J.S.VERMA, J. - (1.) THIS reference under S. 256(1) of the IT tax Act, 1961 (hereinafter called as " the Act "), has been made at the instance of the Revenue to answer the following questions of law, viz. : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was Tight in law in holding that there were two separate firms, one from the beginning of the previous year up to July 25, 1972, and the other from July 26, 1972, to the end of the previous year ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that two separate assessments should have been made for the aforesaid periods and that the Departmental autho rities were not right in making one assessment for the entire previous year from Diwali, 1971, to Diwali, 1972 ?"
(2.) THE relevant assessment year is 1973 -74, for which the accounting period ended on Diwali, 1972. Originally, the assessee -firm consisted of four partners, viz., Nemichand, Bhanwarlal, Padamchand and Sajjanraj. Three out of these four partners, viz., Padamchand, Bhanwarlal and Saj janraj, retired from the partnership firm on July 25, 1972. Thereafter, on July 26, 1972, a new firm was constituted consisting of Nemichand, Amar chand and Smt. Pushpa Devi. A minor, Rajesh Kumar, was also admitted to the benefits of the partnership. The assessee -firm filed two separate returns relating to the two different periods pertaining to the old and the new firm. The ITO framed a single assessment for the entire period. The AAC rejected the assessee's, appeal and affirmed the view taken by the ITO. The further appeal of the assessee to the Tribunal has, however, succeeded. The Tribunal has held that the two firms were separate entities in respect of which two separate assessments should have been made for the two differ ent periods. Aggrieved by this decision of the Tribunal, this reference has been made for answering the above questions of law at the instance of the Revenue. In our opinion, the facts found by the Tribunal and on the basis of which these questions have been referred for our decision leave no doubt that the present is not a case of a mere change in the constitution of the firm governed by S. 187 of the Act. There is a clear finding that the two firms are distinct and there was a definite gap between the dissolution of the first firm, as a result of which three out of four partners retired from the firm and constitution of a new firm at a later date, in which one of the earlier partners has been included. On these facts, the Tribunal was justified in the view which was taken.
(3.) CONSEQUENTLY , the reference is answered against the Revenue and in favour of the assessee as under: "The Tribunal was justified in holding that there were two firms so that two separate assessments were required to be made in the manner indicated by it.;