For the purpose of income-tax a firm is regarded as having its separate juristic existence apart from the partners who carry on the business.

1. Under Sec. 68(1), Income Tax Act, the Appellate Tribunal had referred the following question of law for the determination of the High Court, viz.,

"whether on the facts and in the circumstances of this case the Tribunal was right in holding that there was neither a discontinuance in, nor any succession to, the appellants business as contemplated by Sec.25(3) and Sec.25(4) of the Income Tax Act."

2. The material facts leading up to this reference are not in dispute. The assessee was a firm named Jittanram Nirmalram constituted of four partners, viz., Rai Bahadur Ramchandram, Lakshmi Narain Bhadani, Vishnu Prasad Bhadani and Bhagwandas Bhadani. It is stated that on 9-11-1942, Bhagwandas gave a notice severing his connection with the firm and commencing a new business of his own Known as Nirmalram Hariprasad. At the time when Bhagwandas gave the notice and severed his connection his share in the profits and assets was computed to be over one and a half lacs which amount was paid to him partly in, cash and partly by allotting to him a cloth shop previously carried on by the firm.

It is conceded that after 9-11-1942 the firm continued to deal in grain, hardware, sugar, petrol, kerosene oil and also carried on money-lending business as before. The assessee claimed before the income-tax department that on account of the circumstance that Bhagwandas had severed his connection with the firm there was a discontinuance of business within the meaning of S. 25(4) of the Income-tax Act. This argument was rejected by the Income-tax Officer. The assessee made an appeal to the Appellate Assistant Commissioner and also to the Income-tax Tribunal. His appeal was unsuccessful. At his instance the Appellate Tribunal has referred the question of law which has been formulated above.

3. When the case first came before the High Court, Mr. Jain on behalf of the assessee conceded that he would not press the argument that there was discontinuance of business within the meaning of Sec.25(3), Income-tax Act.

But the learned counsel laid stress on the argument that there was succession within the meaning of Sec.25(4) and the Income-tax authorities have misapplied the law in refusing to grant relief to the assessee under Section 25(4), Income-tax Act. The High Court was not however satisfied that the statement of the case was sufficient to enable it to determine the question. For this reason the High Court referred the case back to the Appellate Tribunal to make a further statement on two questions of fact, viz., (1) whether the business of the firm Jittanram Nirmalram as constituted before 9-11-1942 was at any time charged under the provisions of Income-tax Act of 1918 (Act 7 of 1918); and (2) whether upon the facts proved the firm Jittanram Nirmalram was dissolved on 9-11-1942 as a result of the severance of Bhagwandas Bhadani, or, in the alternative, whether there was no dissolution of the partnership but Bhagwandas Bhadani merely retired from being a partner of the firm.

4. We have now before us the additional statement of the case sent by the Appellate Tribunal and we have heard further arguments on behalf of the assessee and on behalf of the department on the manner in which the question referred to us should be answered.

5. It was contended by the learned Standing Counsel that there was no case of succession within the meaning of the statute since Bhagwandas Bhadani having severed his connection with the firm was granted the Gaya cloth branch of the business partly in lieu of his share of the assets. The argument was stressed that in order to claim the benefit of Sec.25(4) there must be a succession to the entire quantum of business. It was pointed out that in the present case there was not only a change in the constitution of partnership but the Gaya cloth branch did not constitute a portion of the business of the assessee firm after Bhagwandas Bhadani severed his connection with it in support of his argument learned counsel relied upon In