Law:

Section:

Section 143, read with section 185, of the Income-tax Act, 1961 - Assessment - Benamidar - Assessment year 1977-78 - All four partners of assessee-firm formed another firm 'M', having common partners, carrying on same business with same profit and loss sharing ratio - Sales Tax and Central Sales Tax authorities had granted them separate registration No. treating them as genuine - M was granted registration, which was subsequently withdrawn but Tribunal directed to grant registration to M - Books were separate, partners had contributed capital and books of account of M were not rejected - Assessing Officer, however, held that M was an extension of assessee-firm and two had to be treated as one firm - Whether registration of firm can be refused or firm can be treated just benami of assessee-firm only on ground that partners of both firms are common and business is common - Held, no - Whether Tribunal was justified in holding that assessee-firm and 'M' could not be treated as one firm for purposes of assessment - Held, yes FACTS The assessee-firm had four partners. All the four partners of the assessee-firm formed a new firm 'M', carrying on the same business with the same profit and loss sharing ratio. During the assessment proceedings, the ITO treated M as an extension of the assessee-firm as both the firms were carrying on the same business, the partners were the same and profit and loss sharing ratio was also the same. Therefore, the ITO assessed the income of M in the hands of the assessee-firm. The Commissioner (Appeals) dismissed the assessee-firm's appeal. On further appeal, the Tribunal held that M was not an extension of the assessee-firm and both the firms could not be treated as one. Therefore, the Tribunal directed that income of 'M' could not be assessed in hands of the assessee-firm. On reference : HELD Whether the firm 'M' was an extension of the assessee-firm or not, was basically a question of fact. The Tribunal had found finally that it was an independent firm and not an extension of the assessee-firm. That finding could not be disturbed unless it was found that the finding of the Tribunal was perverse. There was no dispute on the facts on…

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