SETHURAMAN J.

In this reference under section 256(1) of the Income-tax Act, 1961, the following question of law has been referred :

"Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that there can be no assessment of any excess under the provisions of section 41(2) and of capital gains ?"

The assessee is a firm consisting of two partners, namely, Abdullah Rowther, the father, and Mohamed Abdul Khader, the son. The firm was constituted under a partnership deed dated September 28, 1950. The firm was carrying on the business of motor transport, plying buses and lorries. The vehicle together with their route permits stood in the name of Abdullah Rowther, the father. The total cost of the buses in the accounts of the firm as on March 31, 1962, was Rs. 2, 17, 821. The liabilities of the firm as on that date came to Rs. 4, 21, 337. Because of financial difficulties, the firm felt that it was advantageous to enter into a partnership with two other persons to carry on the business of plying the motor buses. A new firm has come into existence with four partners on October 1, 1962, under the name and style of Messrs. Abdul Khade