TMI Blog1992 (8) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounting years 1964-65 to 1970-71. They comprised the assessee, Dhirajlal Madhavji, Harkishan Ratilal and Gunvantlal Madhavji. Harkishan Ratilal retired from the firm at the end of the year of account relevant to the assessment year 1970-71. Thus, at the beginning of the year of account relevant for the present case, i.e., assessment year 1971-72, there remained three partners in the said firm, viz., the assessee, Dhirajlal Madhavji and Gunvantlal Madhavji. The year of account relevant to the next assessment year, viz., 1972-73 was Samvat year 2027 which commenced on October 31, 1970 and ended on October 19, 1971. The share ratio of the three partners at the commencement of the said accounting year was as follows : Assessee 36 per cent. Dhirajlal Madhavji 40 per cent. Gunvantlal Madhavji 24 per cent. There was a change in the constitution of the said firm with effect from December 3, 1970. Gunvantlal Madhavji retired from the firm and seven new partners were admitted. Further, two minors were also added to the business of the partnership. As a result of the reconstitution of the firm, the assessee's share in the profit and loss in the reconstituted firm was reduced f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the Appellate Assistant Commissioner and dismissed the appeal. It is thereafter at the instance of the Revenue that the aforesaid question has been referred for our opinion. We may mention at the outset certain relevant facts in the background of which this question will have to be answered. For the year of account spreading from November 10, 1969, to October 30, 1970, the assessee had earned profit at the rate of 36 per cent. by way of his share from the firm's working. That amount is already brought to tax by the Income-tax Officer as seen from the computation of income by the Incometax Officer in the assessee's case at serial No. 2 dealing with the share from Bharat Salt and Industrial Works, being Rs. 11,952. Therefore, when, in the next year, the assessee rejoined the reconstituted firm which started its business from December 3, 1970, his share in the reconstituted firm got reduced from 36 per cent. to 5 per cent. That reduction clearly indicated that there was impairment in his capital asset to the extent of 31 per cent. In lieu thereof, he was paid compensation of Rs. 2,05,000, which is the disputed amount. Thus, the share in the partnership firm which was an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the goodwill and partly for their share of the profits in the firm for the period April 29, to October 5, 1946, but there was no material on which the compensation could be allocated to the several rights. It was also found that the assessee-firm thereafter continued to carry on various business activities and, with the aid of the sum of Rs. 35,01,000 received as compensation, acquired the controlling shares in two other companies. B. J. and Co. also continued to be the managing agents of the Swadeshi Cotton Mills Co. In the light of the aforesaid peculiar facts before them, the Supreme Court came to the conclusion that the amount of Rs. 35,01,000 constituted business income of the assessee-firm in the course of its diverse businesses of financing, money-lending and selling agencies and, therefore, that amount can be treated as business income assessable under section 10. The peculiar facts noted by the Supreme Court in the aforesaid case for reaching this conclusion may be enumerated as under : (1) There was no deed of partnership which had been entered into between the Baglas and the Jaipurias when they constituted the new firm B. J. and Co. (2) The partnership was terminab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt." It is easy to visualise that the aforesaid decision of the Supreme Court in Gangadhar's case [1972] 86 ITR 19 proceeds on its own peculiar facts as indicated hereinabove. None of these distinguishing features for treating the amount in the hands of the assessee as business income or as a revenue receipt exists in the present case. On the contrary, the only evidence on record is to the effect that the assessee, during all earlier years, was having 36 per cent. share in profits in the old firm which got reduced to 5 per cent. in the reconstituted firm which was to function in the next year and for giving up his 31 per cent. share, the assessee got compensation of Rs. 2,05,000. In the absence of any other distinguishing features which were found to exist in Gangadhar's case [1972] 86 ITR 19 (SC), it becomes obvious that such receipt would be capital receipt representing compensation or consideration for impairment of his income yielding asset suffered by the assessee when his sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1964] 53 ITR 261 (SC), the assessee-firm was formed with the object of carrying on the business of managing agencies and it was the managing agent of six companies including the Fort William jute Co. The Fort William jute Co. was thus one of the managed companies of the assessee. The assessee-company entered into an arrangement with one Mugneeram Bangur and Company. Under the arrangement, the latter agreed (i) to purchase the entire holding of shares of the appellant in Fort William jute Co., the managed company, (ii) to procure repayment of all loans made by the appellant to that managed company, and (iii) to procure that the managed company will compensate the appellant for loss of office by the payment of the sum of Rs. 3,50,000 after the appellant-company resigned its managing agency and reimburse that amount to the managed company. The appellant company tendered its resignation of the managing agency and received the sum of Rs. 3,50,000. The question was whether the aforesaid amount received by the appellant-assessee-company to relinquish its managing agency of the managed company was a revenue receipt liable to tax. Answering this question in the negative, J. C. Shah J., sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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