Two partnership firms having common partners and identical shares do not constitute one assessable entity and the income earned by such two firms is not to be assessed collectively.

SHAMSHER BHADUR, J.

1. The question which fall for determination in the reference made to this court under sub-section (1) of section 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 ?"

2. 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.

3. 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 March, 1959, respectively. The applicant is R. N. Oswal Hosiery and Mahabir Woollen Mills, Ludhiana, which formed itself into a partnership under a document of 6th of April, 1953, consisting of five partners, each entitled to one-fifth share. Another partnership consisting of the same five partners with the same shares was formed under an earlier partnership deed of 7th of January, 1953, with the name and style of Messrs. Mahabir Woollen Mills, also at Ludhiana. Since 6th of April, 1953, the five partners have continued to remain as partners in both the firms. The nature of business of the two firms is somewhat different. Whereas the firm of R. N. Oswal Hosiery carries on the business of manufacture and sale of hosiery goods, Mahabir Woollen Mills carried on the business of manufacture and sale of R. D. Woollen yarn. The two firms were registered separately upto the assessment year 1957-58. Both these firms were assessed separately until 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.

4. The assessment was made on the same basis in respect of the assessment year 1959-60. It followed as a matter 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 new 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.

5. The Income-tax Appellate Tribunal in the appeals preferred by the revenue passes 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, interalia, 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.

6. It has been contended by Mr. Bhagirath Dass, the learned counsel for the assessee, that the firms constituted by different partnership deeds are separate assessable units. Though we are not concerned with the factual details it may be recapitulated, as stated in the order of the Appellate Tribunal, that the firms had separate factories situated three miles apart; there were no common over-head expenses; there was no common staff; there were separate bank accounts and the nature of business of the two firms was different. On behalf of the revenue, a pure question of law was raised that two partnerships having common partners and identical shares constituted in the eye of law one unit and the income earned by them has to be assessed collectively. Considering this proposition of law to be sound, the