B.S. Dhillon, J.
1. The following questions of law have been referred to this court for its opinion, at the instance of the Commissioner of Income-tax, Amritsar, by the Income-tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as 'the Tribunal'):
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that it was a case of dissolution of the firm and not of expulsion of a partner
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee-firm was entitled to registration under Section 185 of the Income-tax Act, 1961 ?'
2. The brief facts giving rise to the reference are that the firm known as M/s. Eclat Auto Agency, Amritsar, came into existence on 18th October, 1963, and it consisted of four partners, namely, Sarvshri Charanjit Lal Aggarwal, Paras Prabhu Aggarwal, Ravinder Kumar Aggarwal and Kamal Narain Aggarwal. Shri Surinder Kumar Aggarwal, a minor, had been admitted to the benefits of the partnership.
3. On 31st August, 1966, Shri Charanjit Lal Aggarwal retired from the said partnership and the remaining partners including Shri Surinder Kumar Aggarwal, who attained majority on 19th August, 1966, continued to carry on the business under the partnership deed dated 15th August, 1966. Later on Charanjit Lal again joined the firm and a new partnership deed dated 23rd August, 1968, was executed between the partners. Before joining the firm, Shri Charanjit Lal Aggarwal had promised to contribute a sum of Rs. 30,000 or Rs. 40,000 as his capital. On his failure to honour his word, Shri Paras Prabhu Aggarwal gave a notice dated 8th January, 1969 to Shri Charanjit Lal Aggarwal to the effect that since he had not paid his share of the capital, he could no longer remain as a partner in the firm and the partnership would stand dissolved with effect from 31st March, 1969. A copy of this notice was sent by Shri Paras Prabhu Aggarwal to the other partners as well. Simultaneously, Shri Paras PrabhuAggarwal wrote a letter dated 14th January, 1969, to the ITO intimating that the firm will stand dissolved with effect from 31st March, 1969.
4. Charanjit Lal Aggarwal filed a civil suit on 30th May, 1969, against the other partners for dissolution of the partnership and rendition of accounts. This suit was, however, dismissed, as withdrawn, by the court on 25th March, 1970. When the sales tax dept. sought to realise its dues from the firm, Shri Charanjit Lal Aggarwal took the plea that he had no connection with the firm since 31st March, 1969, when the partnership was dissolved. He had also filed an affidavit in support of his contention. A suit was next instituted by him in the Court of the Sub-Judge, Delhi, for a declaration that he had retired and severed all connections with the firm of M/s. Eclat Auto Agency from 1st April, 1969, and was not, therefore, liable for any acts of commission or omission of the firm towards the income-tax, sales tax or any other authority.
5. On 4th June, 1969, the remaining partners, namely, Sarvshri Paras Prabhu Aggarwal, Ravinder Kumar Aggarwal, Kamal Narain Aggarwal and Surinder Kumar Aggarwal, executed a new partnership deed and carried on the same business with effect from 1st April, 1969. This firm was registered with the Registrar of Firms and the sales tax dept. On the basis of the partnership deed dated 4th June, 1969, the assessee-firm filed an application for registration under Section 185 of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1970-71, relevant to the accounting period ending 31st March, 1970. The ITO rejected the application on the ground that this was a case where one of the partners, Shri Charanjit Lal Aggarwal, had been expelled from the partnership which could not be done in view of the provisions of Section 33 of the Indian Partnership Act. According to him, therefore, no genuine or valid firm with the former partners came into existence on 1st April, 1969, and thus he refused the registration.
6. On appeal, the AAC reversed the findings of the ITO and came to the conclusion that this was not a case of expulsion of one partner by the other four partners of the firm, but was one of dissolution under Section 43 of the Partnership Act. He found that the partnership was at will and when one of the partners had given notice to Shri Charanjit Lal Aggarwal with copies to others that the firm would stand dissolved with effect from March 31, 1969, the same, in fact, legally stood dissolved from that date. It was thereafter that a new partnership deed was executed and the firm duly carried on the business. Therefore, he allowed the registration.
7. On appeal filed by the revenue, the Tribunal held as follows :
'11. We have heard the parties and given our due consideration to all the circumstances. As would be clear from the narration of facts above, a partnership came into being between the five brothers includingShri Charanjit Lal with effect from 1st October, 1968, under a deed dated 23rd August, 1968. There was no specification of the period or duration for which this partnership was to operate. It was thus a partnership at will. In so far as the revenue's contention that one of the partners could not be expelled by the other partners there can next be no quarrel. Section 33 clearly provides that unless there be a contract to the contrary, a partner may not be expelled from a firm by any majority of the partners. Such expulsion further cannot be treated in the nature of differences arising as to the ordinary matters connected with the business as envisaged by Section 12(c). However, the crucial question that arises for determination in the present case is whether this was a case of expulsion or of dissolution of the firm under Section 43.
12. In our considered opinion, when one of the partners sent notice to Shri Charanjit Lal on 9th January, 1969, with copies to the other partners, intimating that the firm would stand dissolved with effect from 31st March, 1969, this had the clear legal effect of dissolving the firm from that date under Section 43. This notice, no doubt in earlier parts, narrated the circumstances which was compelling the other four partners for taking that action. The same was the non-investment of capital of about Rs. 55,000 by Shri Charanjit Lal in the firm. However, whatever that reason be, this notice in clear terms later stated that the firm would stand dissolved with effect from 31st March, 1969, and he would cease to be a partner from thence on. There was thus a compliance of the conditions envisaged by Section 43 for the dissolution of the firm. We, therefore, do not see how it can be held that the old firm still subsisted. Shri Charanjit Lal, of course, at first made endeavours to put obstacles in the working of the new firm and was not reconciled to its operating without him. However, when he felt confronted with sales tax liabilities of the firm, he came out unequivocally that the firm in which he was a partner had stood dissolved with effect from 31st March, 1969. This, thus, leaves the matter beyond any pale of doubt.
13. The new firm constituted of the four partners is evidenced by a partnership deed. It has duly operated business. There is no averment that the profits have not been divided in accordance with the profit-sharing ratio mentioned in the partnership deed. In the situation, there were no reasons for not granting it registration. We do not find any force in this revenue appeal. The same is rejected.'
8. At the instance of the revenue, the questions reproduced in the earlier part of this judgment, have been referred to this court for its opinion.
9. After hearing the learned counsel for the parties we are of the opinion that both the questions referred to above have to be answered in the affirmative, i. e., against the revenue and in favour of the assessee. The contention of Shri Awasthy, the learned counsel for the revenue, that the copy of the notice dated 8th January, 1969, given by Shri Paras Prabhu Aggarwal to Shri Charanjit Lal Aggarwal to the effect that since he had not paid his share of the capital, he could no longer remain a partner of the firm and the partnership would stand dissolved with effect from 31st March, 1969, was not sent to the other partners of the firm and thus the provisions of Section 43 of the Partnership Act have not been satisfied. We are unable to agree with this contention. The AAC recorded a categorical finding that copies of this notice were sent to all the partners of the firm. To the similar effect is the finding recorded by the Tribunal. In the statement of the case, this fact is specifically mentioned at p. 3, and it has been clearly mentioned that copies of this notice were sent by Shri Paras Prabhu Aggarwal to the other partners of the firm. The question whether copies of this notice were sent to the other partners of the firm or not, is essentially a question of fact and this question has been determined by the AAC and so also by the Tribunal against the revenue and in favour of the assessee. In the statement of the case, this fact has been particularly mentioned that notice was served on the other partners of the firm as well. It is not open to us to go behind the facts so found by the authorities below. That being so, the provisions of Section 43 of the Partnership Act stand fully satisfied. Thus, the Tribunal was right in concluding that it was a case of dissolution of the firm and not expulsion of a partner. We, therefore, answer question No. 1 in the affirmative, i. e., against the revenue and in favour of the assessee. That being so, the new firm having come into existence with effect from 1st April, 1969, having four partners, was entitled to be registered under Section 185 of the Act and thus the answer to the second question is also to be returned in the affirmative, i. e., against the revenue and in favour of the assessee. We order accordingly. Costs Rs. 250 to be paid by the revenue.