HARDAYAL HARDY C.J. - This application under section 256(1) of the Income-tax Act, 1961, which will hereafter be referred to as 'the Act', has been filed on behalf of the Commissioner of Income-tax, Delhi. The application is directed against the order of the Tribunal refusing to refer to this court the following question of law which the application claims arises out of the order of the Tribunal for the assessment year 1965-66 :
'Whether, on the facts and in three circumstances of the case, the Tribunal was justified in confirming the order of the Appellate Assistant Commissioner and directing that the sum of Rs. 2,94,425 should be excluded from the total income of the assessed ?'
The fact are that seven persons entered into a partnership to carry on the business in the name of Messrs. Arvind Construction Company by an instrument of partnership dated March 23, 1962. On August 25, 1964, Shrimati Phool Wati, which was the fourth partners, died. Clause 6 of the partnership deed provided that the duration of the partnership shall be at will and the death of a partner shall not result in the dissolution of the firm. But on August 25, 1964, the remaining 6 partners executed a deed of dissolution of the said partnership and agreed to give over the assets and liabilities of the business carried on by the firm to a new partnership firm with effect from August 26, 1964. On September 25, 1964, a fresh deed of partnership was also executed by the 6 partners and in the preamble it was recited that their new firm constituted there under would take over all the assets and liabilities, etc., of the dissolved firm with effect from August 26, 1964. The preamble also stated that the partners had agreed to admit three minors to the benefit of the partnership.
This new firm allied to the Income-tax Officer for registration and was granted registration.
In the assessment proceedings for the assessment year 1965-66, the Income-tax Officer noticed that there were two returns filed by the assessed-firm, one for the period ending August 25, 1964, showing an income of Rs. 2,94,273 and the other for the period August 26, 1964, to February 15, 1965, showing an income of Rs. 65,327. He passed a single assessment order on the total income determined at Rs. 4,21,563 which included Rs. 2,94,425 being the returned income for the period ending August 26, 1964. There is a slight difference between the returned income of Rs. 2,94,273 and Rs. 2,94,425, but in the assessment order as well as the orders made by the Appellate Assistant Commissioner and the Tribunal the actual fire shown is Rs. 2,94,425 where as the assessment order itself mentioned that the income returned was shown at Rs. 2,94,425 as the finally accepted figure by the income-tax authorities.
The assessed-firm appealed against the order contending that the sum of Rs. 2,94,425 should be excluded from the total income of the assessed on the ground that the assessed-firm was a separate firm and, thereforee, the income of the dissolved firm could not be included in its income. The contention prevailed with the Appellate Assistant Commissioner. On further appeal by the department, the Tribunal dismissed the appeal and confirmed the order of the Appellate Assistant Commissioner. It was urged on behalf of the department that there was only a change in the constitution of the firm and, thereforee, the assessment made on the firm as constituted at the time of the assessment was legal and in the accordance with section 187(1) of the Act. The argument die not find favor with the Tribunal. As a result, the Commissioner of Income-tax made an application under section 256(1) of the Act requesting the Tribunal to state the case to this court and refer the question of law mentioned earlier. The Tribunal however rejected the application by its order dated September 20, 1969, holding that the conclusion reached by the Tribunal was based on evidence placed before it, particularly the fact that the Income-tax Officer had granted registration to the new firm which had filed its own separate return for the later part of the previous year under consideration. It was also stated that the finding of the Tribunal was a finding of fact and no question of law could, in the circumstances, be said to arise out of its order. The application was, thereforee, declined.
At the hearing or the application under section 256(2) of the Act before us, Shri V. Kumaria, counsel for the Commissioner of Income-tax, has stated that the Tribunal ignored the legal effect of the dissolution deed dated August 25, 1964, and the execution of the subsequent partnership deed dated September 25, 1964. It seems to us that the finding of the Tribunal that the two firms were distinct and the income of the old firm could not be added to the income of the new firm raised a question of fact. The question whether there was a new partnership or whether the old partnership continued was a question of fact and the finding of the Tribunal that the two partnership were difference was binding on the High Court. In the circumstances, the aggregation of the income of the two partnerships by the Income-tax Officer was not justified. The view taken by us has the support of a Bench decisions of the Mysore High Court in Commissioner of Income-tax v. B. Shamiah Setty Brothers.
The application is accordingly dismissed, but there will be no order as to costs.