Judgment

SHAH, J.:- The respondents - a firm which carries on the business of manufacturing, purchasing and selling cloth closed its manufacturing side of the business and transferred its machinery to a private limited company in the share capital of which the partners of the firm had the same interest as they had in the assets and profits of the partnership. In the assessment year 1959-60 the Income-tax Officer, Surat, brought to tax under Section 10 (2) (vii) proviso (ii) of the Income-tax Act, 1922, Rs. 40,743/- being the excess realised over the written down value of the machinery. But the Income-tax Appellate Tribunal held, relying upon the decisions in Commissioner of Income-tax v. Sir Homi Mehta s Executors, 28 ITR 928; Rogers & Co. v. Commissioner of Income-tax, 34 ITR 336; and Commissioner of Income-tax v. Mugneeram Bangur & Co., (1963) 47 ITR 565 (Cal) that the firm "transferred the machinery only with a view to carry on the business as a company rather than as a firm", and by that transfer no profit in a business sense could be deem to have resulted to the firm.

2. The following question referred by the Tribunal:

"Whether, on the facts and in the circumstances of the case,