Law:

Section:

Section 4, read with section 2(23) of the Income-tax Act, 1961 - Firm - Assessable as - Assessment years 1966-67 to 1968-69 - Whether where two firms consisting of same partners having identical shares were carrying on separate business in different names, two firms should be treated as single firm and their income was liable to be aggregated for purpose of levy of tax - Held, yes FACTS 'VN' was a firm with two partners each having a half share. It was doing business in chemical fertilizers and oil cake manuers. 'RF' was another firm with the very two partners each having half share and the business of this firm was in chemical fertilisers only. There was interlacing of the finances of the two firms. The ITO held that 'VN' and 'RF' were not two firms but one firm and their income should be aggregated for the purpose of levy of income-tax. The AAC dismissed the assessee's appeal. The Tribunal however, took the view that there was no legal bar to the existence of two firms with identical partners, that there was no interlacing of finances and therefore, the two firms should be treated as two distinct entities for the purpose of assessment. On reference : HELD Under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners. While a firm does not assume a legal personality under the Income-tax Act it is nonetheless treated as a unit for the purpose of taxation even as an individual, a HUF and an association of persons or a body of individuals are treated as units for the purpose of taxation. That a firm is a distinct assessable entity, distinct even from its partners for the purposes of assessment to tax, does not make it a legal personality, a personality which is denied to it under the partnership law and which continues to be denied to it under the Income-tax Act in view of section 2(23) of the latter Act. The general concept of a firm remains unchanged by reason of the taxability of the firm as a unit just as the general concept is not altered by the capacity to sue or to be sued in the name of the firm as provided in Order XXX, rule 1, Civil Procedure Code. If Parliament intended…

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