Partnerships constituted by the same identical persons should be regarded as two separate legal entities or assessable units for taxation purposes.

1. These two Tax Revision Cases raise the question as to whether the same set of partners constituting two different firms or partnerships can, in the eye of law, be regarded as one person, or should be treated as two separate assessable units, or entities for the purposes of the General Sales Tax Act, 1963. The Appellate Tribunal took the view that the turnover from sales by one of the partnerships had not been brought into account, by the other partnership constituted by the same partners as the first. The Tribunal took the view that in law the same partners constituting two different partnerships must be regarded as two separate persons or assessable units in the eye of the law, and therefore separate legal existence of the two partnerships was possible and permissible. But for the purpose of determining whether there had been what is generally referred to as interlacing and interlocking, the Tribunal remanded the proceedings back to the Sales Tax Officer. The learned Government Pleader has filed these revisions, as the Revenue is aggrieved by the finding that in law two partnerships constituted by the same identical persons have to be viewed as two separate legal entities or assessable units for purposes of Sales Tax. Counsel for the Revenue placed reliance on the decision of the Punjab and Haryana High Court in R. N. Oswal Hosiery & Mahabir Woollen Mills v. Commissioner of Income Tax, Punjab (70 ITR 843). That has surveyed the development of the law in regard to this aspect of the matter beginning from the early dictum in the decision of a Division Bench of the Bombay High Court consisting of Beaument C. J. and Chagla J. (as he then was) in Vissonji Sons A Co. v. Commissioner of Income-tax, Central (14 ITR 272). That dictum in the decision was not accepted by a subsequent Division Bench ruling of the Bombay High Court in Jesingbhai Ujamshi v. Commissioner of Income-tax, Bombay Mofussil (18 ITR. 23) and again in Jeshinghbhai Ujamshi v. Commissioner of Income-tax, Bombay (28 ITR 454). In Mahendra Kumar Ishwarlal & Co. v The State of Madras (21 STC. 72), the Madras High Court took the view that the two partnerships formed by the same set of partners constitute only one entity or legal person for purposes of assessment. The same was the view taken by the Andhra High Court in Addl. Commissioner of Income-tax, A. P. v. M. Venkata Narasimha Rao & Co. (104 ITR. 28). There is a recent decision of the Supreme Court in Commissioner of Income-tax, Madras v. R. M. Chidambaram Pillai (106 ITR. 292) which takes the view that a firm is not a legal person even though it has some attributes of legal personality. In Income-tax Law a firm is a unit of assessment by special provisions, but not a full legal person. It was ruled that as a contract of employment requires two distinct persons, the employer and the employees, there cannot in strict law be a contract of service between a firm and one of its partners. On that footing, it was held that payment of salary to a partner represents a special share of the profits and the salary paid to a partner retains the same character as the income of the firm. On the actual facts and the limited principle that fell for consideration, namely the nature of the payment made by a firm to one of its partners, the decision is capable of being understood in its proper perspective. But it appears to us that the decision directly and more pertinently in point for the purposes of these revision petitions is the earlier decision of the Supreme Court in The State of Punjab v. Jullunder Vegetables Syndicate (17 STC. 326). There a three Judge Court speaking through Subba Rao J ruled that although in the partnership law a firm is not a legal entity but in law consists of only persons who are partners for the time being, as far as tax law, both Income-tax and Sales-tax, is concerned, it is a legal entity. The principle was stated in clear terms on an examination of the provisions of the concerned taxing s