COMMISSIONER OF INCOME TAX Vs. RADHAKRISHNA INDUSTRIES

JUDGEMENT

(1.) The interesting question arising for consideration in this case is whether two firms doing the same nature of business at two different places with different partners and assessed separately to income tax can be continued to be assessed separately when the same persons become partners of the two firms.

(2.) The matter arises out of the order of the Income tax Appellate Tribunal dated 23-6-1982 in I.T. A. No. 365 (Coch) of 1980. As directed by this Court the following question of law was referred to this Court for our opinion;

(3.) The matter arises out of the income tax assessment for the year 1976-77 for which the previous year ended on 31-12-1150 M.E. The assessee is a firm of two partners, engaged in the business of manufacture and sale of tiles. The partners of the firm are N. Sankaranarayana Iyer and N. Venkiteswara Iyer. The firm filed a return declaring an income of Rs.66,200/-. While examining the accounts the Income Tax Officer found that the partners were running another tile factory in partnership under the name and style as Shanmugha Tile Works at Avinissery. The Income Tax Officer noted that the profit ratio in that partnership also is the same as in the case of the assessee firm. He also noted a lot of money transactions between the two firms. According to him there was unity of interest and control and there was interlacing and interlocking of funds between the two firms. In that view of the matter the Income Tax Officer thought that the income from the Shanmugha Tile Works had to be included in the total income of the assessee which he did and completed the assessment clubbing the income of the Shanmugha Tile Works in the hands of the assessee. The assessee filed appeal before the C.I.T. (Appeals) who confirmed the assessment. The C.I.T. (Appeals) relied on the decision in C.I. T. v. Prithvi Insurance Co. Ltd. 63 ITR 632 and Addl. C.I.T. v. Venkata Narasimha Rao & Co. (1976) 104 ITR 28. On further appeal, the Income Tax Appellate Tribunal held that the income of the two firms should be separately assessed in their respective hands. In so directing, the Tribunal noted that the firms function independently and carry on separate business at different places with their own separate managerial organisation and administration. The accounting years of the two firms were different and the terms of dissolution contained in the partnership deed were also different. There were different bank accounts and the advancing of money by one firm to the other firm through personal accounts of the partners, the Tribunal held, would not amount to interlacing and interlocking as contemplated in the decision in Produce Exchange Corporation Ltd. v. C.I.T. 77 ITR 739. The Tribunal went into the genesis of the two firms and the registration given by the Income tax Department and came to the conclusion that there was no material to hold that the two firms in reality represented only one single concern whose income should be clubbed together for income tax purposes. The Tribunal referred to the decision of the High Court of Andhra Pradesh in C.I.T. v. Parthasarathy Naidu & Sons (1980) 121 ITR 97 to come to this conclusion. It is thereafter the above question of law was referred to this Court.