TaxTMI 
TaxTMI 
Clubbing of two business entity
16 Jun 2010 
1 Reply 
1015 Views Asked by
Clubbing of business entities arises where a new firm is a colorable device to avoid tax; examine ownership and bonafides.
Where two separately registered firms share some partners, the same factory space and identical inputs but manufacture different products, mere co-location and common ownership do not automatically result in clubbing; however, if the new firm is a colorable device to avoid tax or regulatory obligations-shown by questions about why a separate firm was created, whether the old firm could produce the new product, and the partners' relationships-the separate entity may be disregarded and clubbing applied. (AI Summary)
Where two separately registered firms share some partners, the same factory space and identical inputs but manufacture different products, mere co-location and common ownership do not automatically result in clubbing; however, if the new firm is a colorable device to avoid tax or regulatory obligations-shown by questions about why a separate firm was created, whether the old firm could produce the new product, and the partners' relationships-the separate entity may be disregarded and clubbing applied. (AI Summary)
We are registered under excise. we are mfg product "A". We have four partners Say Z Y X W Since we have spare place in the same factory we decided to mfg product "B". by regestring new firm with parter Z and Y. The existing firm will revise the layout paln of present factory and remove the place allocated to new firm. Input required for both products are same. Is there chance of clubbing two business entity. What is criteria of clubbing two business entity.