1996 (2) TMI 16 - SC - Income Tax

Assessee s share of profit that may ultimately be determined in the assessment of the firm as his share of profit from the firm is liable to be included in his total income - Amount received by the assessee as his share of the value of the goodwill or any part thereof was not liable to tax as capital gain - amount over and above Rs. 1, 00, 000 is also his income in law. It has accrued to him. It is immaterial that he chose not to recover it

Summary

Issues:
1. Inclusion of specific amounts in the total income of the assessee from a partnership firm.
2. Taxability of a sum received as a share of goodwill as capital gain.
3. Taxability of a sum received as a share in the assets of the firm as capital gain under section 47(ii) of the Income-tax Act, 1961.

Analysis:

Issue 1:
The case involved determining whether a specific amount should be included in the total income of the assessee from a partnership firm. The assessee had retired from the firm and received various sums, including a share of profits. The High Court held that the actual amount determined in the assessment of the firm should be considered as the assessee's share of profit, not just the amount received by him. The Supreme Court agreed with this decision, stating that the amount over and above what was received by the assessee is also his income in law, regardless of whether he chooses to recover it. Therefore, the answer given by the High Court was deemed correct in the circumstances.

Issue 2:
Regarding the taxability of a sum received as a share of goodwill as capital gain, the Supreme Court noted that this question had already been answered in favor of the assessee based on a previous court decision. Therefore, this issue was not a subject of consideration in the current judgment.

Issue 3:
The final issue was the taxability of a sum received as a share in the assets of the firm as capital gain under section 47(ii) of the Income-tax Act, 1961. The assessee contended that this sum did not represent a capital gain and should be treated as per the provisions of clause (ii) of section 47. Citing relevant court decisions, the Supreme Court agreed with the assessee's argument and held that the sum in question should be treated under clause (ii) of section 47, thereby favoring the assessee and ruling against the Revenue.

In conclusion, the Supreme Court dismissed the appeal concerning issue 1, upheld the decision on issue 3 in favor of the assessee, and clarified that issue 2 was not under consideration in the current proceedings.