Commissioner of Income Tax vs A.M. Moosa

G.H. Guttal, J.—The application of the petitioner u/s 256(1) of the Income Tax Act, 1961, for a reference of a question of law arising out of the order of the Tribunal was rejected by the Income Tax Appellate Tribunal by its order in R. A. No. 239/(Coch) of 1985. The Commissioner of Income Tax who is aggrieved by that order urges that a question of law arises out of the order of the Tribunal and that it ought to be referred u/s 256 of the Act.

The question relates to the assessment of the income of A. M. Moosa, the respondent, who was a partner in the business establishment known by the name M/s. Bharath Sea Foods. On December 1, 1975, by a deed of dissolution, K. S. Mohammed and Smt. M.L. Karthikai Kumari retired from the partnership business. The partnership deed records that, as from the date of dissolution and upon the retirement of the two partners, "the partnership business of M/s. Bharath Sea Foods stands dissolved and shall always been deemed to have been dissolved." The contract between the parties consists of mutual promises. The retiring partners handed over the assets and liabilities of the business to the continuing partner, Moosa, in consideration of which Moosa agreed to render monthly accounts upon realisation of the assets. Under Clause (3), all the assets and liabilities of the business of M/s. Bharath Sea Foods except those reserved under Clause (7) were taken over by Moosa as absolute and full owner. There is no reference in the deed of dissolution to the status of the business after the date of dissolution which may lead to an inference that Moosa took over the running business of the firm. .

On these facts set out in the deed of partnership, a question of law does arise because the deed of partnership is required to be interpreted with a view to finding out whether Moosa took over the business of the firm as going concern or the business came to an end with the dissolution of the firm and all that Moosa took over were the assets and liabilities. Since the matter involves the interpretation of a document like the deed of partnership, the question is one of law and the Tribunal was in error in not making a reference u/s 256 of the Act. We are, however, of the view that question No. 2 raised by the petitioner does not arise out of the order of the Tribunal.

We, therefore, allow the original petition and direct the Income Tax Appellate Tribunal, Cochin Bench, to draw up a statement of case and refer the following question for the decision of this court, namely :

"1. Whether, on the facts and in the circumstances of the case (and on an interpretation of the dissolution deed), the Tribunal is right in holding that:

(i) the business undertaking of the respondent as such has been completely taken over by the (continuing partner) assessee and as a going concern ;

(ii) there is no question of any transfer when the firm is dissolved ;

(iii) no new undertaking has come into existence and it is not formed by the transfer to a new business ?"