Merely having same partners or employees doesn’t mean that a new entity is formed by splitting of existing business

The Hon’ble Himachal Pradesh High Court in the case of CIT vs. M/s Yash International Inc. held that the fact that the new firm has almost the same partners and some workers of existing firm shifted to new firm’s unit cannot make the new entity arising as result of splitting up of the existing one. It is because new entity has its own independent existence and its survival does not depend on the existing entity’s future business prospects.

Facts of the case:

• Assessing officer during the course of assessment proceedings disallowed the deduction claimed u/s 80IC on the ground that the new partnership firm was formed by splitting up the existing partnership firm having the same partners which utilizes the infrastructure and employees of the existing firm.

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