- (1.)THE same question arising in the assessment years 1975-76, 1976-77 and 1977-78 has come up for the opinion of this court on a reference made under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue giving rise to these three cases constituting this batch.
(2.)THE question of law which has come to this court for its opinion is as follows :
" Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that Shree Annapurna Electric Co. and Shree Annapurna Udyog were separate firms and in excluding the income of Shree Annapurna Udyog which had been included in the income of Shree Annapurna Electric Co. ?"

Shree Annapurna Electric Company, Giridih ("the electric company", for short), is a partnership firm consisting of two partners, namely, Shri Uma Shankar Chhaperia and Shri Hari Shankar Chhaperia, having equal shares in the firm. In the course of assessment of this firm, the Assessing Officer discovered that the same persons were running another partnership firm under the name and style of Annapurna, Udyog ("the Udyog", for short) which was carrying on trade and business in mica. The partners in the two partnership-firms being the same two persons, who, as their names would suggest also appeared to be related to each other, the Assessing Officer held that the electric company and the Udyog were in reality one and the same partnership firm. He accordingly added the income of Annapurna Udyog to the income of the electric company and subjected it to tax in the hands of the electric company. The assessee filed an appeal before the Appellate Assistant Commissioner who by his order dated April 16, 1977, found and held that the two partnership firms were different and separate and the income of one could not be added to the income of the other. The appellate authority accordingly directed that the income of the Udyog which was wrongly taxed in the hands of the electric company should be excluded from the income of the assessee-partnership firm. The second appeal preferred by the Revenue was dismissed by the Appellate Tribunal by order dated April 25, 1978, by which it affirmed the order passed by the appellate authority. The Tribunal, however, agreed that a question of law as quoted above arose in the facts and circumstances of this case and accordingly made this reference to this court.

The appellate authority and the Tribunal held and found that the electric company and the Udyog were two different and separate partnership firms on the basis of, inter alia, the following facts and circumstances :

(i) the electric company, the assessee-partnership firm was formed on April 8, 1961, whereas the other firm, the Udyog had come into existence on November 26, 1969 ;

(ii) The assessee-firm carried on business in electrical goods while the other firm carried on its trade and business in mica ;

(iii) The two firms were situated at different places ; the assessee-firm functioned from its office at Giridih, whereas the other firm had its office at Pachambha, several kilometres away from Giridih ;

(iv) The two firms maintained separate books of account and had separate and different sales tax registration numbers ;

(v) Further, the two firms employed different persons and in fact different numbers of persons as employees ;

(vi) The assessee-firm had only one staff whereas the Udyog had 7 to 8 employees and the two firms maintained separate wage registers for their respective employees.

On the basis of the aforesaid facts and circumstances, the appellate authority and the Tribunal held and found that the two partnership firms were different and their respective incomes could not be clubbed together. In support of this finding, reliance was placed upon a decision of the Bombay High Court reported in Vissonji Sons and Co. v. CIT [1946] 14 ITR 272.

Mr. Vidyarthi, learned counsel appearing on behalf of the Revenue, submitted that the facts and circumstances relied upon by the authorities pale into insignificance in view of the other admitted facts, that is, (i) the two partnership firms had the same two persons as partners, (ii) the sources of their finance (namely, their partners) were also the same, and (iii) the profits and losses in the two partnership firms were also to be! shared in equal measures by the two partners.

(3.)ACCORDING to Mr. Vidyarthi, these were the basic facts which would conclusively determine that the two partnership-firms were one and the same for the purpose of income-tax and no other incidental facts and circumstances could detract from this position. Learned counsel in support of his submission relied upon a decision by the Supreme Court in the case of Dy. CST (LAW), Board of Revenue (Taxes) v. K. Kelukutty [1985] 155 ITR 158.
We have gone through this decision very carefully and in our considered opinion, the decision relied upon by counsel does not help the Revenue in any manner. The decision does not say that in case the two partnership firms are constituted by the same partners who share the profits and losses in the firms in equal proportion then in all cases and regardless of other facts and circumstances, it must be held that the two firms are one and the same and their incomes must be clubbed together. In the case before the Supreme Court there were two partnership firms having the same partners. One partnership firm ran a saw mill whereas the other firm carried on business in timber. There were evidences to show that the saw dust was sold by the saw mill to the other firm which was dealing in timber and to this extent there was also some indication regarding the interlacing or interlocking of the two businesses. Yet, the Supreme Court did not accept that the two partnership-firms were one and the same and the income-tax returns filed by them were liable to be clubbed together. In fact at pages 164 and 165 of the report, it was observe as follows :

" The Indian Partnership Act, 1932, has, by Section 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 'a firm'. The components of the definition of 'partnership', and, therefore, of 'a firm' consist of, (a) persons, (b) a business carried on by all of them or any of them acting for all, and (c) an agreement between those persons to carry on such business and to share its profits. It is the relationship between those persons which constitutes the partnership. The relation is founded in the agreement between them. The foundation of a partnership and, therefore, of a firm is a partnership agreement. A partnership agreement is the source of a partnership ; it also gives expression to the other ingredients defining the partnership, specifying the business agreed to be carried on, the persons who will actually carry on the business, the shares in which the profits will be divided, and several other considerations which constitute such an organic relationship. It is permissible to say that a partnership agreement creates and defines the relation of partnership and, therefore, identifies the firm. If that conclusion be right, it is only a further step to hold that each partnership agreement may constitute a distinct and separate partnership and, therefore, distinct and separate firms. That is not to say that a firm is a corporate entity or enjoys a juristic personality in that sense. The firm name is only a collective name for the individual partners. But each partnership is a distinct relationship. The partners may be different arid yet the nature of the business may be the same, the businesses may be different and yet the partners may be the same. An agreement between the partners to carry on a business and share its profits may be followed by a separate agreement between the same partners to carry on another business and share the profits therein. The intention may be to constitute two separate partnerships and, therefore, two distinct firms. Or to extend merely a partnership originally constituted to carry on one business, the carrying on of another business. It will all depend on the intention of the partners. The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances, including evidence as to the interlacing or interlocking of management, finance and other incidents of the respective businesses."

It is, therefore, unacceptable to us that the mere fact that the two firms had the same persons as their partners who shared the losses and profits in the two firms in the same proportion would be conclusive for a finding that the two partnership-firms were one, and the same and, therefore, their incomes must be clubbed together.