S.K. Mal Lodha, J. - (1.)THE Commissioner of Income-tax, Jodhpur, has submitted an application under Section 256(2) of the Income-tax Act, 1961, for a direction to the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (" the Tribunal "), to refer the following two questions for the opinion of this court which are said to arise out of the Tribunal's order dated June 21, 1979:
" 1. Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in law to hold that the loss of Rs. 12,865 claimed by the assessee was not a share of loss from an unregistered firm or an association of persons and that the departmental authorities were not right in disallowing the loss ?

(2.)WHETHER, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in not disallowing the aforesaid loss of Rs. 12,865 on the ground that it pertained to the preceding year and not to the assessment year 1970-71 ? "
2. The assessee-respondent has some transactions in cotton in partnership with Shri Shreeniwas Jugal Kishore, Nimbahera. The transactions consisted of purchase of 104 bales of cotton on September 1, 1968, for Rs. 66,237-61 and 76 bales of cotton on October 5, 1968, for Rs. 49,561.36. In all 180 bales of cotton were purchased in two instalments. All the cotton bales were sold on November 21, 1968, at a loss of Rs. 17,096.50. This loss was divided between the assessees and Shri Shreeniwas Jugal Kishore, Nimbahera, as Rs. 12,865 and Rs. 4,240-33, respectively. The previous year relevant to the assessment year is 1970-71. The amount of loss which came to the share of the assessee, namely, Rs. 12,865, was claimed by him as a loss arising out of the joint venture. The Income-tax Officer, by his order dated November 23, 1972, disallowed this amount on the ground that it was a loss from an unregistered firm (URF) and cannot be allowed to be set off against the profits of a registered firm and, accordingly, the same was disallowed. The explanation given by the assessee was not accepted. On appeal, the Appellate Assistant Commissioner, vide his order dated March 31, 1976, agreed with the finding recorded by the Income-tax Officer that the amount of Rs. 12,865 could not be allowed to be set off against the profits of the registered firm and observed that " the loss having pertained to the earlier year, it cannot be allowed to be set off against the business profits of this year". By the expression " this year ", he meant the assessment year 1970-71.

On a further appeal, the Tribunal did not agree with the findings recorded by the Income-tax Officer which was confirmed on appeal by the Appellate Assistant Commissioner. The Tribunal came to the conclusion that the loss in question belonged to an association of persons and as, according to him, the joint venture, the assessee rightly claimed the loss as a set off against the business profits. It, therefore, allowed the claim of the assessee. An application under Section 256(1) of the Act was filed by the Commissioner of Income-tax. The Tribunal rejected the application by its order dated June 21, 1979, holding as under:

1. That there is no material on record to show that the parties had entered into a partnership and this being a finding of fact, no question of law can be said to arise out of the order.

2. That the Appellate Assistant Commissioner had placed no material to show that the loss had arisen in the year immediately preceding the assessment year, namely, 1970-71, and so no question of law arises.

The Commissioner of Income-tax has filed this application under Section 256(2) of the Income-tax Act.

We have heard Mr. J. P. Joshi, learned counsel for the Revenue, and Mr. K. C. Bhandari, learned counsel for the assessee.

It was contended before the Tribunal on behalf of the assessee that the loss in question could not be treated as that of a registered firm and that there was no evidence of any kind to suggest that a contract of partnership had been entered into between the assessee and Shri Shreeniwas Jugal Kishore, Nimbahera. This was opposed on behalf of the Department on the ground that it was a loss of an unregistered firm or that of an association of persons.

(3.)THE Tribunal was influenced by the fact that there was no evidence of any kind suggesting that the assessee and Shri Shreeniwas Jugal Kishore, Nimbahera, had entered into an agreement, oral or written, constituting a partnership and that within a period of two to three months, the transactions had been done which resulted in a loss and so an inference should be drawn that it was a joint venture. THE Tribunal came to the conclusion that there was no evidence in respect of the partnership between the assessee and Shri Shreeniwas Jugal Kishore, Nimbahera, or that they had formed an association of persons. THE bales, which are 180 in number, were purchased jointly with Sreeniwas Jugal Kishore, Nimbahera. All the bales that were purchased were sold in one lot. THE total loss from the transaction was Rs. 17,096.50. Loss of Rs. 12,865 was entered in the account books of the assessee being 12 annas share of the loss in the transaction of sale of cotton bales. A sum of Rs. 4,240.33 was the share of loss of Shri Shreeniwas Jugal Kishore, Nimbahera. It comes to 4 annas share.
On these facts, in our opinion, whether, it is a case of joint venture or the joint purchase of bales of cotton for resale was in the nature of a partnership, does give rise to a question of law. On the facts found by the Tribunal, whether it was a joint venture of the assessee and Shri Shreeniwas Jugal Kishore, Nimbahera, or it was in the nature of a partnership of the assessee and Shri Shreeniwas Jugal Kishore, Nimbahera, is a question of law that arises out of the order of the Tribunal. The decision of the Tribunal that this is a finding of fact and, therefore, no question of law arises, is incorrect. No finding has been recorded by the Tribunal in respect of the contention that was raised before it that in the preceding year no sale had taken place and the assessee had merely carried forward the stock at cost price and, therefore, there was no question of law arising out of the preceding year.

The Tribunal did not record any finding in its order dated May 30, 1978, that the loss of Rs. 12,865 did not pertain to the preceding year. In these circumstances, no question of law can be said to arise out of the Tribunal's order as suggested by the Commissioner of Income-tax in his application under Section 256(2) of the Act, as question No. 2.