Distinct firm test for income tax: common partners do not prevent separate taxable units where businesses are not interlaced or interlocked.

Whether the Ahmedabad and Bhavnagar businesses were one firm or two distinct firms for income-tax purposes depended on whether the businesses were interlaced or interlocked, not on common ownership alone. The Tribunal erred by treating common partners as making separate firms impossible, although the governing principle allows common partners to carry on distinct businesses as separate taxable units. On the facts, the businesses could be treated as two distinct firms, and the finding that they were one firm could not stand; the assessee succeeded on the reference.

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Issues: Whether, on the facts and circumstances, the Ahmedabad and Bhavnagar businesses constituted one firm or two distinct firms for income-tax purposes.

Analysis: The reference turned on the factual question whether the two businesses were the same or separate. The correct test was whether the businesses interlaced or interlocked. The Tribunal's conclusion that there was only one firm proceeded on an erroneous view that common ownership alone made separate firms impossible, which was contrary to the governing principle that common partners may still carry on distinct businesses as separate taxable units.

Conclusion: The businesses were capable of being treated as two distinct firms, and the Tribunal's finding that they were one firm could not stand. The assessee succeeded on the reference.

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