Separate firm identity depends on real interdependence, not merely common partners, accounts, premises, or contact details.

The decisive test for treating two firms as one business for income-tax purposes is real inter-connection, inter-lacing, inter-dependence, or unity of control. Mere identity of partners is insufficient where the firms maintain separate accounts, operate from different premises, have no common fund, and show no material flow of finance between them. Small reciprocal transactions on normal commercial terms, token withdrawals by partners, and shared contact details do not by themselves establish capital intermixture or common management. On these facts, the firms were treated as distinct and separate, and aggregation of the new firm's income with the assessee-firm's income was not justified.

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Issues: Whether the income of a newly constituted firm, formed by the same partners as the assessee-firm, could be clubbed with the assessee-firm on the ground that the two businesses were really one and the same because of alleged inter-lacing and inter-locking of funds, common management, and common business organisation.

Analysis: The decisive test was whether there was real inter-connection, inter-lacing, inter-dependence, or unity of control between the two concerns. The partners were the same, but that fact alone did not establish that the firms were one. The firms maintained separate accounts, carried on business from different premises, had no common fund, and there was no material showing flow of finance from one firm to the other. The purchases and sales between them were only a small fraction of their respective turnovers and were normal commercial transactions with prompt payment. The token withdrawals by some partners from the assessee-firm for investment in the new firm were trivial and did not show capital intermixture. The use of the same telephone number, by itself, also did not establish common management or unity of business.

Conclusion: The two firms were distinct and separate for income-tax purposes, and there was no basis for aggregating the income of the new firm with that of the assessee-firm. The clubbing directed by the Commissioner was not justified.

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