TaxTMI 
TaxTMI 
1995 (6) TMI 39
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..../s Mahendra Oil Traders with that of the assessee-firm on the following grounds : (i) Both the firms are carrying on business in oil. The assessee-firm produces oil and sells on wholesale basis, while M/s Mahendra Oil Traders carries on business on retail basis. Both the firms have 13 partners each out of which five partners are common in both the firms. (ii) M/s Mahendra Oil Traders have no godown of their own and they use the godown of the assessee. (iii) M/s. Mahendra Oil Traders have no storage tank of their own and they use the storage tank of the assessee-firm. (iv) The assessee-firm sells goods on credit. The firm M/s Mahendra Oil Traders is selling on cash basis. The latter does not repay the value of goods purchased from the assessee-firm immediately. (v) Substantial loan is given by the firm M/s Mahendra Oil Traders to the assessee-firm on interest but the assessee-firm does not adjust the same against the outstanding loan. (vi) The assessee-firm produces oil and it could have very well taken a retail licence and could have sold goods produced by it on its own. There is no evidence that the assessee-firm had no eligibility to have a retail licence. (v....
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....e two firms belonged to the same group of persons and as such the action of the Assessing Officer in clubbing the income of the two firms was justified in view of the judgment of the Supreme Court in the case of Ladhu Ram Taparia vs. CIT (1962) 44 ITR 521 (SC). The learned Departmental Representative further submitted that the whole arrangement was to evade tax and as such the ratio laid down by the Supreme Court in the case of McDowell & Co. Ltd. applies. 5. Shri K.C. Patel, the learned counsel for the assessee, strongly supported the order of the CIT(A). He submitted that the two firms are independent ones having been constituted by separate deeds of partnership. Upto asst. yr. 1982-83 the associate firm M/s Mahendra Oil Traders was treated as a genuine and independent firm and registration was granted to it under s. 185. In this connection, he drew our attention to the assessment order relating to asst. yr. 1982-83 under s. 143(3) at pages 59 to 60 of the paper book where the status of the assessee associate firm has been taken as "R.F." and order under s. 185 at page 61 of the paper book. He also drew our attention to the assessment order of Mahendra Oil Traders for the asst....
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....du & Sons. 6. We have considered the rival submissions and perused the facts on record. We find that both the firms are constituted by separate deeds of partnership. It is further noted that there is capital clause and each partner has to invest capital. We further find that all the 13 partners in each of the firms have contributed the capital. Mere fact that five partners of M/s Mahendra Oil Traders are also partners of the assessee-firm, should not lead to the conclusion that the associate firm has no independent identity of its own. We also find that the business of the two firms was different in nature; the assessee-firm manufactures oil and the associate firm M/s Mahendra Oil Traders sells oil on retail basis on the strength of retail licence it holds. We also do not find any merit in the contention of the learned Departmental Representative that since the associate firm was using the godown and storage tank of the assessee-firm, it had no existence of its own because the associate firm was not availing of these two facilities free of cost but was paying rent to the assessee-firm. It is not the case of the Assessing Officer that the rent paid was low or inadequate. There is....
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.... of the different firms. He also examined other members of the family and after a detailed examination of the books of accounts, held that the firms were benami and in fact, belonged to Ladhuram and his brother Ganpatrai. The case before us is not a case of benami firms but two genuine firms constituted by separate deeds of partnership and carrying on different types of businesses. Hence, reliance placed by the learned Departmental Representative on the said decision of the Supreme Court is of no assistance to the Revenue. 9. We also do not find any merit in the contention of the Assessing Officer and the Departmental Representative that the case is squarely covered by the judgment of the Supreme Court in the case of McDowell & Co. Ltd. In that case the Hon'ble Supreme Court has held that "the tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be part of tax planning". In the instant case, as is evident from the facts enumerated supra, no colourable device was adopted by the assessee. Hence, reliance placed by the Revenue on the decision of the Supreme Court in the case of McDowell & Co. Ltd. is of no assistance to the Revenu....