TMI Blog2009 (7) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the common order of the learned CIT(A), Mysore, dt. 9th Jan., 2008 for the asst. yrs. 1998-99 to 2000-01. Since common issues are involved in these appeals, we are disposing of all the appeals by this consolidated order for the sake of convenience. erred in upholding the assessment in the status of AOP for which, according to the assessee, no notice was issued under s. 148 of the IT Act. According to the assessee, the notice was issued in the status of partnership firm and therefore, impugned orders of the Revenue authorities taking the status of AOP are without a valid notice. Hence, liability is put (set) aside on this ground alone. ITA No. 40B/Bang/200B 3. In this case, assessee filed the return in the status of registered firm on 30th Oct., 1998 declaring income at Rs. 2,09,570 for the year under consideration. The return was processed under s. 143(1)(a) on 23rd Feb., 1999. The assessee is trading in stocks and shares and acting as brokers in the course of broking activity for and on behalf of traders, investors to buy, sell, transfer and otherwise dispose of the shares, stocks, securities and certificates etc. The assessee's partnership firm was constituted by two p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y makes the partners of that firm individually partners of the larger partnership. 6. The AO noticed that in the case of the assessee capital has been introduced by the two firms, as seen in the balance sheet of the assessee. It was admitted that the individuals had not contributed capital in their individual capacity. Hence, AO held that there is no direct nexus between individual partners and the assessee firm and the decisions relied on by the assessee mentioned above are not applicable to assessee's case. Relying upon the decision of the Hon'ble Supreme Court in the case of Mahabir Cold Storage vs. CIT (1991) 91 CTR (SC) 89 : (1991) 188 ITR 91 (SC), the AO held that a firm cannot be a partner in another firm though its partners could be partner in the other firm in their individual capacity. He also relied on the decision of the Hon'ble Supreme Court in the case of Dulichand Laxminarayan vs. CIT (1956) 29 ITR 535 (SC) for the proposition that a firm cannot be partner in another firm. Hence, assessee's contention that the assessee is a firm consisting of the partners of two other firms was rejected by the AO. The assessee approached the first appellate authority. 6.1 The vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als who constitute the firm. It is only a compendious mode of designating the persons who have agreed to carry on business in partnership. To import the definition of the of the word 'person' occurring in s. 3(42) of the General Clauses Act, 1897 into s. 4 of the Indian Partnership Act will be totally repugnant to the subject of the partnership law. Their Lordships held that the word 'person' in s. 4 of the Indian Partnership Act contemplates only natural or artificial i.e. legal persons and for the reason stated above, the firm is not a 'person' in the strict sense and as such is not entitled to enter into a partnership with another firm or HUF or individual. 7.2 The assessee's representative submitted that since a firm is an AOP, the same is also a person within the meaning of s. 3(42). In support of the above contention the assessee's representative referred the decision of Hon'ble Bombay High Court in the case of Chhotalal Devchand. This was the case wherein three parties agreed to form a partnership firm. The parties were two firms, one firm of four partners, the other of two partners and an individual. The deed was signed by all the seven individuals. Capital was to be cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fully and truly disclosed to the ITO and accepted it, AO at a later on reappraisal facts cannot reach to a different and contrary conclusion and reopen the assessment. The remedy lies somewhere, if at all. Assessee's representative submitted that even if the AO on the basis of the facts disclosed and on the legal principle laid down by Courts has come to a wrong legal inference that alone will not give the AO to reopen the assessment. For the same proposition, he relied on the decision of Hon'ble Supreme Court in the case of ITO vs. Nawab Mir Barkat Ali Khan Bahadur 1974 CTR (SC) 273 : (1974) 97 ITR 239 (SC). Further relying upon the decision in the case of Century Enka Ltd. vs. ITO Ors. (1983) 143 ITR 629 (Cal) assessee's representative submitted that reopening is bad in law for the simple reason that there is no case for the Revenue that any new material has come to its possession which was not there at the time of original assessment proceedings. But the case was reopened by the AO for the reason, that. the decision of the Hon'ble Supreme Court, which was applicable, was not considered at the time of framing the assessment, as it was not brought to the notice of the AO. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two firms by making its intention clear that what was intended was a partnership between the constituent members of the two firms and making such intention evident by signing the partnership deed in the name of the firm and by all the constituent members of the two firms. The mere description that the members as partners of the two smaller firms will make no difference. For the above proposition he relied on the following decisions. (1) Chandrika Prasad Ram Swarup vs. CIT (1939) 7 ITR 269 (All); (2) Jabalpur Ice Manufacturing Association vs. CIT (1955) 27 ITR 88 (Nag); (3) United Cotton Factory vs. CIT (1957) 32 ITR 117 (Lahore); (4) CIT vs. Shantilal Vrajlal Chandulal Dayalal Co. (1957) 31 ITR 903 (Bom); (5) CIT vs. New Life Construction Co. 1977 CTR (Bom) 61 : (1977) 107 ITR 361 (Bom). 7.7 The assessee's representative submitted though the assessee challenged the reopening vide ground No. 1, that CIT(A) has not dealt with the point at all. Counsel also brought our attention to the paper book page Nos. 41 to 47 copy of the note on the decisions relied and filed before the CIT(A) and at page No. 48 copy of the note on the decisions on the issue of legality of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment within the meaning of s. 147 and, therefore, the issuance of notice was right which the assessee challenged. According to the assessee, assessee is a partnership firm and, therefore, there was no escapement of income as such. 9.1 The decision relied on by the learned Departmental Representative and also findings referred by the learned AO in the case of Dulichand Laxminarayan are distinguishable on facts. In this case the different firms came together and constituted another firm through its representatives. All the individual members of the partnership firms were not the signatories to constitute the new firm. Though the new partners were signatories but for the application for registration it was not signed by all the partners of the three smaller firms and hence, it was held that application is liable to be rejected. The registration was not granted. Not so, in the instant case of the assessee since all the individual partners had singed the deed, hence, this decision is distinguishable on facts. 9.2 We find the decision relied upon by the assessee's representative in the case of Kylasa Sarabhaiah supports the case of the assessee. In this case there were three maj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out in fractional or other shares. In the deed of partnership, the shares are clearly defined, though they are not worked out in precise fractions. Nor is it true to say that the yarn shop is introduced as a partner. The agreement is in truth between three major members out of those who constitute the yarn shop and four outsiders. Each of them has singed the application and the covenants of the partnership agreement bind the partners individually. Indication in the deed of partnership that three of them had qua the yarn shop a certain relation did not affect their status as partners of the appellant firm individually." Therefore, this decision squarely supports the case of the assessee. The Hon'ble Bombay High Court in the case of Chhotalal Devchand also supports the case of the assessee, whereas in the very same case the Hon'ble High Court explained and distinguished the decision in the case of Dulichand Laxminarayan. Hence, we are of the view that refusal of reassessment by the Revenue authorities is not justified. 9.5 in the case relied upon by the assessee's representative submitted in the case of Century Enka Ltd., the Hon'ble Calcutta High Court held that relevant fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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