- (1.) THE questions which fall for determination in the reference made to this Court under subsection (1) of S. 66 of the Indian Income tax Act, 1922 (hereinafter called the Act) are these: " (1) Whether two partnership firms having common partners and identical shares are as a matter of law one? (2) If yes, whether the income earned by such two firms is to be assessed collectively?" The first question as framed is manifestly one of law and not dependent on the facts but it would be necessary to have a background of the circumstances in which the reference at the instance of the applicant has been made by the income-tax Appellate Tribunal, Delhi.
(2.) THE assessments in respect of which appeals were pending before the Income-tax Appellate Tribunal relate to 1958-59 and 1959-60, the previous years ending with 31st March, 1958 and 31st of March, 1959, respectively. The applicant is R. N. Oswal Hosiery and Mahabir Woollen Mills, Ludhiana, which framed itself into a partnership under a document of 6th of April, 1953, consisting of five partners, each entitled to on-fifth share. Another partnership consisting of the same five partners with the same shares was framed under an earlier partnership deed of 7th of January, 1953, with the name and style f Messrs. Mahabir Wollen Mills, also at Ludhiana. Since 6th of April, 1953, the five persons have continued to remain as partners in both the firms. The nature of business of the two firms is somewhat different. Where-as the firm of R. N. Oswal Hosiery carries on the business of manufacture and sale of hosiery gods, Mahabir Woollen yarn. The two firms were registered separately upto the assessment year 1958-59 when the Income-tax officer for the first time came to the conclusion that there being common partners of both the firms, the two units constituted one assessable entity for purposes of income-tax.
(3.) THE assessment was made on the same basis in respect of the assessment year 1959-60. It followed as a mater of consequence that the renewal applications of the two firms for registration were declined as the assessing authorities considered these firms to be constituting one unit only. These matters gave rise to four appeals, two with regard to the assessment orders for the years 1958-59 and 1959-60 with which we are concerned, and the remaining two with the refusal of the authorities to renew registrations. The appeals were disposed of by a common order in favour of the applicant-assessee by the Appellate Assistant Commissioner on 16th of February, 1962. The Income-tax Appellate Tribunal in the appeals preferred by the Revenue passed an order on 6th of February, 1963, by which the orders of the Income-tax Officer were restored and those of the Appellate assistant Commissioner set aside. The order of the Appellate Tribunal raises, inter alia, the abstract proposition of law which is formulated as the first question to be answered in this reference in the statement of the case of 6th of September, 1963.;