Judgment

HIDAYATULLAH, J. : The Commissioner of Income-tax, Bombay Circle II, has filed this appeal after obtaining special leave, against the judgment of the High Court of Bombay in an Income-tax reference under S. 66(2) of the Income-tax Act. The National Syndicate, Bombay (referred to in this judgment as the respondent) was a firm consisting of three partners. This firm acquired on January 11, 1945, a tailoring business as a going concern from one Chambal Singh for Rs. 89,321/-. Included in this amount was the consideration paid for sewing machines (Rs. 72,000) and a motor lorry (Rs. 8,000). The assessment concerns the year of account of the respondent, January 11, 1945 to February 28, 1946. The business of the respondent was to prepare garments for Government departments, and during the war years, this appears to have been profitable business. Immediately after the respondent acquired this business, the last war came to an end, and the respondent found it difficult to continue the business. It, therefore, closed its business in August, 1945. Between August 16, 1945 and February 14, 1946, sewing machines were sold at a loss of Rs. 41,998/-. The motor lorry was also sold on Februa