Srinivasan, J.:— The assessee is a firm doing business at Virudhunagar. It is a partnership concern consisting of three partners. Its status under the income-tax law was that of a registered firm. It was assessed to excess profits tax in the chargeable accounting period commencing on January 31, 1941, and ending on January 30, 1942. Now it appears that the same partners of this assessee firm were also carrying on a business at Madurai. Previously that business had been an unregistered partnership of these three persons and one Seeni Nadar. This Seeni Nadar died on the 23rd December, 1940. Subsequently thereto, that business was carried on in partnership by these three persons and the profits were divided in the same ratio as in respect of the Virudhunagar business. In making the assessment to excess profits tax for the chargeable accounting period referred to, the Excess Profits Tax Officer aggregated the profits of the Madurai business along with the Virudhunagar business. From this order of assessment, an appeal was taken to the Appellate Assistant Commissioner objecting to the aggregation of the two businesses. That contention was rejected. In the further appeal to the Tribunal, this objection was further pressed with the same result. During the appeal before the Tribunal, it was also contended that if the aggregation of the profits of the two businesses was permissible, the deficiency of profits in respect of the Madurai business for the periods prior to the chargeable accounting period should be taken into account in computing the profits for the chargeable accounting period. The Appellate Tribunal repelled this contention on the ground that the Madurai business was not the assessee in the appeal before it, that the two businesses were different entities, the constitution of each being also different up to 31st January, 1941. The Tribunal was of the view that the second proviso to section 2(5) of the Excess Profits Tax Act authorised the aggregation of businesses and that was not an aggregation resulting from an operation of law under section 8 of the Act, and that, therefore, section 8, sub-section (7), would not apply. On the application of the assessee, the Tribunal referred the following two questions for the determination of this court:

“1. Notwithstanding the difference in the entities of the Madurai and Virudhunagar businesses aforesaid, whether they are businesses carried on by the assessee, which shall have to be treated as one business under the second proviso to section 2(5) of the Excess Profits Tax Act?

2. Whether 18/27 of the uncomputed deficiency of the Madurai business aforesaid up to 30th January, 1941, is deductible from the assessment of the chargeable accounting period, 31st January, 1941, to 31st January, 1942, as deficiency relief under section 8(7)?”

2. The first question can be shortly answered. The assessee cannot maintain the contention, which he had earlier pressed before the department and the Tribunal, that the two businesses could not be aggregated for the purpose of the Excess Profits Tax Act. We have pointed out that though in the earlier years the Madurai business consisted of four partners, the three partners of the assessee firm and one Seeni Nadar, on and after the death of Seeni Nadar, the remaining three partners carried on the business, and as the accounts clearly indicate, they divided the profits in the same ratio as they dealt with the profits of the registered Virudhunagar partnership. Under section 2(5), business for the purposes of the Act has been so defined as to include “all businesses to which this Act applies carried on by the same persons”. This proviso requires that all businesses of that kind shall be treated as one business for purposes of this Act. Learned counsel for the petitioner does dot deny that the same three persons carried on both the businesses in the present case, and this group of persons would very properly come within the description of the same person contained in the second proviso to section 2(5) of the Act. The point has been placed beyond dispute by a decision of this court in Subbier v. Commissioner of Excess Profits Tax [1959] 35 I.T.R 362.. Learned counsel for the assessee realised that the first question is covered by the above decision.

3. It seems to us that neither the department nor the Tribunal examined the fact in relation to the question of deficiency relief from the proper perspective. During the chargeable accounting year, the business of the assessee is not the business at Virudhunagar alone. By reason of the definition in section 2(5), both the Madurai and Virudhunagar businesses have to be treated as one business for the purpose of the Act. When, therefore, any profits of a business are sought to be brought to tax under section 4 of the Act, the charge has to be in relation to the profits of any business to which this Act applies, and read in the light of the second proviso to section 2(5), the business referred to in section 4. must be all the businesses carried on by the same person. Section 4 further lays down that what has to be brought to charge under that section is the amount by which the profits during any chargeable accounting period exceed the standard profits. Standard profits have to be determined in accordance with section 6 of the Act. Section 2, sub-section (9), defines deficiency of profits. Section 7 contains provisions for grant of relief on the occurrence of deficiency of profits. It states that where a deficiency of profits occurs in any chargeable accounting period in any business, “the profits of the business chargeable with excess profits tax shall be deemed to be reduced” and relief shall be granted in accordance with the provisions set out thereunder; that is to say, the quantum of profits that is brought to charge under section 4 of the Act is governed by section 7 in so far as it limits the amount actually brought to charge by the grant of relief on account of deficiency of profits. The profit thus brought to charge under section 4 is that profit computed after granting the relief contemplated by section 7 of the Act. Section 8 contains further provisions relating in particular to successions, amalgamations and transfers of businesses from one person to another. Section 8(1) in particular lays down that where there is a change in the persons carrying on a business, the business shall be deemed to have been discontinued except for certain purposes. Subsection (7), however, purports to operate as an exception to sub-section (1), and lays down that where on and after the first day of September, 1939, a partner in a firm dies, then, notwithstanding anything cantained in sub-section (1), any deficiency of profits for a period prior to his death shall be carried forward and applied in reducing the profits of a later period if the same business is carried on by the surviving partner or partners, after the death of the partner. We have left out portions of this section which are not relevant. Section 8(7), therefore, allows the deficiency of profits of an earlier period to be taken into account in the reduction of profits of a later chargeable accounting period, notwithstanding the general principle that on the death of a partner of a firm carrying on a business, the business shall be deemed to have been discontinued and a new business to have been commenced. This provision appears clearly to be in the nature of an enlargement of the relief granted by section 7 of the Act.

4. In the view that we have taken, that by reason of the proviso to section 2(5) all the businesses carried on by the same set of persons must be aggregated and regarded as one business for the purposes of the Act, it follows that section 7 in terms provides for the grant of relief on the occurrence of deficiency of profits in respect of the entire business, that is, all the businesses which have been so aggregated, by reason of section 2(5) of the Act. We are unable to see how section 8(7) suggests any deviation from the general relief so granted by section 7.

5. Learned counsel for the department placed some stress upon the expression “the same business” occuring in section 8(7) of the Act and contended that the adjustment of the deficiency of profits in any earlier chargeable accounting period towards the profits of a later chargeable accounting period is available only when the same business is carried on. If the argument is that by reason of the, change in the constitution of the partnership it is no longer the same business, we are unable to agree. The acceptance of that argument would give no rational meaning to the content of section 8(7) of the Act. Clearly, under the ordinary law, where there is a change in the constitution of the firm by the retirement or death of a partner, even if the business is carried on by the new partners, it may not be proper to call it the same business. The Madurai business was previously carried on by four partners; one of them died and the remaining three partners continued the same business and shared the profits of that business in the same proportion as in respect of the Virudhunagar business. Though, strictly speaking, the Madurai business as conducted by the three partners, during the chargeable accounting period may not be the same as that previously conducted by the four partners, it was precisely to meet such a contingency that section 8, sub-section (7), has been enacted. As we have pointed out, it operates as an exception to sub-section (1) and provides that “the same business carried on by the surviving partners” is entitled to the deficiency relief specified in the section. To accept the interpretation of the expression “same business” which is advanced by the learned counsel for the department would be to nullify the effect of this provision of law.

6. The further argument has been advanced that there has been no computed deficiency of profits which can be applied in reduction of the profits of the chargeable accounting period. We are unable to see any point in this objection. Factually, in this case, Seeni Nadar died on the 23rd December, 1940, and the previous chargeable accounting period would be the period commencing from the 31st January, 1940, and ending with the 30th January, 1941. The chargeable accounting period relating to this reference is the period from 31st January, 1941, to 30th January, 1942. For some reason or other, the Madurai business does not seem to have been assessed to excess profits tax either when it was being run in partnership along with Seeni Nadar or during the previous chargeable accounting period when these very same three persons were running that business in partnership. Section 7 which grants deficiency relief is perfectly general in its scope and provides that where a deficiency of profits occurs in any chargeable accounting period in any business, the profits of the business chargeable with the excess profits tax shall be deemed to be reduced in the manner provided. In affording this relief, effect is given by deducting this amount of deficiency in profits from the aggregate amount of profits chargeable for the previous chargeable accounting periods. If the entire amount of the deficiency of profits in any chargeable accounting period cannot be so set off against the aggregate amount of profits for the previous chargeable accounting periods, the balance of the deficiency of profits is to be taken in reduction of any profits chargeable for the next chargeable accounting period. The intention underlying the provisions is that in so far as the excess profits tax is concerned, the entire period beginning on the 1st day of September, 1939, and ending on 31st March, 1946, comes within the purview of the application of the deduction contemplated by section 7 of the Act, each period of 12 months becoming the chargeable accounting period falling within the above two mentioned dates. The computation of deficiency relief is not confined to any one chargeable accounting period of 12 months; an account has necessarily to be taken of the profits of the preceding and the succeeding chargeable accounting periods. It seems to be immaterial whether the department took any steps to bring to assessment under this Act an earlier chargeable accounting period or not. But where relief under section 7 of the Act has to be granted, it appears to be necessary that the profits of every chargeable accounting period relevant for the application of section 7 has to be examined. It is no answer to the provisions of section 7 to say that there had been no computed deficiency of profits in any earlier chargeable accounting period.

7. We are unable to see much point in the observation of the Tribunal that the aggregation of the Virudhunagar and the Madurai businesses was only made by virtue of section 2(5) of the Act and not as a result of an operation of law under section 8 and that, therefore, the relief under section 8(7) was not available. We have already pointed out that for purposes of the tax, all the businesses conducted by the same person being liable to be treated as one business, it would normally be unnecessary to invoke the aid of section 8 of the Act, to justify the aggregation. Even for the purpose of granting relief under section 7, all the businesses have to be aggregated, and it is only to meet the special case where in a previous chargeable accounting period the business was run by a differently constituted partnership that subsection (7) of section 8 comes into play. The earlier sub-sections which deal with cases of successions, amalgamations or transfers are not attracted to the present case, and the observation of the Tribunal in its statement of the case that the present aggregation is not as a result of an operation of law has no relevance in the circumstances of the case.

8. It has been brought to our notice by the learned counsel for the assessee that the result that has been reached by the department and the Tribunal is strangely discordant with the Notes and Instructions on the excess profits tax issued by the Central Board of Revenue. Though our interpretation of the relevant provisions of the Excess Profits tax Act need not depend upon the view taken by the departmental authorities, it is nevertheless interesting to note that the highest departmental authority charged with the administration of the Excess Profits Tax Act has clearly applied the relevant provisions in the light in which we have interpreted, them above. In paragraph 93A of the Notes and Instructions, the Board sets out:

“The Board has decided that in the case of changes in partnerships occurring, after 1st September, 1039, the provisions of section 7 of the Act relating to the set-off of deficiencies, shall be applied so that the deficiency in one chargeable accounting period, whether occurring before or after the change, may be set off against the excess profits in another chargeable accounting period in so far as such deficiency was borne and such excess was enjoyed by the same partner. It must be particularly noted, however, that in cases to which sub-section (7) of section 8 of the Act applies, there can be no restriction of the right to complete set-off of a deficiency occurring before the change in partnership against excess profits arising after the change.”

9. We are only referring to the above departmental instructions to indicate that they correctly set out the principles underlying sections 7 and 8 of the Act and to express our surprise that these instructions should have been ignored by the departmental officers. We accordingly answer question No. 1 in the affirmative and against the assessee. Question No. 2 is answered in favour of the assessee. In the light of what we have stated, the total of the uncomputed deficiency of the Madurai business is available for being set off against excess profits after the change in the partnership. Since the assessee has succeeded on the main issue, he will be entitled to the costs of this reference. Counsel's fee Rs. 250.

10. Questions answered accordingly.