The main legal point established in the judgment is the interpretation of the instrument and the precedent to determine the nature of the payment as a capital expenditure, as well as the interpretation of Section 44 of the Income Tax Act to uphold the jurisdiction of the Income Tax authorities.

1. Two questions have been referred to us by the Commissioner of Income Tax, vis.:

(1) Whether the sum of Rs. 30,450 paid by the assessee to the Government under the instrument of lease dated 2nd July, 1930, is inadmissible as a revenue expenditure; and

(2) Whether after dissolution of the partnership the Income Tax Officer had jurisdiction to assess the firm as a unit and whether Section 44 of the Act gives jurisdiction to the officer both to make a joint and several assessment or whether the individual partners alone are liable to be assessed in respect of their proportionate shares.

2. With regard to question No. 1, the facts are quite sufficiently, stated by the Commissioner of Income Tax in his letter of reference, but, quite briefly they are that the assessee by a deed dated the 2nd July, 1930, got the exclusive right to excavate shells lying under Government property for three years for a payment of Rs. 30,450 payable by certain instalments and described in the instrument as regards Rs. 10,150 (being one-third of the amount stated) as "the annual lease amount". This sum of Rs. 30,450 was originally allowed to be deducted by the Income Tax Officer as being a payment out of revenue and not a capital expenditure. Subsequently, having regard to this High Courts decision in U. Chengalvaroya Mudaliar v. The Commissioner of Income Tax, Madras (1934) 7 I.T.C. 323, that allowance was cancelled and the sum was treated as a capital expenditure in the hands of the assessee. Hence this reference. In our view, the facts of this case are not distinguishable from the facts in Chengalvaroya Mudaliars case. There it was held that having regard to the instrument, the expenditure was an initial expenditure without which the assessee could not even have begun winning the shells and it was, therefore, a capital expenditure. We have had addressed to us a strenuous argument by Mr. Subbaroya Aiyar that there is a very material distinction between the words in the instrument in this case to those in Chengalvaroya Mudaliars case. He contends that as the words "annual lease amount" appear in the instrument in question here and do not appear in the instrument in Chengalvaroya Mudaliars case, it renders the agreement in question a rental agreement and that full significance must be given to the words "annual lease amount" and they must be taken as showing that the payment to be made under the instrument was a payment by way of rent and therefore a revenue expenditure and not a capital expenditure as in Chengalvaroya Mudaliars case. We are unable to see that those words make any material difference. The transaction in question is exactly the same as that in Chengalvaroya Mudaliars case and the use of the words "annual lease amount" does not, in our opinion, alter its nature. The answer to the first question must be in the affirmative.

3. With regard to the second question, the assessment here was made by the Income Tax authorities under Section 44 of the Act which reads as follows:

Where any business, profession or vocation carried on by a firm has Sheen discontinued, every person who was at the time of such discontinuance a member of such firm shall be jointly and severally liable for the amount of the tax payable in respect of the income, profits and gains of the firm.

4. The object of that section is perfectly clear. It is to enable the tax on the profits of a firm which has been discontinued to be got by the Income Tax authorities and to prevent the avoidance of taxation, by the discontinuance of the firm. The words are, in our opinion, perfectly clear but Mr. Subbaroya Aiyar contends that unless an assessment upon the firm has already been made before its discontinuance, which is not the case here the partners of it cannot be assessed jointly after its discontinuance, because according to him the words "tax payable" in the section mean "payable as the result of an assessment already made upon the firm". If this contention is correct, it leads