Deputy Commissioner of Sales Tax vs. K Kelukutty

Deputy Commissioner of Sales Tax vs. K Kelukutty

1985 SCR Supl. (1) 135

(separate agreement for separate business)



The respondent is a partnership firm dealing in timber. When the firm’s Sales Tax Officer was assessing the firm’s turnover, he discovered that the partners of the firm owned a saw mill, and the partners in that saw mill were the same as in the respondent firm. It was also discovered that the respondent had not included the turnover of the saw mill in their own turnover. The sales officer took the view that since both firms had identical partners they were effectively one firm and was to be treated as such and therefore the turnover of the sale of sawdust had to be included in the earlier assessment made on the respondent firm. The Appellate Assistant Commissioner, Sales Tax upheld the assessment order.


  1. Whether when the partners constituting a partnership firm carrying on one business constitute thereafter another partnership firm carrying on a separate and distinct business are there two distinct partnership firms in whose hand the turnover of the two businesses falls to be respectively assessed or is there in law only a single partnership firm liable to assessment on the turnover of both businesses?
  2. Which law is more apt in the present situation to be applied; partnership law or Tax law?


Kerala High Court: The two firms were separate firms in the eyes of law.

Supreme Court


  1. (w.r.t  issue 2) When an assessing officer agrees to assess the turnover of a firm, he must make sure that the venture is a firm. This can be done by applying the necessary partnership law modifying it according to the tax law applicable. The Kerala General Sales-Tax Act contains no provision regarding this only partnership law should be applied.
  2. (w.r.t Issue 1) It is the partnership agreement that forms a partnership relationship, thus making it a partnership’s basis. Partnership agreement may define different partnership relations and thereby define different firms. The partners may be different and yet the nature of the business may be the same, the business may be different and yet the partners may be same. An agreement between the partners to carry on a business and share its profits may be followed by a separate agreement between the same partners to carry on another business and share the profits therein. The intention may be to constitute two separate partnerships and therefore two distinct firms. Each partnership is a distinct relationship. It will all depend on the intention of the partners.

They did not conclude as to the question whether there was one firm or two because of lack of relevant evidences and asked Kerala General Sales-Tax authorities to find it. They referred the case to Appellate Assistant Commissioner, sales Tax for taking up the appeal and resolve it in the light of their findings.

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