2000 (9) TMI 249 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to registration under section 185.
2. Clubbing of business income of M/s. Rural Agencies with M/s. Rural Suppliers.

Detailed Analysis:

1. Entitlement to Registration Under Section 185:

The primary issue was whether the assessees were entitled to registration under section 185. The case involved M/s. Rural Suppliers and M/s. Rural Agencies, both of which had undergone several changes in their partnership structures over the years. The Assessing Officer (AO) refused to grant registration under section 185(1)(b) and assessed M/s. Rural Suppliers as a Body of Individuals (BOI), also clubbing the income of M/s. Rural Agencies with M/s. Rural Suppliers on a substantive basis. The AO's reasons included the non-commercial relationship between partners, common business premises, and the control of business by one partner, Nathu Attarde. However, the CIT(A) disagreed, stating that there was no interlacing or interlocking of funds, and the partnerships were valid. The Tribunal upheld the CIT(A)'s decision, emphasizing that the control and management of the business can be vested in one partner by agreement, and there was no requirement for each partner to contribute capital.

2. Clubbing of Business Income:

The second issue was whether the business income of M/s. Rural Agencies could be clubbed with M/s. Rural Suppliers. The AO argued that both firms belonged to the same group of persons and operated from the same premises, using common resources. However, the CIT(A) found no interlacing or interlocking of funds or management between the two firms. The Tribunal agreed, noting that separate account books were maintained, and there was no evidence that the funds of the two firms were mixed or that the profits of one firm were enjoyed by the other. The Tribunal concluded that the income of M/s. Rural Agencies could not be clubbed with M/s. Rural Suppliers.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s orders that both firms were valid partnerships under the Indian Partnership Act, 1932, and there was no justification for clubbing their incomes. The Tribunal emphasized the importance of examining the intention of the partners and the surrounding circumstances, including the interlacing or interlocking of funds and management, in determining the validity of partnerships and the clubbing of incomes.