for different assessment years. The Court upheld the Tribunal's decision, emphasizing that the investments in the business were solely from Vasudeo Agarwalla's account, no profits were shared with other partners, and the Commercial Taxes Department recognized the business as separate. The Court found no error of law in the Tribunal's decision and affirmed that the business belonged to Vasudeo Agarwalla as a proprietary concern, thus justifying the exclusion of its income from the firm's total income. In conclusion, the High Court held that the Tribunal was correct in law in excluding the income of the Rajmahal business from the total income of the assessee-firm by determining that the business belonged to Vasudeo Agarwalla as a proprietary concern. The Court awarded costs to the assessee and affirmed the Tribunal's decision based on the evidence presented regarding ownership and financial management of the business.
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