TaxTMI 
TaxTMI 
1969 (11) TMI 23
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.... the firm as its branch. All the assets, liabilities, goodwill, quota rights, etc., appertaining to the coffee business, then run as a branch of the firm, were taken over by the assessee. It is common ground that while so taking over the branch, the assessee, inter alia, took over a reserve fund of Rs. 24,632-6-1, which represented a credit balance in the books of the firm and was relatable to sales tax liability of the branch so torn off from the composite firm. Virtually the assessee is continuing the business of the firm in so far as the coffee trade is concerned. In respect of the accounting year ending March 31, 1959, a sales tax assessment in respect of the coffee business was made on the firm on January 31, 1961, resulting in a demand for Rs. 20,507 being raised on the firm. The assessee, who took over the assets and liabilities of the firm, including the sales tax reserve in the books of the firm, submitted a return under the Income-tax Act, 1961, for its income from the coffee business for the previous year ending February 8, 1962, corresponding to the assessment year 1962-63. In its return of income it claimed a deduction of the above sum of Rs. 20,507 under section 37....
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....he business of both the firm and the assessee is one and that there is such identity in them that it is reasonable to infer that the expense of the one can be lawfully claimed as a deduction by the other, as a continuing concern, then it is easy to comprehend the assessee's claim and accept it. The answer to the above poser depends on the proved facts and on their appreciation. There is no dispute that the partners of both the firm are the same. The assessee, after its reconstitution, got a refund of sales tax for the assessment year 1958-59, in which year, only the firm was doing business. For the assessment year 1959-60, when the present demand of Rs. 20,507 was raised, it was the assessee who owned the liability under the demand though it related to the firm when it was compositely functioning, and took up the matter in appeal before the hierarchy of statutory tribunals under the Madras General Sales Tax Act, though unsuccessfully. The result was that the assessee had to meet the demand. Contemporaneous with the creation of the assessee, the sales tax reserve created by the firm was transferred to the assessee, like any other asset. It appears that the sales tax authorities reco....
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....essed the view that in law a firm had no existence independent of its partners and if there are two firms consisting of " exactly the same partners, the real position in law was that there was only one firm. It may carry on separate business and may carry on these businesses in different names but in fact there was only one firm in law ". Chagla C.J. in Jesingbhai Ujamshi v. Commissioner of Income-tax thought that the above statement of law was obiter. With great respect we think the exposition is of general application. In fact the dicta in Vissonji Sons & Co. v. Commissioner of Income-tax was quoted with approval in S. S. Subbier v. Commissioner of Excess Profits Tax. In Jesingbhai Ujamshi v. Commissioner of Income-tax the learned judges took a different view probably because there was not the identity of business between the two firms having common partners and, in fact, the facts disclose that the sharing of profits also was in different proportions. In the end they accept that the proposition that the same persons with the same shares cannot for income-tax purposes be partners of two entirely separate firms, though a highly attractive abstract proposition, is always a qu....
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....ver it from the principal (nonresident). The Supreme Court held: " That in order that a loss might be deductible it must be a loss in the business of the assessee and not a payment relating to the business of somebody else which under the provisions of the Act was deemed to be and became the liability of the assessee. Loss was allowable if it 'sprang directly from and was incidental to' the business of the assessee; it was not sufficient that it fell on the trader in some other capacity or was merely connected with his business. The loss which the appellant had incurred was not in its own business but arose because of the business of another person and it was, therefore, not a permissible deduction under section 10(1) of the Income-tax Act. It was not a loss which had to be deducted in respect of the business of the respondent-firm from the profits and gains of the business. " The ratio in the above case is quite understandable. The business of the resident agent is totally different from that of the non-resident principal. There being no resemblance between the persons and the business, the deduction claimed was rightly rejected. We have held factually in the instant referen....