COMMISSIONER OF INCOME TAX Vs. RAJ BROTHERS

JUDGEMENT

(1.) PURSUANT to directions given by this Court under S. 256(2) of the IT Act, 1961 ('the Act'), following question has been referred by the Tribunal, Delhi Bench 'B', New Delhi, for opinion of this Court :

(2.) THE dispute relates to the asst. year 1974 75. The assessee firm is styled as Raj Bros., Tailors & Drapers. There is another firm in the name of Raj Bros., Tailors. The assessee firm deals in cloth. The other firm acts as tailors only. Constitution of both the firms is the same. Both the firms have three parties and their profits and loss sharing ration is also the same. In these circumstances, the ITO required the assessee to show cause as to why income of the other firm should not be clubbed with the income of the assessee. The assessee filed its reply which was not accepted. The ITO refused registration and assessed the firm as an unregistered firm. Matter was carried in appeal before the AAC who held that merely because both the firms had common partners and same profit/loss sharing ratio, it would not in any way lead to the conclusion that there was no separate existence of the two firms. Accordingly, he directed deletion of the income of other firm clubbed with that of the assessee firm. Matter was carried in appeal before the Tribunal. Placing reliance on a decision of the Andhra Pradesh High Court in Addl. CIT vs. Visakha Flour Mills (1977) 108 ITR 466 (AP) : TC 34R.692, the Tribunal held that there was no unity of control and the two firms had separate and independent entitles. The assessee's prayer for reference under S. 256(1) was turned down. However, pursuant to directions of this Court, question as set out above has been referred for opinion of this Court.

(3.) AS was observed by the apex Court in Deputy CST (Law vs. K. Kelukhutty (1985) 155 ITR 158 (SC) : TC 33R.233, the intention of the parties to carry on a business and share its profits has to be gathered from several facts. It will all depend on the intention of the partners. Such intention has to be analysed with reference to terms of agreement and all surrounding circumstances, including evidence as to the interlacing or interlocking of management finance and other incidents of the respective business. We find substance in the plea of learned counsel for the Revenue that these aspects have not been analysed in detail by the Tribunal. Therefore, the matter back to the Tribunal for fresh adjudication keeping in view the observations of the apex Court in the aforesaid case.