Kotval, C.J:— The two questions which have been referred for our decision arise under the following circumstances: The firm of Messrs. Merwanji Kola and Co., solicitors of Bombay, commenced business in February 1915. When the partnership was formed there were the following partners: (1) Merwanji Kaikhushru, (2) Dinshaw D. Romer, (3) H.K Kola, (4) M.R Billimoria, (5) B.D Doctor and (6) R.D Dallas. In the years 1921 and 1931, there were some changes in the partners constituting the firm brought on by retirement and admission of new partners. The principal partner, Merwanji Kaikhushru, died in 1928.

2. In 1931 two instruments of partnership came to be executed whereby one M.P Dadachanji was taken in as a partner. Thus, there were five partners. The two deeds of partnership executed at this time were respectively dated 12th October, 1931, and 11th November, 1931. One of the five, H.K Kola died in December 1940, and the remaining four partners continued the firm and the business though a new deed of partnership came to be executed taking effect from 1st April, 1941. This firm continued till 31st March, 1948. In 1948, in consequence of certain disputes between the partners, which were referred to the arbitration of Sir Jamshedji B. Kanga, the firm was dissolved as from 1st April, 1948, by virtue of an award given by Sir Jamshedji. It is not in dispute now that this date of discontinuance of the business was 31st March, 1948, though at one time the department had contended that the discontinuance took place on 1st April, 1948. Thus, the old firm of Merwanji Kola & Co., continued under the same name and style despite these changes but from 1st April, 1948, a completely new firm came into being under the name and style of Romer Dadachanji Sethna & Co.

3. On the discontinuance of business from 31st March, 1948, the firm of Merwanji Kola & Co. claimed exemption in respect of its income for the period between the end of the previous year and the date of its discontinuance of business under section 25(3) of the Indian Income-tax Act. So far as the department is concerned it has disputed this claim of the firm on the ground that the firm which was dissolved on 31st March, 1948, did not carry on the business of the firm which had paid the tax in 1918. It was urged that in 1931, when the two partnership deeds were executed, the business of the old firm, Messrs. Merwanji Kola & Co., was discontinued and therefore exemption could not be claimed in respect of the business which was discontinued on 31st March, 1948. The Appellate Assistant Commissioner relied upon the provisions in the two partnership deeds and upon certain representations or statements made by the firm in an appeal preferred by it in regard to its assessment for the assessment year 1933–34 (the account year commencing from 1st April, 1932) and they held that upon the two documents and other facts and circumstances the business was discontinued in 1931, when the new partnership deeds were entered into and, in any case, the firm was estopped by the stand which it had taken in the appeal which it had filed in 1933.

4. The Tribunal has reversed the decision of the Appellate Assistant Commissioner and has come to the conclusion that, though no doubt it could be said that the old firm of Merwanji Kola & Co. was dissolved in 1931 and its movable assets taken over by the new firm, what section 25(3) required was that the business of the firm should have been discontinued and so far as the business was concerned, the business was not discontinued. Upon the provisions of the partnership documents and other circumstances the business continued as the same business of the old firm Merwanji Kola & Co. till March 31, 1948.

5. The second question referred largely turns upon the provisions of the two instruments of partnership dated 12th October, 1931 and 11th November, 1931, which are annexures “A” and “B”. We refer only to such of the clauses as were relied upon by either party. In the preamble the names of the old firm are mentioned and they have been described as parties of the first, second, third and fourth parts and then the preamble recites “AND WHEREAS the said Minocher Palanji Dadachanji had been carrying on the same business till recently in partnership with others AND WHEREAS the said parties of the 1st, 2nd, 3rd and 4th parts have agreed to admit the said Minocher Palanji Dadachanji as a partner in their said firm of Merwanji Kola & Co. as from the 1st day of April, 1931 NOW IT IS HEREBY AGREED by and between the parties hereto as follows: The second clause of the agreement says that the name and style of the said partnership shall be Merwanji Kola & Co. as before. The partnership was for five years certain from the 1st day of April, 1931, subject to the provisos with which we are not here concerned. Clauses 4 and 5 then provided as follows:

“Clause 4: The partnership shall buy and take over the furniture, fittings, safes, books, library and other movable property belonging to the parties hereto of the 1st, 2nd, 3rd and 4th parts (except outstandings) and lying at their office at 14-K, Hamam Street, in Fort, on the 1st day of April, 1931, at a valuation to be made by the partners.

Clause 5: All moneys required by the partnership as capital or for the purpose of buying the said property referred to in the foregoing clause or for carrying on the business of the partnership and meeting the expenses of the establishment, payment of counsel's fees, etc., shall be contributed from time to time by the parties in proportion to the shares which the parties are entitled to in the profits and losses of the said business.”

6. Clause 12 provides for the goodwill of the business and it says that: “At the expiry of the said term of five years the name and goodwill of Merwanji Kola & Co. shall belong to such of the parties hereto as may not have retired from the firm or died before then PROVIDED that if the said M.P Dadachanji does not desire then to continue as member of the firm for the period and on the terms which may be agreed upon between him and the others he shall have no claim to any interest or share in the goodwill and name and the same in that event shall belong exclusively to the parties who shall continue to be members of the firm.”

7. Supplemental to this instrument dated 12th October, 1931, was another instrument executed on 11th November, 1931, by the four erstwhile partners and the new partner, Mr. M.P Dadachanji. This document purports to be only a memorandum of terms and it recites that the new partners have all agreed to do business of solicitors from the 1st April, 1931, under the name and style of Merwanji Kola & Co. and that the period of the partnership was to be five years from 1st April, 1931. Then the document defines the respective shares of the new partners and makes other provisions for the capital of the business. Clause 5 of this document was strongly relied upon on behalf of the department and clause 5 says that the firm shall buy up and take over the books, furniture and other movable property (except outstandings) of the old firm which carried on business in the name of Merwanji Kola & Co. and which was dissolved on 31st March, 1931, at a valuation to be made by the partners. There was in clause 6 of this document a further provision made in respect of the goodwill of the partnership. Clause 6 provides that the death or retirement of a partner shall not dissolve the partnership as between the surviving or continuing partners, who shall continue the business for the residue of the said term of five years. Then there was a proviso which says that “the retiring partner as well as the representative of a deceased partner shall not be entitled to claim anything in respect of the goodwill or name of the firm or any component part therof…”

8. Now undoubtedly the effect of these two documents is that the former partnership was dissolved and the new partnership Merwanji Kola & Co., which came into existence from 1st April, 1931, took over the movable assets of the old firm and the partners agreed to contribute the capital of the company in proportion to the shares which each partner had. It was urged that these were all indications that the business of the old firm had ceased particularly since the partnership itself was dissolved by clause 5 of the instrument of partnership dated 11th November, 1931

9. The documents themselves make a distinction between the business carried on by the firm of Merwanji Kola & Co. and the firm. That is clear from clause 5 of the first partnership deed and from clauses 5 and 6 of the second partnership document. There is no provision in either of the two documents that the business of the firm shall cease. On the other hand, all the provisions that are made by the two partnership documents are with a view to ensuring that the business of the firm would be carried on and they provide for the transference of the same business to the new partnership. The provision has been made in clause 4 of the instrument of partnership dated 12th October, 1931, for the buying and taking over of the movable assets of the old partnership and in clause 5 for the provision of capital for carrying on the business of the old firm. The moneys required by the new partnership were to be contributed by the partners in proportion to the shares which the partners were entitled to in the profits and losses in the said business. Similarly, in clause 5 of the second instrument of partnership dated 11th November, 1931, although the old firm of Merwanji Kola & Co. was to be dissolved on 31st March, 1931, the new firm was to buy up and take over the books, furniture and other movable property (except outstandings) of the old firm which carried on business in the name of Merwanji Kola & Co. Thus, it is clear beyond any doubt upon the provisions of these two documents that the whole object of the documents was to reconstitute the firm with a view to carrying on the business as before.

10. The whole basis on which the relief can be granted under sub-section (3) of section 25 is found stated in the opening words of sub-section (3): “Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918 (VII of 1918), is discontinued…” The requirement of the sub-section is that the business should be discontinued and not that the proprietor of the business or the proprietary body which owns the business should be discontinued. It is the failure to make that initial distinction that resulted in the order of the Appellate Assistant Commissioner, for he relied upon the provisions of clause 5 of the second document to stress that the partnership had been dissolved and therefore the business was discontinued. That error which was corrected by the Tribunal when they found in paragraph 7: “Thus we find that although there was a change in the constitution of the partners from time to time from the commencement of the business of Merwanji Kola & Co., at no time was there discontinuance of that business before March 31, 1948, when the business was discontinued by the decree of the court.”

11. This distinction between the business as such and the body or legal entity which owns the business was drawn in a decision of this court in Commissioner of Income-tax v. Sanjana & Co. Ltd. 1925 2 I.T.C 110, 117. In that case a company which went into voluntary liquidation transferred its business through its liquidators to a new company incorporated for that purpose and it was held that the liquidators of the old company were not entitled to any refund claimable under section 25(3) for the simple reason that the business was not discontinued though a completely different legal entity became its owner after the business was transferred to the new company. The learned Chief Justice at page 92 quoted with approval the remarks of Lord Justice Scrutton in Bartlett v. Inland Revenue Commissioners: “The answer to that appears to me to be very simple. The trade was not discontinued in the year. The trade was sold to a company and continued during the whole year; and in my view, therefore, section 24 of the Act of 1907, has no application to this case.” The equivalent provision in the English Act was section 24(3) of the Finance Act, 1907. The other learned judge, Mr. Justice Coyajee, pointed out at page 93: “On the facts of this case it is clear that when the company sold the business, including the goodwill and the benefit of all running contracts, to the consolidated Mills Stores Co., Ltd., the ownership of the business was changed, but the business was not ‘discontinued’.”

12. Reliance was placed on behalf of the department upon a decision of this court in In re Motichand and Devidas2. The only similarity between the facts of that case and the present one is that there also a firm of solicitors was concerned but all the rest of the facts were wholly different. The firm commenced business in 1909. In 1936, a son of one of the partners, Tanubhai, was taken as a partner. Devidas, father of Tanubhai, died in 1940, with the result that the firm was dissolved and a fresh partnership between Motichand and Tanubhai was entered into with effect from 8th July, 1940. This new firm claimed exemption in respect of its income in the assessment year 1940, claiming that the old firm had paid tax under the Indian Income-tax Act of 1918. It was held that they were not entitled to the relief because there had been a discontinuance of the business of the old firm on the 8th July, 1940, when the new partnership was commenced. The reasons for so holding are to be found in the particular facts of that case which were stressed in the course of the judgment and the facts were that in that case not only were the entire assets of the firm of 1909 taken over by the new firm, but there was no provision for the goodwill of the business. Moreover, it was specifically emphasised that the entire business must have been discontinued because there was evidence that the new firm between Motichand and Tanubhai took fresh retainers from its clients thus showing a completely new engagement. At page 545 the Acting Chief Justice pointed out: “In the present case it is admitted that fresh retainers were taken by the new firm. A retainer is nothing more than an authority given by a principal to the agent. On the change in the partner* ship firm, as the firm will be a new firm, that is different from what it was before, in law, there would be a different agent and therefore, a fresh retainer will be necessary. That fact however does not affect the answer to the question whether there has been discontinuance or not. In the present case there is nothing to show that anything which belonged to the old firm had been continued after 8th July, 1940, except for the purpose of winding up the affairs of the old firm. The fact of new retainers being given indicates that the clients had intimation that the business of the old firm had come to an end and if they wanted to employ the new firm fresh contracts had to be executed.” This special circumstance is what induced the Division Bench in that case to hold that the business had been discontinued in the circumstances of that case. None of these facts are present here. On the contrary, as we have shown, the two partnership documents by their very terms contemplate that the business of Merwanji Kola & Co. shall continue and be taken over by the new partnership which came into being from 1st April, 1931. In the light of these authorities and having regard to the circumstances which we have referred to above, we think that the decision of the Tribunal on the second question referred to us was a correct decision.

13. As to the question of estoppel (the first question referred), reliance was placed upon a statement made in a copy of the grounds of appeal filed by the new firm on 26th March, 1933. In the facts stated at the head of the memorandum of appeal the following statement occurs in paragraph 3:

“The said firm was dissolved on the death of the said Mr. Merwanji Kaikhushru, and thereafter the business was continued by the remaining partners who, however, continued the share of Mr. Merwanji in the said firm till 31st March, 1931. The said firm was, therefore, finally dissolved on 31st March, 1931, and the new firm of Messrs. Merwanji Kola & Co. was formed with the partners mentioned in paragraph 1 hereof. The said new firm did not take over any of the outstandings or liabilities of the old firm. The new firm, however, agreed to collect the outstandings of the old firm on behalf of that firm and to pay the amount so recovered into the account of the old firm. Fresh books of account were opened by the new firm, and the new firm had nothing whatever to do with any of the outstandings or liabilities of the old firm of Messrs. Merwanji Kola & Co.”

14. It was this passage which was relied upon to urge that the assessee had already admitted that the firm was finally dissolved on 31st March, 1931, and therefore the business was discontinued. We are unable to read into this statement any admission that the business of the old firm was discontinued though there is a clear statement that the old firm was dissolved, and a new firm came into existence which took over the assets. On the contrary, there is a specific averment in this passage “and thereafter the business was continued by the remaining partners” showing that it was the case of the assessee that though the firm was dissolved and a new firm came into existence, the business remained as before and was continued by the remaining partners. We can see, therefore, nothing contrary to or conflicting with the stand which the assessee has taken in the present proceeding. On the contrary, the case made out in the grounds of appeal of 1933, is the same as the case now urged on behalf of the assessee namely that the business was continued and was not discontinued in 1931. It was only because the income-tax authorities failed to distinguish between the dissolution of the firm and the discontinuance of the business that they held that this statement estopped the assessee from taking its present stand. That error was rightly corrected by the Tribunal in paragraph 5 of its order. We hold that the assessee is not estopped from contending that there was no discontinuance from 1931, although the assessee had taken its stand in 1931 that the assessee was a new firm and had no connection with the old firm and that the old firm was continued.

15. In the result, we uphold the decision of the Tribunal. The question No. 1 is answered in the negative and the question No. 2 is answered in the affirmative. The Commissioner will pay the costs of the assessee.