1989 (8) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-firm is a genuine and independent entity separate from Bhikhabhai Girdharlal & Co.
2. Whether the income of the assessee-firm should be clubbed with the income of Bhikhabhai Girdharlal & Co.
3. Whether the CIT(A) was correct in granting registration to the assessee-firm.

Detailed Analysis:

1. Whether the assessee-firm is a genuine and independent entity separate from Bhikhabhai Girdharlal & Co.
The Departmental Representative argued that the assessee-firm is merely a branch of Bhikhabhai Girdharlal & Co., citing shared premises, telephone lines, and financial transactions as evidence. He contended that the assessee-firm was not a genuine firm and that its business was controlled by the principal partners of the main firm. However, the counsel for the assessee countered by emphasizing that the assessee-firm is a separate, distinct, and independent entity. He pointed out that the assessee-firm had its own partnership deed, separate bank accounts, and registration under the Partnership Act. The counsel also highlighted that the partners' capital contributions were genuine and there was no evidence to suggest that the income of the assessee-firm flowed to the main firm.

2. Whether the income of the assessee-firm should be clubbed with the income of Bhikhabhai Girdharlal & Co.
The Departmental Representative argued that the income of the assessee-firm should be assessed in the hands of Bhikhabhai Girdharlal & Co., as the assessee-firm availed credit facilities due to the goodwill of the main firm. However, the counsel for the assessee pointed out that the ITO having jurisdiction over Bhikhabhai Girdharlal & Co. did not club the income of the assessee-firm in the hands of the main firm for the relevant assessment year. This non-inclusion was a conscious and considered decision, further supported by letters submitted during the assessment proceedings. The tribunal noted that there was no evidence on record to prove that the income derived by the assessee-firm had directly or indirectly flowed to the main firm.

3. Whether the CIT(A) was correct in granting registration to the assessee-firm.
The CIT(A) had quashed the assessing authority's order refusing to grant registration to the assessee-firm. The tribunal upheld this decision, noting that the assessee-firm had complied with all legal requirements for registration under the IT Act, 1961. The tribunal also emphasized that the assessing authority in the case of Bhikhabhai Girdharlal & Co. had not included the income of the assessee-firm, further supporting the CIT(A)'s decision. The tribunal concluded that the CIT(A) was fully justified in holding that the assessee-firm is a separate and independent entity from Bhikhabhai Girdharlal & Co. and in directing the assessing authority to grant registration to the assessee-firm.

Conclusion:
The tribunal dismissed the Departmental appeal, affirming the CIT(A)'s decision to grant registration to the assessee-firm and recognizing it as a separate and independent entity from Bhikhabhai Girdharlal & Co.