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TMI Blog2000 (9) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------- (i) Shri Nathu Z. Attarde 65% 48 years. (ii) Shri Dinesh N. Attarde 35% 19 years. --------------------------------------------------------------------------------- As per clause 8 of this deed, Nathu Attarde was to manage the affairs of the business and signed all the documents. Bank A/c was also to be operated by him alone. The capital of Rs. 15,000 introduced by Dinesh Attarde came out of the amount gifted to him by his father Shri Nathu Attarde. This firm underwent constitutional changes vide partnership deed dated 20-10-1971 as under:-- --------------------------------------------------------------------------------- (i) Nathu Attarde 50% 50 years (ii) Dinesh Attarde 30% 21 years (iii) Sudhakar Attarde 20% 19 years --------------------------------------------------------------------------------- The new partner was taken as new Branch at Burhanpur was to be opened. He also contributed Rs. 15,000 as his capital. This amount also came from the gift made by his father Nathu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elationship between the persons forming the alleged partnership was non-commercial, the firms were constituted only to reduce the tax incidence. Hence, in reality, there was no partnership firm. 2. Both firms were dealing in the same commodities. 3. The business shop was taken on rent by M/s. Rural Suppliers on yearly rent of Rs.4,000. The business of Rural Agencies was carried on from the same business premises, but no rent was paid by this firm. 4. The Rural Agencies was also utilising the furniture of M/s. Rural Suppliers. There was also common counter for both the firms. Hence, there was unity of control. 5. Capital of Dinesh and Sudhakar was also provided by Nathu Attarde by way of gift. In support of his conclusions, the Assessing Officer relied on the Supreme Court decision in the case of Ladhuram Taparia v. CIT[1962] 44 ITR 521. Accordingly, the Assessing Officer refused to grant the Registration under section 185(1)(b) and held that M/s. Rural Suppliers was liable to be assessed in the status of BOI. The income of M/s. Rural Agencies was also clubbed in the hands of Rural Suppliers on substantive basis. On the other hand, M/s. Rural Agencies was assessed in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 158. 7. The rival submissions of the parties have been considered carefully. The legal position in respect of the issues before us is now well settled by the decision of Supreme Court in the case of K. Kelukutty wherein it has been held that validity of the partnership has to be seen with reference to the provisions of Indian Partnership Act. Once the firms arc found valid in accordance with such Act, then the question would arise whether the income of one firm can be clubbed with the income of the other firm. In this regard, the intentions of the partners will have to be seen alongwith surrounding circumstances and evidences as to the interlacing or interlocking of the management, and other incidents of the respective businesses. It would be useful to quote the relevant observations of the Supreme Court as under:-- "1. Where the same partners enter into two separate agreements of partnership, each agreement may constitute a distinct and separate partnership and, therefore, a distinct and separate firm. 2. An agreement between the partners to carry on a business and share its profits may be followed by a separate agreement between the same partners to carry on another busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the second requirement the principle of agency." It was also held by their Lordships that vesting of control and management in one partner by agreement was not destructive of the theory of partnership. The relevant portion from the headnote is quoted below: "Held, reversing the decision of the High Court, that the fact that the exclusive power and control, by agreement of the parties, was vested in one pariwar, and the further circumstance that only one partner could operate the bank accounts or borrow on behalf of the firm was not destructive of the theory of partnership provided two essential conditions were satisfied, namely: (i) that there should be an agreement to share profits and losses of the business of the firm; and (ii) that the business must be carried on by all the partners or any of them acting for all. Clause 5 read with other clauses showed that the first condition, namely, all persons agreeing to share profits or losses, was satisfied. The second condition was also satisfied; even though vast powers of management and control had been given to K, the business was being carried on by him on behalf of all the partners. Both the ingredients of partnership were sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the firms also shows that separate employees were kept in different businesses. M/s. Rural Agencies had a separate godown for keeping the stock, for which rent was paid by that firm. This rent had been duly debited to the profit loss account. Merely the fact that common sale counter was kept for convenience of the customers is no ground for drawing any adverse inference. Further, separate account books were maintained as contended before the CIT(A). It is also pertinent to note that there is no finding that profits of M/s. Rural Agencies were enjoyed by M/s. Rural Suppliers which is one of the necessary finding for holding that a particular firm is a benamidar of another firm. No material has been brought to our notice to controvert these factual aspects. Therefore, we are of the view that there was no interlacing or interlocking of funds and management between the two firms. Consequently, it cannot be said that income of M/s. Rural Agencies really belonged to M/s. Rural Suppliers. 12. The decision of Supreme Court in the case of Ladhu Ram Taparia has been heavily relied on by the Assessing Officer. The said decision, in our opinion, is fully distinguishable on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner of that firm, that declarations of the constitution of the firms given before the banks did not in a majority of cases tally, that the employees of some firm declared themselves to be proprietors of other firms, that Ladhuram and his sons Hanumanbux and Ladhuram and Ganeshmal jointly operated some accounts indicating that they were not separate and that Ganeshmal, sons of Ladhuram, had operated some of the accounts of firm Nos. I and IV in which he was not a partner. According to the Income-tax Officer it appeared from the declarations given to the banks that 'little discrimination' was observed between Ladhuram and his sons in the matter of control of funds of the firms. He, therefore, concluded that all the six firms belonged to one and the same group of persons, namely, Ladhuram and his sons and Ganpatrai and that Ladhuram was the 'real man behind the scene and he played the principal part.' The Income-tax Officer accordingly refused to register the firms under section 26A of the Income-tax Act for the year of assessment 1945-46 and treated the aggregate income of the six firms as assessable in the hands of firm No. I." The above facts clearly show that there was complet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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