T.D. Sugla, J.

1. The Tribunal has referred to this court the following question of law under section 256(1) of the Income-tax Act, 1961:

Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,29,053 collected by the assessee-firm and paid by it to the estate of the deceased partners during the year of account ended March 1, 1969, in terms of the partnership deeds dated March 20, 1968, March 17, 1969, and July 10, 1969, constituted the income of the present firm for the assessment year 1969-70

The reference is at the instance of the Department. The assessee is a reputed firm of solicitors. Its accounts are maintained on the cash basis. The deed of partnership involved in this reference is of September 1, 1967, which was effective from April 1, 1967. Clause 11 of the said deed provided that the partnership was not to be dissolved but to be continued in the event of the retirement, insolvency or death of any partner. Clause 16 of he deed provided that, in the event of the retirement or death of any partner, the retiring partner or the estate of the deceased partner, as the case may be, was to be entitled to the share of profits of the firm for all the work done by the firm up to the date of his retirement or death, as the case may be. It also provided for the manner of computation of the share of profit for the work done by the firm up to the date of retirement or death and for the manner of payment of such a share or shares, i.e., at a time or by installments.

2. One of the partners, N. K. Petigara, died on December 31, 1967. A new partnership deed was thereafter drawn up on March 20, 1968, which was effective from January 1, 1968. Clauses 3 and 4 of this deed reiterated what was provided for in clause 16 of the deed of partnership dated September 1, 1967, which was operative when late N. K. Petigara was a partner. Clause 6 of the deed dated March 20, 1968, further provided that all other terms and conditions of the partnership agreement dated September 1, 1967, would remain in full with force and effect.

3. Another partner by name S. S. Khambata died on February 5, 1969. A new deed of partnership was thereafter drawn up on March 17, 1969, which was effective from February 6, 1969. Clauses 3, 4 and 6 of this deed of partnership were similar to clauses 3, 4 and 6 of the partnership deed dated March 20, 1968.

4. In view of these three partnership deeds, the heirs of the aforesaid two deceased partners became entitled to the share in the profits of the firm for the work done by the firm up to the date of their respective deaths and the continuing partners were under a legal obligation to make payment of the share of the deceased partners in the profits of the firm for the work done by it up to the date of their deaths to their legal heirs.

5. The assessee filed its return of income for the assessment year 1969-70 declaring a total income of Rs. 10,49,186. This included the sum of Rs. 2,29,053 which was received by it on behalf of the deceased partners and which it was under a legal obligation to pay to the heirs of the two deceased partners. Subsequently, a claim was made that this sum should not be treated as the income of the assessee-firm as it never belonged to it. The Income-tax Officer rejected the claim and completed the assessment treating the aforesaid amount as the assessees income for the year. The Appellate Assistant Commissioner accepted the claim and directed the Income-tax Officer to exclude the aforesaid sum of Rs. 2,29,053 from the total income.

6. The Department filed an appeal against the order of the Appellate Assistant Commissioner. By its order dated November 28, 1974, the Tribunal upheld the order of the Appellate Assistant Commissioner. The Tribunal has given categorical findings in paragraphs 8 and 9 of its order. It held that the partners of the firm constituted under the partnership deed dated September 1, 1967, doubtless earned the income arising out of the work done by them up to December 31, 1967, regardless of the question whether the payment was received before or after December 31, 1967. Similarly, the partners of the firm constituted under the partnership deed dated March 20, 1968, without doubt earned the income arising from the work done up to February 5, 1969, regardless of the question whether the actual payment was received before or after that date. This indisputable position, according to the Tribunal, was merely reaffirmed in clauses 5 and 6 of the partner-ship deed dated March 20, 1968, and clauses 3 and 4 of the partnership deed dated March 17, 1969. According to the Tribunal, the income earned in respect of the work done up to December 31, 1967, was the income of the partnership deed executed on September 1, 1967, and the then partners alone were entitled to share it. Similarly, the income from the work done for the period from January 1, 1968, to February 5, 1969, belonged to the firm constituted under the partnership deed dated March 20, 1968, and only the partners thereof were entitled to share the same. The successor-firms merely took upon themselves the function of collecting the outstanding fees which really belonged to the predecessor-firms merely as agents of the predecessor-firms and not in their own right. They collected the income belonging to the predecessor-firms for the sake of convenience and because a number of partners of the successor-firms were interested in the said income. The income was, thus, collected by them as agents or trustees and did not constitute their income. From these and other findings given in the aforesaid two paragraphs, the Tribunal came to the conclusion that the sum of Rs. 2,29,053 collected by the assessee-firm was not its income assessable to tax.

7. It is submitted before us by Dr. Balasubramanian, learned counsel for the Revenue, that it is a case of a firm continuing with a change in its constitution. Section 187 defines what constitutes a change in the constitution of a firm. It being a mere change in the constitution of the firm, the assessment, according to Dr. Balasubramanian, is required to be made on the firm as constituted on the date of the completion of the assessment in respect of its entire income. Merely because the legal heirs of the deceased partners were to be paid certain amounts from year