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Issues Involved:
1. Whether the Bangalore firm was a genuine firm or a branch of the Surat firm. 2. The impact of the Bangalore firm's assessment as an unregistered firm on its status as a branch of the Surat firm. Detailed Analysis: Issue 1: Whether the Bangalore firm was a genuine firm or a branch of the Surat firm. The assessment years under consideration are from 1966-67 to 1969-70. The assessee, a registered partnership firm known as M/s. Ishwarlal & Brothers, claimed that its Bangalore branch ceased operations on 23rd October 1957, and a new independent firm, Ishwarlal & Company, was formed on 24th October 1957. This new firm included two major sons of one of the Surat firm's partners and three minors from the other partners' families. The Bangalore firm applied for registration, which was rejected by the ITO, Bangalore, on grounds that the capital was contributed by minors and a letter to the Central Bank of India misrepresented the partnership structure. Appeals to the AAC and the Madras Tribunal upheld the rejection, with the Tribunal concluding that the Bangalore firm was not genuine and was a continuation of the Surat firm's branch. The High Court of Mysore found that the Tribunal's conclusion lacked evidence and remanded the case for a fresh hearing. Despite this, the ITO, Surat, taxed the Surat firm based on the Madras Tribunal's decision. The Tribunal at Bangalore, upon remand, reaffirmed that the Bangalore firm was not genuine, leading the Tribunal at Ahmedabad to include the Bangalore firm's income in the Surat firm's assessment. However, the Gujarat High Court noted that the findings from the Bangalore proceedings could not be used against the Surat firm without violating natural justice principles, as the Surat firm was not a party to those proceedings. The court directed the Tribunal to re-examine the case, allowing the Revenue to lay the necessary foundation to prove the Bangalore firm's status as a branch of the Surat firm. Issue 2: The impact of the Bangalore firm's assessment as an unregistered firm on its status as a branch of the Surat firm. The High Court of Mysore observed that if the Bangalore firm were genuinely a branch of the Surat firm, its income should have been treated as part of the Surat firm's income. The court found that the Tribunal's conclusion was inconsistent with the ITO's action of assessing the Bangalore firm as an unregistered firm and apportioning the tax among its partners according to the partnership deed. The Tribunal at Ahmedabad's reliance on the Bangalore Tribunal's findings without independently verifying the facts was deemed inappropriate. The Gujarat High Court pointed out that the Revenue failed to establish the necessary facts in the proceedings before the ITO, Surat, and the Tribunal at Ahmedabad incorrectly used the Bangalore Tribunal's findings without giving the Surat firm an opportunity to contest them. The court emphasized that the assessment of the Surat firm from 1955-56 to 1965-66 was based on the understanding that the Bangalore firm was not a branch of the Surat firm. The High Court directed the Tribunal to remand the matter to the ITO if necessary, to establish whether the Bangalore firm was indeed a branch of the Surat firm, ensuring that the assessee is given a fair opportunity to present its case. The court also addressed concerns about double taxation, with the Revenue assuring that taxes paid by the Bangalore firm would be credited to the Surat firm if the Bangalore firm's income is added to the Surat firm's income. Conclusion: The Gujarat High Court remanded the matter back to the Tribunal for a fresh examination, instructing the Revenue to lay the necessary foundation to establish whether the Bangalore firm was a branch of the Surat firm, ensuring adherence to principles of natural justice. The court also provided assurances against double taxation. The reference was disposed of with no order as to costs.
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