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TMI Blog1985 (5) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... , the STO discovered that the partners of the respondent firm owned a saw mill, and the saw mill was run by a partnership firm, Messrs. K.K.K. Sons Saw Mills, which consisted of the same partners as the respondent firm. He found that during the assessment years 1968-69 and 1969-70, they had sold saw dust from the mill, but had not been assessed to sales tax on that turnover. The STO took the view that as both Messrs. K. Kelukutty and Messrs. K.K.K. Sons Saw Mills consisted of identical partners, the two businesses carried on respectively by them had to be treated as the business of a single partnership firm and, therefore, the turnover of the sale of saw dust had to be included in the earlier assessments made on the respondent firm. The assessment orders were upheld by the AAC, Sales Tax. Thereafter, the appeals filed by the respondent firm before the Sales Tax Appellate Tribunal were allowed by its order dated March 30, 1976, and the cases were remanded for fresh consideration. The Revenue applied to the High Court in revision, Tax Revision Cases Nos. 6 and 9 of 1977, on the following two questions: "(A) Was the Appellate Tribunal justified in law in holding that the reasoning in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant decisions of the courts. In Vissonji Sons & Company v. CIT [1946] 14 ITR 272 (Bom), a case under the Indian I.T. Act, 1922, Beaumont C.J., speaking for the Bombay High Court, expressed the view that in law a firm bad no existence independently of its partners, and that if there are two firms consisting of exactly the same partners and they carry on separate businesses, the real position in law is that there is only one firm. Subsequently, however, in Jesinghbhai Ujamshi v. CIT [1950] 18 ITR 23 (Bom), the same High Court, speaking through Chagla C.J., observed that the observations of Beaumont C.J., were obiter merely, and that it was perfectly permissible in law that the same partners could constitute two different firms for the purpose of the income-tax law leaving. the question open as one of fact whether there are two separate firms or only one firm or whether one of the businesses carried on by one firm was in fact business carried on by the other firm. That view was reaffirmed by the Bombay High Court in Jeshingbhai Ujamshi v. CIT [1955] 28 ITR 454 where it was explained that there can be two separate firms in the eyes of the I.T. Act even if the partners are the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners carrying on different businesses. The cornerstone of that view is that for the purposes of the income-tax law, each partnership firm must be regarded as an assessable entity separate and distinct from its partners. The approach proceeds upon a conceptual perspective of the tax law and apparently assumes that otherwise, under the partnership law, the conclusion would have been that there is only one partnership firm carrying on two different businesses. It seems to us that the approach adopted by the High Courts is not sound, and that the true solution has to be found not in the tax law but in the partnership law. We 'are concerned here with the Kerala General Sales Tax Act. There is no doubt that under that Act a partnership firm must be regarded as an assessable entity. What precisely is the significance of that concept ? Does the tax law clothe a partnership firm with juristic Personality ? How far does the tax law depart from the fundamental concept embodied in the partnership law that a business carried on by a partnership firm is, in its material essence, a business carried on by individual members in partnership, and that a name given to a partnership firm is nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed that there are not one but two partnership firms constituted by the same persons and carrying on different businesses, the assessing authority must test the claim in the light of the partnership law. It is only after that question has been first determined, namely, whether in law there is only one partnership firm or two partnership firms, that the next question arises: whether the turnover is assessable in the hands of the partnership firm as a taxable entity separate and distinct from the partners? There is first a decision under the law of partnership; thereafter, the second question arises, the question as to assessment under the tax law. It is clear, therefore, that reference must be made first to the partnership law. The Indian Partnership Act, 1932, has, by s. 4, defined a " partnership " as " the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all ". The section declares further that the persons who have entered into partnership with one another are called individually " partners " and collectively " firm ". The components of the definition of "partnership", and, therefore, of " a firm " cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled K. Kelukutty, and the other under the name Messrs. K. K. K. Sons Saw Mills, said to be a separate partnership firm. On the material before us it is not possible to say, in the light of the considerations to which we have adverted, whether there is one firm or two. That is a question which appropriately falls for examination by the authorities constituted under the Kerala General Sales Tax Act.
While, therefore, we maintain the orders of the High Court dismissing the Tax Revision Cases Nos. 6 and 9 of 1977, and confirm the orders of the Sales Tax Appellate Tribunal remanding the cases, we do so for the considerations and upon the reasons set forth in this our judgment. In order to abridge the time which inevitably will be further taken in disposing of this already protracted litigation, we direct that instead of the cases going back to the assessing officer they shall stand remanded to the AAC, Sales Tax, for taking up the appeals before him again, permitting the parties to lead evidence in the light of the considerations mentioned by us and disposing of those appeals in accordance with law. These appeals are disposed of accordingly. There is no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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