DIXIT, C. J. : In this reference under Section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee Messrs. Dayahhai and Co. of Barwani, the question posed for our answer is :

"Whether on the facts and in the circumstances of this case, the assessee is entitled to registration under Section 26-A of the Indian Income-tax Act for the assessment year 1956-57 ?"

2. The facts of the case are as follows. One Dayabhai was carrying on under the name and style of "Dayabhai and Co." the business of plying buses and trucks, and exhibition of cinema films. The permits for the running of stage carriages and trucks issued under the Motor Vehicles Act, 1939, were in the name of Dayabhai. In August 1964, Dayabhai admitted his brother Chhotanhai as a partner in this business. A partnership deed was executed between the two brothers on 1st August 1954. Under the agreement the two brothers shared equally the profits and losses of the partnership business which according to the deed consisted mainly of "Bus plying and Cinema exhibition". The partnership business commenced from 1st August 1964. Clause 3 of the agreement between this two brothers stated :

. . Prior to the formation of firm Motor Bus and Truck plying business at Barwani was being carried on by Shri Dayabhai as a proprietary concern. But due to lack of proper administration, the business was running in losses and to improve efficiency in management he admitted Shri Chhotabhai Poonambhai as a partner and agreed to carry on the business of bus plying and Cinemas in partnership and accordingly, this partnership firm has been constituted."

According to the deed the capital contributed by the partners was to be credited. In their respective accounts. It said nothing about the transfer to the partnership firm of any permits held by Dayabhai or of any assets including buses and trucks belonging to him. In the statement of the case sent up by the Tribunal it has been said that on the formation of the firm on 1st August 1954 all the assets and liabilities of the old business which was carried on by Dayabhai as an individual were transferred to the firm and that in the balance-sheets as on 31st March 1955 and 31st March 1956 the firm showed the buses as assets of the firm itself and the cost of the buses purchased after the constitution of the firm was debited to the capital investment account and provision was made on that basis for depreciation.

3. For the assessment year 1956-57, the accounting year of which ended on 31st March 1956, the firm which under the deed dated 1st August 1954 bore the name "Messrs. Dayabhai and Co" made an application for registration under Section 26 A of the Act. This application was rejected by the Income-tax Officer.

4. In rejecting the claim for registration the Income-tax Officer relied on Sections 31 and 59 of the Motor Vehicles Act, 1939 and the decisions of the Madras High Court in M. Him Gowder v. Naga Maistry AIR 1957 Mad 620. Velu Padayachi v. Sivasooriam Pillai ILR 1950 Mad 987 : (AIR 1950 Mad 444) (KB) and D. Mohideen Sahib and Co. v. Commissioner of Income-tax Madras, 1950-18 ITR 200 (AIR 1950 Mad 451) and that of the Kerala High Court in Commissioner of Income tax Mysore, T.C. Coorg and Bangalore v. Union Tobacco V. Ernakulam, 1961-41 ITR 115 : (AIR 1960 Kerala 576). He gave as his reasons that as the partnership business of plying buses was carried. on the strength of permits obtained and standing in the name of Dayabhai, the partnership constituted by the two brothers involved transfer of vehicles and permits in contravention of the provisions of Sections 31 and 59(1) of the Motor Vehicles Act, 1939, and, therefore, the partnership was not valid. The Income-tax Officer look the status of the assessee as 'association of persons'. The Appellate Assistant Commissioner of Income-tax endorsed the decision of the Income-tax Officer.

5. The assessee then preferred a second appeal to the Tribunal contending that the partnership con