Separate partnership deeds and distinct business objects meant the firms were taxed separately, denying inter-firm loss set-off.

Two partnership concerns were treated as separate taxable units because the partnership deeds showed distinct formation, different business objects, separate places of business and materially different terms. Common partners and the same profit-sharing ratio were not enough to establish identity of firms, and the alleged interlacing of funds was not proved. On that basis, the loss of M/s. Hymavathi Enterprises could not be set off against the income of M/s. Arun Chemical and Pharmaceutical Works. The operative principle is that unity of firms depends on the partners' intention gathered from the deeds and surrounding circumstances, including any real financial interconnection; separate deeds ordinarily support separate assessment unless unity is clearly established.

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Issues: Whether the two partnership concerns constituted one assessable unit so as to permit set-off of the loss of M/s. Hymavathi Enterprises against the income of M/s. Arun Chemical and Pharmaceutical Works.

Analysis: The partnership deeds showed that M/s. Arun Chemical and Pharmaceutical Works and M/s. Hymavathi Enterprises were created by separate instruments, had different business objects, different places of business, and materially different terms. The creation of a later deed for the hotel business, the subsequent induction and retirement of additional partners in that concern, and the absence of any reference in the 24-2-1989 deed to the earlier firm indicated that M/s. Hymavathi Enterprises was conceived as a separate entity. The common partners and common profit-sharing ratio were not enough by themselves to establish identity of firms. The claimed interlacing of funds was not satisfactorily proved, and the documents relied upon by the assessee did not displace the legal effect of the separate partnership arrangements.

Conclusion: The two firms were not a single unit and the assessee was not entitled to set off the loss of M/s. Hymavathi Enterprises against the income of M/s. Arun Chemical and Pharmaceutical Works; the finding was against the assessee and in favour of the Revenue.

Final Conclusion: The assessment had to proceed on the basis that the two concerns were distinct taxable units, so the loss of the hotel business could not be absorbed against the income of the other firm.

Ratio Decidendi: Whether two partnership concerns constitute one taxable unit depends on the partners' intention as gathered from the partnership deeds and surrounding circumstances, including the legal effect of the transactions and any real interlacing of finance; separate deeds creating distinct businesses ordinarily support separate assessment unless unity is clearly proved.

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