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TMI Blog1969 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... t partnership concern in which all the partners of the firm were also partners. The result is that the assessee is an independent concern, but a partnership which had its origin in the firm as its branch. All the assets, liabilities, goodwill, quota rights, etc., appertaining to the coffee business, then run as a branch of the firm, were taken over by the assessee. It is common ground that while so taking over the branch, the assessee, inter alia, took over a reserve fund of Rs. 24,632-6-1, which represented a credit balance in the books of the firm and was relatable to sales tax liability of the branch so torn off from the composite firm. Virtually the assessee is continuing the business of the firm in so far as the coffee trade is concerned. In respect of the accounting year ending March 31, 1959, a sales tax assessment in respect of the coffee business was made on the firm on January 31, 1961, resulting in a demand for Rs. 20,507 being raised on the firm. The assessee, who took over the assets and liabilities of the firm, including the sales tax reserve in the books of the firm, submitted a return under the Income-tax Act, 1961, for its income from the coffee business for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity of partners in both the firms is not decisive. When once we arrive at the factual finding, on the interpretation of the admitted facts and documents in the case that the business of both the firm and the assessee is one and that there is such identity in them that it is reasonable to infer that the expense of the one can be lawfully claimed as a deduction by the other, as a continuing concern, then it is easy to comprehend the assessee's claim and accept it. The answer to the above poser depends on the proved facts and on their appreciation. There is no dispute that the partners of both the firm are the same. The assessee, after its reconstitution, got a refund of sales tax for the assessment year 1958-59, in which year, only the firm was doing business. For the assessment year 1959-60, when the present demand of Rs. 20,507 was raised, it was the assessee who owned the liability under the demand though it related to the firm when it was compositely functioning, and took up the matter in appeal before the hierarchy of statutory tribunals under the Madras General Sales Tax Act, though unsuccessfully. The result was that the assessee had to meet the demand. Contemporaneous wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm, though, for convenience, they transact business under two different trading styles. Sir John Beaumont C.J. in Vissonji Sons Co. v. Commissioner of Income-tax expressed the view that in law a firm had no existence independent of its partners and if there are two firms consisting of " exactly the same partners, the real position in law was that there was only one firm. It may carry on separate business and may carry on these businesses in different names but in fact there was only one firm in law ". Chagla C.J. in Jesingbhai Ujamshi v. Commissioner of Income-tax thought that the above statement of law was obiter. With great respect we think the exposition is of general application. In fact the dicta in Vissonji Sons Co. v. Commissioner of Income-tax was quoted with approval in S. S. Subbier v. Commissioner of Excess Profits Tax. In Jesingbhai Ujamshi v. Commissioner of Income-tax the learned judges took a different view probably because there was not the identity of business between the two firms having common partners and, in fact, the facts disclose that the sharing of profits also was in different proportions. In the end they accept that the proposition that the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident. The resident-firm had to pay a considerable sum by way of such tax, which amount it later claimed as a bad debt or trading loss because it could not recover it from the principal (nonresident). The Supreme Court held: " That in order that a loss might be deductible it must be a loss in the business of the assessee and not a payment relating to the business of somebody else which under the provisions of the Act was deemed to be and became the liability of the assessee. Loss was allowable if it 'sprang directly from and was incidental to' the business of the assessee; it was not sufficient that it fell on the trader in some other capacity or was merely connected with his business. The loss which the appellant had incurred was not in its own business but arose because of the business of another person and it was, therefore, not a permissible deduction under section 10(1) of the Income-tax Act. It was not a loss which had to be deducted in respect of the business of the respondent-firm from the profits and gains of the business. " The ratio in the above case is quite understandable. The business of the resident agent is totally different from that of the non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table Syndicate, was of a similar view. There the question was whether there could be a sale by one partnership concern to another, if the partners are the same. Ramakrishnan J., speaking for the Bench, held the view that, notwithstanding the peculiar norm in fiscal law to treat a firm as an assessable legal entity, yet it would not make any difference in regard to the definition of a sale, which involves two different persons. If the partners of the seller and the buyer are the same, even though they are fictionally treated as different legal entities, it ceases to be a sale. Even so, in the instant case, merely because for purposes of taxation laws the assessee and the firm are two different legal entities, it cannot be said that in the light of the facts disclosed, the businesses of the firm and the assessee are in any manner different. The nexus interlacing in their business is so conspicuous that their fictional legal individuality in tax laws became submerged in their commercial unison, as understood in the common law of partnership. It, therefore, follows that, if the business of the firm and the assessee is thus interlocked, then the assessee's claim for deduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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