1. The question referred to this court by the Income-tax Appellate Tribunal, Cochin Bench, reads as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law having regard to the provisions of Section 36(2) of the Income-tax Act, 1961, in directing allowance to the extent of Rs. 11,512 of debts which the assessee had claimed had become bad? '
2. Till February 1, 1974, there was a firm in which there were three partners and a minor admitted to the benefits of the partnership. All the partners retired on February 1, 1974. The minor along with three other persons reconstituted the firm. The assessee-firm claimed certain deduction by way of bad debts during the year in question. The Income-tax Officer did not allow the deduction holding, firstly, that there was no reconstitution of the firm, and, secondly, that there was no proof of bad debts in existence or steps having been taken to recover the same. The Appellate Assistant Commissioner of Income-tax in appeal held that the assessee was entitled to claim the deduction inasmuch as there was reconstitution of the firm. The Tribunal having confirmed the order of the Appellate Assistant Commissioner in appeal, declined to grant the directions sought. The Tribunal allowed the deduction holding that it was a case of reconstitution of the existing firm and also that it was a case of bad debts.
3. The counsel for the Revenue submitted that there was no firm to be continued after all the majors retired on February 1, 1974. We do not find any case for the Revenue that either the firm which existed for the period from February 1, 1974, got itself dissolved or a new firm constituted. On the facts stated in the statement of the case and also as stated in the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, what is discernible is that there was a reconstitution of the firm with the minor remaining the common link. A reading of Section 2(23) read with Section 187(2) of the Income-tax Act, 1961, makes it abundantly clear that in a case like this, the reconstituted firm is to be treated as a firm. This was a resurrection of the former partnership, on the formation of a new partnership. The common link, as already noticed, is the minor who is admitted to the benefits, in terms of Section 2(23) of the Act and in terms of the partnership deed. We, therefore, reject the contention of the petitioner that there was no continuation of the firm.
4. One other point pressed by the counsel for the Revenue is that one alone could not constitute a firm. In support of the contention, the decisionin Dahi Laxmi Dal Factory v. ITO : 103ITR517(All) was cited. We do not think it necessary to go into the details of this decision. The stand taken by the assessee is that on the retirement of the major partners on February 1, 1974, three other partners were taken on the same date, thus ensuring the continuity of the firm.
5. The only other contention raised by the counsel for the Revenue is that the assessee had failed to prove that there were bad debts during the year. In support of this contention the decision in Niranjan Lal Ram Chandra v. CIT : 49ITR177(All) and Munnalal Biharilal v. CIT were cited. He has also a case that the burden of proof in regard to the bad debts is on the assessee. The Tribunal having considered all the aspects of the matter found that it was really bad debts with respect to which the assessee was entitled to claim deduction. This being a question of fact, really no question of law, in our opinion, arises in the matter.
6. For the foregoing reasons, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.
7. A copy of the judgment under the signature of the Registrar and seal of the court will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.