1. This is a reference at the instance of the Revenue in which the question of law which has been referred to the High Court for opinion is as follows :

"Whether, on the facts and in the circumstances of the case, the assessee was entitled to have extra payment made by it to the estate of the deceased partner towards his share in the appreciation in the value of the shares added to the original cost of the shares for the purposes of computation of capital gains arising on the sale of those shares ?"

2. The assessee, M/s. Patel Brothers, Bombay, is a partnership firm constituted under a partnership deed dated October 18,1949. Initially there were three partners who were brothers, viz., Sorab Pestonji Patel, Jehangir Pestonji Patel and Shavak Pestonji Patel. The partnership deed specifically provided that the death or retirement of any partner shall not dissolve the partnership and the partnership shall continue with the remaining partners.

3. Sorab Pestonji Patel died on 23rd October, 1961. On his death, his interest in the partnership was valued in accordance with cl. 14 of the deed. Clause 14 of the deed, in so far as it is relevant, reads as follows :

"The death or retirement of any of the partners shall not dissolve the partnership as to the remaining of them. On the death or retirement of any of the partners a general account shall be taken by and between the surviving partners and the legal representatives of the deceased partners, or between the continuing partners and the retiring partner as the case may be, of the capital assets (excluding the goodwill) credits, liabilities and transactions of the partnership......."

4. The effect of this clause is that the retirement of any of the partners does not dissolve the partnership as to the remaining partners. It provides that on the death of a partner the accounts shall be prepared by the auditors of the firm and on the amount payable to the legal representatives of the deceased or to the retiring partner being ascertained in the manner above mentioned, the whole of the partnership business and the assets, effects, outstandings and credits shall absolutely vest in and belong to the surviving partners or the continuing partners, as the case may be, for their own benefit. Clause 14 also provided that the audited balance-sheet and profit and loss account of the firm prepared by the auditors of the firm for the purposes of this clause shall be conclusive and binding on all the partners and the legal representatives of a deceased partner or the retiring partner shall be bound to accept as conclusive the balance-sheet and profit and loss account prepared by the firm's auditors and signed by the partner (deceased).

5. In accordance with cl. 14 of the partnership deed, the assessee-firm got the assets of the partnership firm, both movable and immovable, valued through their chartered accountants, M/s. Batliboi & Purohit, and 1/3rd share of the deceased in the appreciation or depreciation of the assets was credited or debited, as the case may be, to the account of his estate with corresponding credit or debit made in the account of the relevant asset. In other words, the book value of the assets underwent a change as a result of this valuation to the extent of the deceased's share in the appreciation or depreciation of each asset. The two surviving partners continued the firm and carried on the business without any break.

6. The accounting year of the firm was 1st October to 30th September. During the accounting years relevant to the assessment years 1962-63 and 1963-64, the assessee sold some of the shares which were held as investments by the firm and made some capital gain. While working out the capital gain for tax purpose the assessee took the difference between sale price and book value as it stood after the adjustment of the deceased partner's share in the appreciation or depreciation, as the case may be, of the investment concerned. The capital gain computed by the assessee was the difference between the sale price and the original cost plus or minus the deceased partner's share in the appreciation or depreciation, as the case may be, of the particular asset at the time of his death.

7. The ITO did not accept this mode of computation and he took the difference between the sale price of the shares and the original cost to the firm as the capital gain and included that in the assessment. In appeal by the assessee, the AAC also took the same view and held that the cost of the shares with the firm could not be enhanced by a mere book adjustment, as according to him, it could not be said that a firm has got any additional right in the shares on the death of one of the partners.

8. The assessee took the matter in appeal before the Appellate Tribunal. The question before the Appellate Tribunal was whether the payment made by the continuing partners to the estate of the deceased partner towards his share in the appreciation of the shares should be added to the original cost of acquisition of the shares for the purpose of ascertaining the capital gains. The Tribunal found that the partnership which continued with changed constitution after the death of the partner remained the owner of the shares without any break. On the basis of the two decisions of the Supreme Court in Kalooram Govindram v. CIT [1965] 57 ITR 335 and in Dhun Dadabhoy Kapadia v. Cit, Bombay.[1967] 63 ITR 651, the Tribunal took the view that the original cost of acquisition need not remain the same and the subsequent events which have a bearing on the cost will have to be taken into account. Thus, according to the Tribunal, if the assessee is made to incur an expenditure for the purpose of keeping the asset, that expenditure will have to be added to the original cost of acquisition. Holding that in this case the shares in question continued to be the property of the firm, the Tribunal took the view that what the firm paid to the estate of the deceased towards his share in the appreciated value of the shares was a payment to preserve and continue the ownership of the shares, and this payment was made under a contractual obligation in terms of cl. 14 of the partnership deed. The order of the Tribunal shows that the event which gave rise to the payment to the heirs of the deceased partner was subsequent to the original acquisition of the shares by the firm, and that is the principle enunciated by the above-mentioned Supreme Court decisions. The Tribunal has in terms held that there was no transfer of the shares of the remaining two partners and it has made it extremely clear that the payment made to the estate of the deceased by the firm was not for the purchase of shares but that the

"payment was made to remove the interest of the deceased partner in those shares which would have the effect of increasing the original cost of these shares in so far as the firm was concerned"

. The Tribunal thus held that the extra payment made by the partners to the estate of the deceased partner towards his share in the appreciation of the shares in question added to the original cost of the shares for the purpose of computation of the capital gains on the sale of those shares during the years under consideration. The order of the Tribunal will thus show that the addition to the value of the shares was considered as an expenditure for the purpose of keeping the asset, thus enabling it to be added to the original cost in question. Arising out of this order of the Tribunal, the question reproduced earlier has been referred.

9. Mr. Joshi, learned counsel appearing on behalf of the Revenue, has contended that the partnership firm is a separate entity under the I.T. Act, 1961, and even though there is a change in the constitution of the firm because of the death of one partner, the same firm continues and the shares in question continue to belong to the same firm. According to the learned counsel, therefore, there is no question of any capital asset being acquired by the firm because the firm continued to own the same asset. It is argued that the firm being a legal entity and the asset having belonged to the same firm, notwithstanding the death of a partner, the revaluation of the assets at the time of the death of one of the partners is made only for the limited purpose of determining the value of the share of the outgoing partner. What happens according to the learned counsel, on the death or retirement of one of the partners is, where the firm continues, there is a mere adjustment of the rights between the partners, and the amount payable to the retiring partner, or to the estate of the deceased partner, is really a debt due from the surviving partners. The revaluation of the assets made for the purpose of determining the value of the shares of the outgoing partner, according to the learned counsel, has no effect on the actual cost.

10. The proposition that the firm was a legal entity having an independent existence apart from its partners and that the same firm continued notwithstanding the retirement or death of one of the partners, where, under the partnership deed, the dissolution does not occur on the death of a partner, was seriously contested by Mr. Dastur on behalf of the assessee. It is contended by Mr. Dastur that though a partnership firm is made a taxable entity for the purpose of the I.T. Act, the partnership firm is not a legal entity and any property owned by the firm is really the property of the partners and the firm is only a compendious name for the partners who have agreed to carry on a business in partnership. The learned counsel for the assessee has contended that the deceased partner, in the instant case, had 1/3rd interest in the partnership assets and on his death, that share of 1/3rd has been acquired by the surviving partners. The learned counsel, however, made it clear that this acquisition did not result from any transfer by anybody and the acquisition was the result of the mode of settlement of accounts. The learned counsel contended that in the instant case we are not concerned with whether there was a transfer of the capital asset on the death of a deceased partner and all that we are required to find out is what the cost of acquisition of the 1/3rd share of the deceased partner. The learned counsel contended that the proper question to be posed in such a case was whether in the commercial sense a cost has been incurred or not, by paying the value of the share of the deceased partner to the estate or heirs of the deceased and, therefore, according to the learned counsel, commercially, the amounts which have been credited to the accounts of the outgoing partner must be taken into account as additional cost to the assessee-firm.

11. A large number of authorities have been cited by both the sides and we shall refer to such of them as have direct relevance to each question which arises for decision in this reference. At the outset it is necessary to refer to certain relevant provision of law. Under s. 2(31) of the I.T. Act, 1961, hereinafter referred to as "the Act", "person" in cludes a firm. Under s. 2(23) of the Act "firm", "partner" and "partnership" are defined as having the meaning respectively assigned to them in the Indian Partnership Act, 1932. It is further stated that the expression "partner" shall also include any person who, being a minor, has been admitted to the benefits of the partnership. There is no doubt that s. 4(1) of the Act provides that where income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of the Act in respect of the total income of the previous year or previous years, as the case may be of every person; having regard to the definition of "person" and "partnership", the income of the partnership firm will be subjected to tax. Indeed, Chap. XVI of the Act contains special provisions in ss. 182 to 189 which are applicable to firms and s. 182 and s. 183 specifically deals with assessment of firms.

12. Coming to the relevant provisions with regard to capital gains tax, s. 45 of the Act provides as follows :

"(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D and 54E be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place"

.

13. section 48 provides for the mode for computation of income chargeable under the head capital gains and it reads as follows :

"The income chargeable under the head 'Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto".

14. It may be mentioned here that it is the contention of the assessee that s. 45 which refers to transfer of a capital asset is not relevant for the purpose of this reference because the transfer of the shares was undoubtedly during the relevant assessment years and not at a time when one of the partners died on 23rd October, 1961. But according to the learned counsel what was relevant for the purpose of the present case was what was the cost of acquisition of the capital asset to the assessee-firm on 31st October, 1961. It may also be pointed out that by specific provisions made in s. 45(1)(ii), the provisions of s. 45 have been made inapplicable in the case of any distribution of a capital asset on the dissolution of a firm, body of individuals or other association of persons.

15. We shall first deal with the contention raised on behalf of the Revenue that when one of the partners dies or retires, having regard to the special provision in the deed of partnership that there is no dissolution of the firm, the same firm continues. It may be pointed out that s. 42 of the Indian Partnership Act provides, inter alia, that subject to contract between the partners, a firm is dissolved by the death of a partner. The normal effect of the death of a partner is that there is a dissolution of partnership, but such dissolution does not result if the partners have specifically agreed in the partnership deed that the partnership shall not stand dissolved by the death of a partner. Such a clause is to be found in the partnership deed in the instant case. The question which arises is whether a partnership firm is such an entity in law that notwithstanding the death of a partner, that entity does not undergo a change and whether the legal entity, as is contended by the learned counsel for the Revenue, continues notwithstanding the death of one of the partners. Heavy reliance has been placed by Mr. Joshi on certain observations of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, . Now, in Narayanappa's case, the question which arose before the Supreme Court was whether a document relinquishing interest of a partner in partnership assets which also comprised of immovable property was compulsorily registrable under s. 17(1) of the Indian registration Act and the Supreme court held that the interest of the outgoing partner was movable property. After referring to several provisions of the partnership Act, the Supreme Court observed as follows(p. 1303) :

"From a perusal of these provision it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in cl.(a) and sub-cls. (i), (ii) and (iii) of cl.(b) of s. 48. It has been stated in Lindley on partnership, 12th edn., at p. 375 :

What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This it is, and this only which on the death of a partner passes to his representatives, or to a legatee of his share.... and which on his bankruptcy passes to his trustee.'"

16. The passage quoted from the 12th edn. of Lindley on partnership is now to be found at p. 463 of the 14th edn. In the same case, in para. 5, the supreme court pointed out that the whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. In was pointed out that this property would be a trading asset of the partnership in which all the partners would have interest in proportion to the interest of the joint venture of a partner. It was then observed as follow (p. 1304) :

"The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon, among the partner, and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges."

17. Relying on these observations the learned counsel has contended that when it is said that the property is partnership property, the partnership must be understood as owning the property and the partnership must, therefore, be treated as an independent legal entity.

18. Now it is no doubt true that a partnership firm is made an assessable entity under the Act but under the partnership Act a partnership has not been given any legal status. It is not juristic person and the independent status given to the partnership firm under the Act has to be limited only for the purposes of that Act. This becomes clear from the decision of the supreme court in CIT v. R. M. Chidambaram Pillai [1977] 106 ITR 292. The question in that case was whether the salary paid to a partner of a firm, which grew and sold tea, was exempt under r. 24 of the Indian I.T Rules, 1922, to the extent of 60% thereof, representing agricultural income. In that context the supreme court dealt with exclusively the concept of a partnership firm and quoted with approval a paragraph from Lindley on partnership, 12th edn. p. 28 (14th edn., p. 29) and has observed (p. 297 of the report) as follow :

"Is the firm a person or a mere shorthand name for a collection of persons, commercially convenient but not legally recognised ? Under section 3 of the partnership Act it is not a person, but a relationship among persons. Lindley on partnership, 12th edition, page 28, has this :

The firm is not recognised by English lawyers as distinct from members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and action may now, speaking generally, be brought by or against partners in the name of their firm; but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer.'"

19. The supreme court has pointed out that the Indian law of partnership is substantially the same. The supreme court quoted with approval a passage from Dulichand Laxminarayan v. CIT [1956] 29 ITR 535, as follows (p. 298 of 106 ITR);

"'In some system of law this separate personality of a firm apart from its members has received full and formal recognition as, for instance, in scotland. That is, however, not the English common law conception of a firm. English lawyers do not recognise a firm as an entity distinct from the members composing it. Our partnership law is based on English law and we have also adopted the notions of English lawyers as regards a partnership firm.... It is clear from the foregoing discussion that the law, English as well as Indian, has for some specific purposes, some of which are referred to above, relaxed its rigid notions and extended a limited personality to a firm. Nevertheless, the general concept of a partnership, firmly established in both systems of law, still is that a firm is not an entity or 'person' in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership. According to the principles of English jurisprudence, which we have adopted, for the purposes of determining legal rights 'there is no such thing as a firm known to the law' as was said by James L.J. in Ex parte Corbett : In re Shand [1880] 14Ch D 122, 126(CA). In these circumstances to import the definition of the word 'person' occurring in section 3(42) of the General Clauses Act, 1897, into section 4 of the Indian partnership Act will, according to lawyers, English or Indian, be totally repugnant to the subject of partnership law as they know and understand it to be.'"

20. In Chidambaram Pillai's case [1977] 106 ITR 292, the supreme court also pointed out that this view accorded with the view taken by the supreme court in Narayanappa's case, . These authorities, therefore, clearly establish that a partnership cannot be treated as a "person" owing property and as pointed out by Lindley, any change amongst the partners destroys the identity of the firm.

21. The same position is reiterated by the supreme court in Malabar Fisheries Co., Calicut v. Commissioner Of Income Tax, Kerala.[1979] 120 ITR 49. The supreme court in that decision noticed the different notions which the commercial men and accountants on the one hand and lawyers on the other have respecting the nature of the firm, and quoted extensively from lindley on partnership, 12th edn., pp 27 & 28, to highlight the difference between the mercantile view and the legal view. After referring to the observations from Lindley, the supreme Court pointed out that though it was true that partnership property was regarded as belonging to the firm, that was only for the purpose of distinguishing the same from the separate property of the partners, and in law the partnership property was jointly owned by all the partners composing the firm. Once again the following passage from Lindley on partnership, 12th edn., at p. 359 was quoted :

"The expression partnership property, partnership stock, partnership assets, joint stock, and joint estate, are used indiscriminately to denote everything to which to which the firm, or in other words all the partners composing it, can be considered to be entitled as such."

22. The position with regard to the legal relationship between a partner and the partnership firm was stated by the supreme court in Malabar Fisheries company's case [1979] 120 ITR 49 as follows(p. 59) :

"Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have or common interest..... The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's right in the partnership assets amounting to a transfer of assets within the meaning of s. 2(47) of the Act."

23. It appears that it is now wholly impossible even to contend that a partnership firm has any distinct personality apart from its partners.

24. The decision of the Supreme Court in CIT v. A. W. Figgies and Co. [1953] 24 ITR 405, does not decide anything to the contrary and it is difficult for us to see what support the learned counsel for the revenue can draw from that decision, in support of his argument. As a matter of fact, that decision clearly lays down that a firm has no legal entity apart from its partner though under the Indian I.T. Act the position is somewhat different. This would be clear from the observations on p. 408(of 24 ITR) :

"It is true that under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners but it is also equally true that under that law there is no dissolution of the firm by the mere incoming or outgoing of partners. A partner can retire with the consent of the other partners and a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firm's name till dissolution. the law with respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict doctrine of English Common Law which refuses to see anything in the firm but a collective name for individual s carrying on business in partnership and the mercantile usage which recognizes the firm as a distinct persons or quasi corporation. But under the income-tax Act the position is somewhat different. A firm can be charged as a distinct assessable entity as distinct from its partners who can also be assessed individually."

25. The decision in figgies and Co.'s case , there forte, decides three things. Firstly, it holds that under the prevailing law, a firm has no legal existence; secondly, it holds that retirement or taking of a new partner results in reconstitution of the firm and, thirdly, a partnership firm is treated as a distinct assessable entity. All these three aspects are reiterated in Chidambaram Pillai's case [1977] 106 ITR 292 (SC).

26. There is nothing in the decision of the supreme court in CIT v. Seth Govindram sugar Mills [1965] 57 ITR 510, on which the learned counsel for the Revenue has relied, which is to the contrary. In that decision, while analysing s. 42(C) of the partnership Act, the supreme court pointed out that s. 42(C) of the partnership Act can appropriately be applied to a partnership only where there are more than two partners and if one of them dies, the firm is dissolved and if there is a contract to the contrary, the surviving partners would continue the firm. This does not have the effect of holding that the firm has any independent legal existence apart from its partners.

27. Reference was made to a decision of this court in Bhavani Bus service Co. v. CIT [1972] 86 ITR 179. In that case the assessee-firm carried on transport business. IT was originally formed in 1949 with T and H and two others as partners. The goodwill and name of the business was the absolute property of T. The permit was also in his name. It was claimed that this firm was dissolved by efflux of time and a fresh deed of partnership was executed in 1952. T and H continued to be partners in the firm along with some others. In 1955 the second firm was dissolved and a third deed of partnership was executed constituting a firm under the same name. T and H were the only partners in this firm. In the accounting year relevant to the assessment year 1957-58, the firm sold 4 buses for Rs. 29,800. The ITO assessed the entire amount under s. 10(2)(Vii) on the ground that the original firm constituted in 1949 continued in business and full depreciation had been allowed on the buses. The decision of the ITO was confirmed by the Tribunal. In the accounts of the firm the written down value of the buses was shown as Rs. 18,328. On these facts this court held that T and H were the real owners of the business. The assets of the business vested in them and the permit was in the name of one of them. This state of affairs continued during the existence of all three alleged partnerships. There was no evidence of the dissolution of the two previous firms and on facts this court took the view that no new firms were constituted but there were mere changes in the constitution of the firm. Thus it was held that the excess realised over the written down value of the buses was taxable. It was in that context that this court observed as follows (p. 191) :

"In other words, there was a structural alteration in the constitution of the firm from time to time by some partners retiring and others coming in, resulting in a consequent re-distribution of the shares of the partners. As observed by the Supreme Court in CIT v. A.W. Figgies and Co. [ 1953] 24 ITR 405,408, 'a mere change in the constitution of the partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity......' We must, therefore, confirm the finding of the Tribunal that though the two subsequent deeds of partnership mentioned that the earlier firms were dissolved, there was in fact no dissolution. The same firm continued to exist all along and all that happened was that there was a change in the constitution of the firm from time to time."

28. Now when this court, therefore, held that the same firm continued to exist all along, obviously the reference was to the firm which was assessed as an assessable entity. It may, however, be pointed out that the observations relied upon from the decision of the Supreme Court in Figgies and Co.'s case[1953] 24 ITR 405, were in the context of the particular provisions which fell for the consideration before the Supreme Court in s. 25(4) of the Indian I.T. Act, 1922. Specifically having regard to the wording of s. 25(4), which made a special reference to the fact that "the change not being merely a change in the constitution of a partnership", the Supreme Court has observed in that case as follows (p. 408) :

"The section does not regard a mere change in the personnel of the partners as amounting to succession and disregards such a change. It follows from the provisions of the section that a mere change in the constitution of the partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity and in such a case there is no devolution of the business as a whole."

29. These observations, in our view, must be read in the context of the fact that the Supreme Court was dealing with the question as to whether there was a succession to business or not.

30. Mr. Joshi has referred us to the decision of a full Bench of the Allahabad High Court in Badri Narain Kashi Prasad v. Addl. CIT[1978] 115 ITR 858. In that case, after referring to s. 42(C) of the partnership Act, it was pointed out that if the partners agree that on the death of one of them the firm shall not stand dissolved, but shall continue, no dissolution occurs. But in that decision itself at p. 871 it was pointed out that after reconstitution the firm becomes a distinct assessable entity, different from the firm before its reconstitution and, therefore, two different assessment orders have to be passed against the reconstituted firm, one in respect of the income derived by it before reconstitution, and the other in respect of the income derived by it after reconstitution. To the same effect is the earlier decision of another Full Bench of the Allahabad High Court in Dahi Laxmi Dal Factory v. ITO[1976] 103 ITR 517, where it has observed, at p. 522, that, as a result of retirement of a partner also, a change takes place in the constitution of the firm but the firm as such continues to be in existence as before.

31. The position that a reconstituted firm is not treated as if it is the same assessable entity under the Act appears to be clear from the provisions of s. 184 of the Act. Section 184 provides for the registration of a firm and s. 184(7) provides as follows :

"Where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year :

Provided that

(i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted; and.....

(8) Where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section".

32. Therefore, even the Act contemplates that where there is a change in the constitution of the firm, there has to be a fresh registration. It, therefore, appears to be clear and well established that a firm is no distinct legal entity apart from the partners constituting it and though under the I.T. Act a firm is treated as a unit of assessment and it has certain attributes similar to that of a personality, a business carried on by the firm is, in the eyes of law, is a business carried on by the partners collectively.

33. The real question on which the decision of the present reference must turn is what is the effect of the death of the deceased partner or what is the effect of the retirement of a partner. That must necessarily require the determination of the nature of the right of a partner in the partnership. We have already reproduced earlier observations from Lindley on Partnership as approved by the Supreme Court in Narayanappa's case, . It is clear from the decision in Narayanappa's case that during the subsistence of the partnership, no partner can deal with any portion of the property as his own and his right is to obtain such profits as falls to his share from time to time. His further right upon the dissolution of the partnership is to a share in the assets of the firm determined in accordance with the provisions of s. 48 of the partnership Act. Section 48 of the Partnership Act provides as follows :

"In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed :

(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.

(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order : -

(i) in paying the debts of the firm to third parties;

(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;

(iii) in paying to each partner rateably what is due to him on account of capital; and

(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits."

34. Under cl. (a), losses including deficiencies of capital have to be first paid out of profits and then out of capital, if necessary, and lastly, if necessary, by the partners individually in the proportion in which they are entitled to share profits. How the assets of the firm are to be applied is specified in cl. (b). The assets of the firm including any sums contributed by the partners to make up deficiencies of capital have first to be applied in paying the debts of the firm to third parties; then in paying to each partner rateably what is due to him from the firm for advances as distinguished form capital; then each partner has to be rateably paid what is due to him on account of capital and if there is any residue, then that residue has to be divided amongst partners in the proportions in which they are entitled to share the profits. In the case of a retiring partner or an outgoing partner or even in the case of death of a partner, all that the outgoing or the retiring partner or estate of the deceased partner would be entitled to, as pointed out by Lindley, is the proportion of the partnership assets after having been realised and converted into money and all the debts and liabilities of the partnership are paid and discharged. This alone is the content of the right of a retired partner or estate of the deceased partner. What, therefore, happens either on retirement or death of a partner is that his share in the partnership is given back to him and normally by well-accepted commercial methods of valuation the value of his share is quantified in terms of money. It is no doubt true that while making such an account, certain assets may have appreciated in value and those assets have to be valued as appreciated. But the purpose of making the valuation is to determine the share of the deceased or retiring partner so as to be paid in terms of money, and on such payment the remaining assets of the partnership continue to belong to the surviving partners, but it is difficult for us to see how by this process there is acquisition of any assets by the surviving or the continuing partners. If the only right which the retiring or the deceased partner had was to get his share in the partnership assets as on the date of retirement or death, the moneys which are paid to him by the surviving or remaining partners do not have the nature or character of a payment made to him or his estate in lieu of obtaining something form the retiring or the deceased partner. In substance, the retiring partner walks out of the partnership taking away the value of his share in cash and the assets of the partnership continue to remain with the other partners in the partnership. That alone appears to us to be the true position, not only on first principle but also on the law laid down in several decisions.

35. Before referring to certain decision, we may with advantage refer to a passage from Lindley on Partnership, 14th edn. at p. 899. The learned author was dealing with the effect of a partnership agreement which provides that the share of a deceased or retiring partner shall accrue to the continuing partners. In this context it is observed as follows :

"It is submitted that the share of that partner in truth comprises a bundle of rights which automatically ceases to have any value on his death or retirement, or, where a payment falls to be made in respect of the accurer, which contracts into the right to that payment on his death or retirement. Similarly, the shares of the other partners comprise bundles of rights which have inherent in them the prospect of an increase in value which will result from the death or retirement of that partner. Accordingly, when that partner retires, there is neither a disposal by him, nor an acquisition by the other partners, and a charge to capital gains tax cannot arise, even though a payment has been made by the continuing partners"

.

36. We may usefully refer to the decision of the Supreme court in Commissioner Of Income Tax, Madhya Pradesh v. Dewas Cine Corporation [1968] 68 ITR 240. Dealing with the provisions of s. 48 of the partnership Act. the Supreme Court observed as follows (p. 243) :

"Section 48 of the Partnership Act provides for the mode of settlement of accounts between the partners. It prescribes the sequence in which the various outgoings are to be applied and the residue remaining is t be divided between the partners. The distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the partnership it does not amount to transfer of assets."

37. That was no doubt a case of dissolution of partnership but what is important is that the manner in which the rights of a partner on dissolution has to b worked out under s. 48 of the partnership Act has been described as an adjustment of the rights of the partners in the assets of the partnership.

38. The same view of the effect of dissolution and settlement of account was taken by the Supreme Court in CIT v. Bankey Lal Vaidya[1971] 79 ITR 594. That was a case in which on a dissolution of partnership it was found that a large majority of the assets were incapable of division and it was therefore agreed that the assets should be taken over by one partner and the respondent should be paid his share of the value of assets in money and the question was whether a part of the moneys received by the respondent could be brought to tax as capital gains under s. 12B(1) of the Indian I.T. Act, 1922. The supreme Court held that there was no clause in the partnership agreement providing of dissolution or winding up to the firm observed as follows (p. 596) :

"In the course of dissolution the assets of a firm may valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying the money value equivalent thereof. This is recognized method of making up the account of a dissolved firm. In that case the receipt of money by a partner is nothing but a receipt of his share in the distributed assets of the firm. The respondent received the money value of his share in the assets of the firm; he did not agree sell, exchange or transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the respondent under the arrangement of his share was, therefore, not in consequence of any sale, exchange or transfer of assets..... In the case in hand there is no sale and payment of price, but payment of the value of share under an arrangement for dissolution of the partnership and distribution of the assets. The rights of the parties were adjusted by handing over to one of the partners the entire assets and to the other partner the money-value of his share. Such a transaction is not in our judgment a sale, exchange or transfer of assets of the firm."

39. The fact of this case will show that since the assets were not capable of being divided, one of the partner kept the assets and the other person was paid the money value of his share. On principle, in our view, it would make no difference, if a similar adjustment or payment is made on account of the value of a share of a retiring or deceased partner. We shall later consider the argument of Mr. Dastur that it is not his contention that there is any transfer and that cases would, therefore, not be apposite.

40. A point of considerable importance in our view fell for the decision of the Gujarat High Court in Velo Industries v. Collector, Bhavnagar[1971] 80 ITR 291 [FB]. That decision no doubt did not directly arise out of the provision of the i.t. act but the Full Bench was called upon in that case to deal with nature of transaction in the form of a deed evidencing retirement of partner from partnership. A deed of retirement was executed by and between the partners on 24th October, 1963. When the deed was submitted for registration at the office of Registrar of Assurance, he took the view that it was a conveyance on sale and was, therefore chargeable t stamp duty under art. 25 of Sch. I of the Bombay Stamp Act, 1958, and since the stamp of Rs. 30 was affixed on the instrument, he impounded the instrument under s. 33 and sent it to the e collector under s. 37(2) of the Stamp Act. The Chief Controlling Revenue Authority to whom the case was submitted by the Collector under s. 37(2) of the Stamp Act, held that the instrument was a conveyance for the amount of Rs. 2,25,632.35. The matter finally came to the High Court on a reference by the Chief Controlling revenue Authority. The Full Bench was called upon to consider the true nature of the interest of a partner in a partnership and what happens when a partner retires from the firm. Quoting from Lindley on Partnership, from p. 375,12th edn, and from the decision in Narayanappa's case, the Full Bench observed as follows (p. 295) :

"It is clear that the interest of partner in the partnership is not an interest in a specific item of the partnership property, but, as pointed out by the Supreme Court, it is a right to obtain his share of profits from time to time during the subsistence of the partnership and on dissolution of the partnership or his retirement from the partnership, to get the value of his share in the net partnership assets which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause(b) of section 48. When, therefore, a partner retires from the partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts on the footing of notional sale of the partnership assets and given to him what he receives is his share in the partnership and not any price for sale of his interest in the partnership. His share in the partnership is worked out by taking account in the manner prescribed by relevant provisions of the partnership law and it is this and this only, namely, his share in the partnership which he receives in terms of money. There is in this transaction no element of sale; the retiring partner does not sell his interest in the partnership to the continuing partners. He on the contrary carves out his interest and takes it away by evaluating it'."

41. The Full bench, therefore held that the document in question did not bring about a sale of the interest in the partnership asset by the retiring partner to the continuing partners.

42. Support was drawn from the decision in Dewas Cine Corporation's case , and it was pointed out that the observations made by the the supreme court in that case, though made in the context of a dissolution of a partnership, were equally applicable where a partner retires from the partnership. It was then observed by the Full Bench as follows(p. 297 to 80 ITR) :

"What is given to him by way of his share in the partnership, whether it be cash or some property of the partnership, is received by him as his share in the net partnership assets, after deducing liabilities and prior charges on settlement of accounts and there is no transfer of any interest in property from him to the continuing partners nor is it for a price. It is merely an adjustment of the rights between the retiring partners and the continuing partners in the assets of the partnership; the share of the retiring partner in the partnership is made over to him."

43. These observation have our respectful concurrence.

44. This decision of the Full Bench of the Gujarat High Court was followed in the same Court later in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393. The assessees in that case retired from the partnership firm leaving the other seven partners as continuing partners. The terms and conditions were recorded in a document darted 18th February, 1962, and the document was in the form of minutes of the proceeding s of a meeting held on that day on which the decision was taken by the partners that the assessees should retire from the firm. The amount received by the assessees included an amount representing his proportionate share in the value of the goodwill since the goodwill constituted an asset of the partnership and it was liable to be taken into account in determining the share of each assessee in the partnership on the date of retirement. The ITO took the view that the amount received by each assessee to the extent it included his proportionate share in the value of the goodwill represented capital gain chargeable to tax under s. 45 of the I.T. Act, 1961, and accordingly he brought it to tax in the assessment of each assessee. Each of the assessees filed appeals which were unsuccessful and the matter came to the Tribunal. The Tribunal negatived the contention that the retirement of the assessees from the partnership amounted to dissolution of the firm within the meaning of s. 47(ii) and therefore, no transfer of capital asset chargeable to tax was involved in the process of taking over by the remaining seven partners and when the proportionate share in the value of the goodwill was paid to each of the assessees. However, the contention that goodwill was a self-created asset which had cost nothing to the firm and partners in terms of money, and a transfer of it was not within the ambit of the charging provision contained in s. 45 was accepted by the Tribunal. In the reference it was argued on behalf of the Revenue that when the assessees retired from the partnership the interest of each of the assessees in the partnership assets the goodwill was extinguished and there was accordingly a transfer of his interest in the goodwill by each of the assessees within the meaning of s. 2(47) and the amount representing the proportionate share in the vale of the goodwill having been received by each assessee as consideration for transfer of his interest in the goodwill and there being no cost of acquisition of the goodwill to the firm and, consequently, to any partner, the whole of the amount is liable to be taxed as capital gain in the hands of each assessee.

45. The Division Bench referred to Dewas Cine Corporation's case , as well as Narayanappa's case, , and observed as follows (p. 402 of 91 ITR) :

"These decision clearly establish that the interest of a partner in the partnership is not interest in any specific item of the partnership property, but as pointed out by the Supreme Court and the Full Bench of this court, it is a right to obtain his share of profit from time to time during the subsistence of the partnership and on dissolution of the partnership or his retirement from the partnership, to get the value of his share in the net partnership assets which remain after satisfying the debts and liabilities of the partnership. When, therefore, a partner retires from a partnership assets after deduction of liabilities and prior charges is determined on taking accounts on the footing of notional sale of the partnership assets and given to him, what he receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. His share in the partnership is worked out by taking accounts in the manner prescribed by the relevant provisions of the partnership law and it is this and this only, namely, his share in the partnership which he receives in terms of money. There is in this transaction no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners : vide also the recent decision of the Supreme Court in commissioner of income-tax v. Baneky Lal Vaidya ."

46. It is further held by the Division Bench that it is impossible to contend, in view of this decision of the Supreme Court, that when a partner retires from the partnership, there is relinguishment or extinguishment of his interest in the partnership assets. It was also later pointed out in the same decision that it was not possible to predicate that a particular amount is received by the retiring partner in respect of his share in a particular partnership asset or that a particular amount represents consideration received by the retired partner for extinguishment of his interest in a particular partnership asset.

47. Another division Bench of the Allahabad High Court in a later decision in Addl. CIT v. Smt.Mahinderpal Bhasin [1979] 117 ITR 26, has also held that when a partner retires what he receives is really his share in the partnership assets after deducting the liabilities and it is not consideration for transfer of his interest in the partnership to the continuing partners. It was held that the transaction of retirement of a partner is in law an adjustment of the rights of the partners and not relinquishment or even extinguishment of the interest of the retiring partner.

48. The Calcutta High Court has Also taken the same view in CIT v. Bhupinder Singh Atwal[1981] 128 ITR 67, where, after reviewing the decisions of the supreme court in Narayanappa's case, , Dewas Cine Corporation's case , Malabar Fisheries Co's case Mohanbhai Pamabhai's case [1973] 91 ITR 393 (Guj), and Mahinderpal Bhasin's case , it was held that what is paid on retirement to a retiring partner is in lieu of his share, and the transaction really is a payment to the partner in lieu of his share, and it was not a consideration for the transfer of his interest in the partnership to the continuing partners. The view taken was that the transaction was in law an adjustment of rights of the partners and his interest ceases and what he receives is tangible cash in lieu of what were his intangible rights represented by his share in the partnership.

49. In CIT v. Tribhuvandas G.patel [1978] 115 ITR 95, a Division Bench of his court was concerned with the question as to a capital gains and whether the amount paid to the retiring partner for his share of assets of the firm amounts to a distribution of assets on dissolution. on the facts of that case the Division Bench took view that the amount paid was for transfer of rights of a partner and was capital gain and was liable to tax. It is necessary to refer to the relevant facts of that case. The assessee had retired from the firms with effect from 31st August, 1961, and the remaining partners continued to carry on the business of the firm. Among payments made to the retiring partner was a sum of Rs. 50,000 as his share as the value of goodwill and Rs. 4,77,941 as his share in the remaining assets of the firm. The tribunal in that case had taken the view that the sum Rs. 50,000 being the assessee's share in the value of the goodwill, it was not liable to capital gains tax. With regard to the sum of Rs. 4,77,941 the Tribunal held that this amount was received on retirement and not upon dissolution and the case was, therefore, not saved by s. 47(ii). On a reference, the High Court held that the sum of Rs. 50,000 received by the assessee as his share of the value of the goodwill was completely covered by the decision of this court in CIT v. Home Industries and CO. [1977] 107 ITR 609. One significant fact which must be mentioned is that these payments were made in pursuance of a deed dated January 19,1962, under which the assessee retired from the firm and the argument on behalf of the assessee in that case was that payment to the retired partner did not result in any transfer of capital asset within the meaning of s. 45 of the act inasmuch as on retirement of a partner determination and quantification of the share stands on the same footing as adjustment of rights that results on dissolution of the firm and, there fore, since there was no transfer of any capital asset in the instant case, the sum of Rs. 4,77,941 or any portion thereof was not liable to be charged under the heading ''capital gains'' and on behalf of the assessee reliance was placed on the Gujarat High Court decision in Mohanbhai Pamabhai's case [1973] 91 ITR 393 (Guj). The question which the Division bench posed to it self was as to what was the real nature of the transaction when a partner retired from a partnership ? The Division Bench pointed out (at p. 115 of 115 ITR) :

"It may be that upon retirement of a partner his share in the net partnership assets after deduction of liabilities and prior charges may be determined on taking accounts on the footing of notional sale of partnership assets and be paid to him but the determination and payment of his share may not invariably be done in that manner and it is quite conceivable that, without taking accounts on the footing of notional sale, by mutual agreement, a retiring partner may receive an agreed lump sum for going out as and by way of consideration for transferring or releasing or assigning or relinquishing his interest in the partnership assets to the continuing partners and if the retirement takes this form and the deed in that behalf is executed, it will be difficult to say that there would be no element of 'transfer' involved in the transaction.''

50. According to the Division Bench, it will depend upon the manner in which the retirement takes place. The Division Bench quoted from Lindley on Partnership, 13th Edn., p. 474, and the legal position was set out by the Division Bench as follows (p. 116 of 115 ITR) :

a couple of thing emerge clearly from the aforesaid passages. In the first place, a retiring partner while going out and while receiving what is due to him in respect of his share, may assign his interest by a deed or he may, instead of assigning his interest, take the amount due to him from the firm and give a receipt for the money and acknowledge that he has no more claim on his co-partners. The former typed of transactions will be regarded as sale or release or assignment of his interest by a deed attracting stamp duty while the latter type of transaction would not. In other words, it is clear, the retirement of a partner can take either of two forms, and apart from the question of stamp duty, with which we are forms and apart from the question of stamp duty, with which we are not concerned, the question whether the transaction would amount to an assignment or release of his interest in favor of the continuing partners or not would depend upon what particular mode of retirement is employed and as indicated earlier, if instead of quantifying his share by taking accounts on the footing of notional sale, parties agree to pay a lump sum in consideration of the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners, the transaction would amount to a transfer within the meaning of section 2(47) of the Income-tax Act."

51. Having regard to the particular mode employed by the assessee in that case and the continuing partners effort to bring about retirement of the assessee from the partnership, the Division Bench regarded the transaction as amounting to a "transfer" within the meaning of s. 2(47) of the I.T. Act.

52. Now this decision shows that the view taken by the Division Bench was that when there is no document or assignment by which the retiring partner propose to assign or release to the surviving partners or continuing partners, there was no question of any transfer of capital assets. Now, what MR. Dastur contends is that these are all decisions regarding the question as to whether there was transfer of capital asset or not, and as already pointed out, according to the learned counsel, we are in this case concerned not with the question as to whether there is any transfer but with the question as to whether there is acquisition of interest of the retiring or the deceased partner and if so, then the appreciation in the value of the shares on the basis of which the estate of the deceased partner has been paid must be taken into account for ascertaining the cost of the shares to the assessee as on the date on which the share of the deceased partner was worked out. A comment was made that these cases dealt with the question from the point of view of the retiring partner and we are in the instant case concerned with a firm which is continued by the continuing partners. With regard to the decision of this court in Tribuvandas Patel's case [1978] 115 ITR 95, a comment was made that if as held in this case there was a transfer and if a document was executed and consequently there was acquisition, it could not be that there was no acquisition of interest merely because no document was executed and it was argued that it is one of the terms of the deed of partnership in cl. 14 that

"on full payment being made to the legal representative of the deceased partner or the retiring partner as the case may be, such final and mutual releases, assignments, indemnities or other instruments shall be executed between the surviving partners and such legal representative of the deceased partner of the continuing partners and the retiring partner as the nature of the case shall require"

. We need not be detained by this stipulation in cl. 14 because we must take the facts, for the purpose of this reference, as they have now been found. NO document, in fact, has been executed and, therefore, we are not called upon to consider any document which might have been executed between the parties because then the terms of the document would have been required to be considered. It does appear that the effect of the decision in Patel's case [ 1978] 115 ITR 95(Bom) is, as has been very clearly stated by the Devision Bench, that is the mode in which the retirement has been brought up which will determine the question as to whether there is transfer or not. Strictly speaking, we are not called upon to go into the correctness or otherwise of that view. As already observed, the crucial question in the instant case is what is the nature of the transaction of retirement when the retiring or the deceased partner receives the value of his share in cash on the basis of the value of the assets on the date on which the partner retired or the deceased partner died. There appears to be a general consensus of view, as already pointed out, that when moneys are paid to the estate of the deceased partner or to the retiring partner in lieu of his share the retiring partner takes away his share in the assets and profits of the partnership leaving the remaining and continuing partners to own the assets exclusively and to carry on the business of the partnership firm. Now, if the effect is that the share of a partner is given away in terms of its money value, it is not possible for us to hold that any interest of the deceased or retiring partner is transferred to the continuing partners in this process.

53. It was vehemently argued as already pointed out, by Mr. Dastur, that we are not concerned with the question of transfer of any asset. But then, it is difficult to appreciate how and by what process, then according to the learned counsel for the assesseeu, the interest which vested in the deceased partner passed on to the surviving partners. There must be some recognised mode known to law by which this interest must pass from the retiring partner or the estate of the deceased partner to the surviving partner. There, the answer given by Mr. Dastur was that the acquisition by the continuing partners takes place only because of the settlement of accounts. A settlement of accounts cannot be the mode by which the interest of the deceased partner gets vested in the surviving partners. Settlement of account determines the amount to be paid and it determines the value of the share of the deceased or retiring partner. Accounts have no further role to play. Accounting merely quantifies the value of share in terms of money and it is not, therefore, possible to accept the argument that there is vesting or acquisition of any interest by settlement of accounts. If at all there has to be an acquisition of interest, there must be a mode by which the interest must pass. If there is no process by which a transfer of interest can be said to have taken place in respect of the interest of the deceased but what the estate of the deceased partner gets is only the money value of the interest of the deceased partner, we must hold that in case of retirement or death of a partner where moneys are paid to the retiring partner or to the estate of the deceased partner in lieu of his share in the partnership, there is no acquisition of any interest by the surviving or continuing partners.

54. Mr. Dastur has referred us to certain cases which were mainly in support of the contention that the two surviving partners in the instant case must be treated as having acquired the interest of the deceased partner even though they formed a partnership and that the two partners must be considered independent of the partnership firm. Two of these cases arose under the W.T. Act and, in our view, they have really no relevance to the question as to whether there is acquisition of an asset on the death of a partner or on the retirement of a partner by the surviving partner. In CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532 (Kar), the question was whether, where agricultural land was owned by a firm, the exemption to the extent of Rs. 1,50,000 is available to each of the partners separately, and the Karnataka High Court held that where agricultural land is owned by a partnership, in computing the net wealth of a partner, the method of deducting the sum of Rs. 1,50,000 in the computation of the net wealth of the firm under r. 2 of the W.T. Rules, 1957, is not warranted by the terms of s. 5(1)(iv-a) of the W.T. Act and that the deduction contemplated by that provision is in the computation of the net wealth of an assessee-partner and not the firm, which is not an assessee. Hence, in computing the net wealth of an assessee who was a partner in a firm which owned agricultural lands the value of the share of the assessee in agricultural land will have to be included in his net wealth and the full deduction under s. 5(1)(iv-a) has to be given in his hands.

55. In Narsibhai Patel v. CWT [1981] 127 ITR 633 (MP), it was held that the partnership or a firm is not a legal person and so, cannot hold property, yet the property brought in by the partners for the partnership business cannot be without any owner, and such property really vests in the partner collectively in proportion to their shares in the firm although the right of ownership of each partner is respect of that property is restricted by the contract of partnership and the very nature and character of the collective business called the partnership business for which the property is to be utilised. It was held in that case that the deposits made by a partnership in a bank are in law held by the partners in proportion to their shares in the partnership and each partner is entitled to the benefit of the exemption contained in s. 5(1)(xxvi) of the W.T. Act, 1957, in his individual assessment to the extent of the maximum prescribed by s. 5(1A).

56. Another decision cited by Mr. Dastur was in CIT v. Madhukant M. Mehta [1981] 132 ITR (Guj), in which it has been held that in the income-tax law, a firm is a unit of assessment and it has certain attributes simulative of personality, the business carried on by the firm is, in the eye of law, the business carried on by the partners collectively; the profits of the partnership firm are the profits earned by the partners, whichever may be the mode or form in which they reach them; the firm as such has no separate rights in the partnership assets, but they are property in which all the partners have joint or common interest and the claim to the benefit of the set-off of loss incurred by a person, while he carried on business in proprietorship, would not be lost if he subsequently carries on the same business as a partner in a firm or when such person dies and his heir succeeds by inheritance in the capacity of a partner to the business. We need not discuss this case because we have already taken the view earlier that the partnership firm has no distinct legal entity apart from its partners.

57. Mr. Dastur has referred us to a decision of the Supreme Court in Kalooram Govindram v. CIT[1965] 57 ITR 335. It may be pointed out that that decision turned on the question as to what is the cost of an asset in a case where an asset is allotted to a member of a joint Hindu family at the time of family partition. In the view which we have taken, the question as to what was the cost does not fall for consideration before us, and we do not think it necessary to deal with that question or with the authorities cited in support of that point.

58. The Tribunal had invoked the principle in Dhun Dadabhoy Kapadia's case , to justify the view that the cost of retaining the asset by the continuing partners must be added to the original costs of the shares. Now, here also Mr. Dastur has also relied on that decision in support of the contention that the appreciation of the share in respect of which payment has been made to the deceased partner was entitled to be added to the original cost of the share. However, as pointed out, since we have taken the view that there is no acquisition in the instant case, we are not called upon to go into the question as to whether the appreciated value of the shares has any relevance to the determination of the cost of the shares in the case of the surviving partners.

59. An alternative argument was advanced by Mr. Dastur that in any case the assessee-firm is now a firm of two partners and it must be treated as having acquired shares which originally belonged to the three partners. Now, this argument presupposes once again that there is acquisition of some interest of the deceased partner. In the view which we have taken, this argument must also be rejected.

60. In the view which we have taken, the question referred to us must be answered in the negative and against the assessee. The assessee to pay the the costs of the reference.