This is an appeal under the provisions of section 66-A of the Indian Income-tax Act, 1922, from a judgment and decree of the High Court of Judicature at Lahore dated 8th April, 1944, delivered and passed on a reference made by the Income-tax Appellate Tribunal, Punjab, under section 66(1) of the Indian Income-tax Act, 1922 (Act XI of 1922), as subsequently amended and hereinafter referred to as “the Act.”

The year of assessment concerned is 1938-1939. The question referred to the High Court by the Income-tax Appellate Tribunal (hereinafter called “the Tribunal”) was as follows:-

"Whether in the circumstances of this case, there could be a valid partnership between Lachhman Das as representing a Hindu undivided family on the one hand and Daulat Ram, a member of that undivided Hindu family in his individual capacity, on the other?"

This question was decided by the High Court in the negative-thereby reversing; the decision of the Tribunal dated 8th September, 1942.

A Hindu named Tulsi Ram had two sons, Chunilal and Lachhman Das (the appellant). Chunilal had three sons and Lachhman Das had seven sons two of whom were named Daulat Ram and Kanhaya Lal. Shortly before his death in 1930, Tulsi Ram made a gift of Rs. 30,000 to Daulat Ram. Daulat Ram deposited this sum at interest with the firm of the joint family carried on by Chunilal and Lachhman Das. The family was governed by the Mitakshara Law.

In or about 1938, a partition took place between Chunilal and his sons on the one hand and Lachhman Das and his sons on the other. Lachhman Das and his sons, however, remained joint. Daulat Ram was repaid his deposit, which, with interest, had increased to Rs. 48,000, and this sum he invested in certain mills called the Indian Woollen Textile Mills. It is undisputed that this sum was his separate property. It has been found as a fact by the Tribunal and that question is not now before this Board that the mills were the property of a partnership consisting of the undivided family of Lachhman Das and his sons of the one part and Daulat Ram in his individual capacity of the other part. In the assessment for the year 1938-39 on the appellant the question arose whether for the purposes of such assessment the mills could be held to belong to the joint family of the appellant and his sons or to a partnership consisting of the joint family of the one part and Daulat Ram and Kanhaya Lal of the other. In his assessment order dated nth July, 1941, the Income-tax Officer, Amritsar held that the mills belonged to the joint family and that the sum of Rs. 48,000 should be treated as a loan by Daulat Ram to the family. The assessment was made accordingly. The appellant appealed against the order to the Appellate Assistant Commissioner of Income-tax, who, by his order dated 1st November, 1941, upheld the order of the Income-tax Officer. The appellant thereupon appealed to the Tribunal against this order of the Appellate Income-tax Commissioner. The contention that Kanhaya Lal was a partner, which had been urged in the previous proceedings, was given up at the hearing. By its order of 8th September, 1942, the Tribunal allowed the appeal, holding that the mills belonged to a partnership consisting as stated above. The Tribunal held that Daulat Ram received as aforesaid by a gift from his grandfather as early as 1929-30 a sum of Rs. 30,000 which he at first invested in the joint family business and subsequently, when it had increased to Rs. 48,000, he invested it in the mills. This investment has all along been treated by the Income-tax Department as the individual asset of Daulat Ram, and the interest earned on that amount from the business had been included in his separate assessment and had been allowed as such in the assessment of the mills for 1938-39. The Tribunal went on to add that, in view of this treatment of the capital as well as the interest, they found it difficult to appreciate the conclusion of the Income-tax authorities that Daulat R