TMI Blog1985 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... f the answer to question No. (1) is in the negative, whether, on the facts and in the circumstances of the case, the sum of Rs. 40,600 payable to the assessee under clause 12 of the consent terms referred to in question No. (2) above was a revenue receipt ? " The assessment year concerned is 1962-63, the previous year having ended on March 31, 1962. The assessee is an advocate and solicitor of this court. Under the terms of a partnership deed dated January 3, 1957, he was made a partner of the solicitor firm of Little and Co. For acquiring an interest in the assets, goodwill and profits of the firm, he paid an aggregate sum of Rs. 40,680. Disputes having arisen between the partners of the said firm, a suit was instituted in this court against the assessee by the other partners for dissolution and accounts. (This was 0. 0. C. J. Suit No. 228 of 1961N. J. Anthorpe Webb v. N. A. Modi). Consent terms were arrived at on October 17, 1961. Clauses 1, 2, 3, 7, 8, 12 and 15 thereof need to be set out in full. They are as follows : " 1. Agreed and declared that the firm of Messrs. Little Co., Solicitors, stands dissolved by mutual consent of all the partners as from the close o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re such dissolution on account of the work done by the defendant before such dissolution is fixed at Rs. 40,600 becoming due and payable by the amounts at the dates mentioned below, namely : Rupees 10,150 on or before October 18, 1961, Rs. 10,150 on or before October 11, 1962, Rs. 10,150 on or before October 11, 1963, Rs. 10,150 on or before October 11, 1964. 15. Order that the decree do operate as assignment of the share, right, title, interest, claim and demand of the defendant in the firm of Messrs. Little Co. and all its assets, including goodwill and outstandings but excluding the premises and the defendant's share in the profits from April 1, 1961, to September 30, 1961, in favour of the plaintiffs in proportion to their respective shares and interest in the partnership of Messrs. Little Co. and that save as herein provided, the defendant do have no claim or demand of any nature whatsoever against the partnership firm of Messrs. Little Co. or any of its partners. " In the return filed by the assessee for the assessment year concerned, the assessee stated that the amounts of Rs. 17,975 and Rs. 10,150 received by him under clauses 8 and 12 of the consent terms we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have been raised before the Tribunal. We may note, in this connection, the decision of this court in Evans Fraser Co. Ltd. (In liquidation) v. CIT [1982] 137 ITR 493, for it cites the decisions of the Supreme Court in CIT v. Ogale Glass Works Ltd. [1954] 25 ITR 529 and CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589. The decisions of the Supreme Court and the decision of this court make it clear that where a question is in issue, there is no limitation imposed upon the aspects of that question which may be urged at the hearing of the reference regardless of whether those aspects had been raised before the Tribunal. Accordingly, we find no merit in the preliminary objection raised on behalf of the assessee. We turn to consider the consent terms. They are dated October 17, 1961. Clause I states that the parties are agreed and it is declared that the firm of M/s. Little Co. stands dissolved by mutual consent of all the partners as from the close of the day on September 30, 1961. Clause 2 provides for notice of such dissolution to be given. Clause 3 is of vital importance. It states that from and after October 1, 1961, the plaintiffs, that is, all the partners other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was retiring from the firm which would be continued by the remaining partners. Mr. Dwarkadas referred to certain clauses of the partnership deed which provided for retirement and submitted that a partner could retire only in terms of those clauses; since the consent terms did not accord with those clauses, they could not be construed as providing for the assessee's retirement. A partner's retirement, if unilateral, might have had to be in conformity with those clauses. The consent terms were arrived at with the consent of all the partners and were not required to so conform. Collecting the general intention of the consent terms, read as a whole, we have no doubt that they provide not for dissolution of the firm but for the retirement of the assessee therefrom. Mr. Dwarkadas submitted, on the basis of the decisions of the Supreme Court in CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 and Malabar Fisheries Co. v. CIT [1979] 120 ITR 49, that the consequence of the distribution of the firm's assets upon dissolution was a mutual adjustment of rights between the partners and that there was no transfer of assets within the meaning of section 2(47) of the Income-tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis was placed by Mr. Dwarkadas on the decision of the Gujarat High Court in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393. This was a case in which the assessee had retired from a firm leaving continuing partners. The terms and conditions of retirement were contained in the minutes. It was argued on behalf the Revenue that when the assessees retired, the interest of each of the assessees in the partnership was extinguished and there was, accordingly, a transfer of interest within the meaning of section 2(47) of the Income-tax Act, 1961. Relying upon the observations of the Supreme Court in the context of dissolution of the partnership, which the Gujarat High Court found to be equally applicable when a partner retired from a partnership, it was held that when a partner retired from a partnership and the amount of his share in the net partnership assets, after deduction of liabilities and prior charges, was determined on taking accounts on the footing of a notional sale of the partnership assets and was given to him, what he received was his share in the partnership and not any consideration for the transfer of his interest in the partnership to the continuing partners. His share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the money and acknowledge that he had no claims on his co-partners. The former type of transaction would be regarded as a sale or release or assignment of his interest by a deed while the latter type of transaction would not. In other words, it was clear that the retirement of a partner could take either of two forms and the question whether the transaction would amount to an assignment or release of his interest in favour of the continuing partners or not would depend upon what particular mode of retirement was employed. If, instead of quantifying his share by taking accounts on the footing of notional sale, parties agreed 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, 1961. In the document, the assessee stated that he did " hereby assign and release unto the continuing partners and each of them all his right, title, interest and undivided half share in the partnership firm..." Having regard to the particular mode employed to effect and bring abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest must pass. If there was no process by which a transfer of interest could be said to have taken place in respect of the interest of the deceased partner, but what the estate of the deceased partner got was only the money value of his interest, it had to be held that in the case of retirement or the death of a partner where moneys were paid to the retiring partner or to the estate of the deceased partner in lieu of his share in the partnership, there was no acquisition of any interest by the surviving or continuing partners. Mr. Dwarkadas submitted that whereas the reasoning of the decision of the Gujarat High Court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 had not been accepted by the Division Bench of this court which decided Tribhuvandas Patel's case [1978] 115 ITR 95, although it had not in terms disapproved of it, the Division Bench of this court which decided Patel Brothers' case [1984] 145 ITR 614 had accepted that reasoning by equating the legal position that obtained on dissolution with that which obtained on retirement. It was submitted by Mr. Dwarkadas that the decision of this court in Tribhuvandas Patel's case [1978] 115 ITR 95 was no longer good law, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who retires from the said firm........... The award also stated that "the said business shall...... be carried on...... by the remaining partners ......... (hereinafter referred to as the continuing partners) ". As required by the award, a document was executed whereunder the retiring partners assigned and released to the continuing partners their share and interest in the partnership. The question, this court noted, which fell for consideration was whether what was brought about by the award read with the agreement was a dissolution of the partnership or a mere retirement of the two partners, permitting the remaining partners to continue the business of the firm. The real legal effect of the award read with the agreement would not be controlled by how the transactions had been described by the arbitrator or by the parties and, therefore, the use by the arbitrator of the word " dissolution " was not conclusive. The overall effect of the award and the agreement clearly was that the two outgoing partners were to be paid a certain sum and they were to execute the necessary documents required to assign and release in favour of the continuing partners, their respective share and interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the second question will be answered thus: That part of Rs. 31,220 (Rs. 71,900 less Rs. 40,680) which is attributable to goodwill shall not be liable to capital gains tax. The balance amount shall be liable to capital gains tax. This brings us to the third question which relates to the receipt of Rs. 40,600 under clause 12 of the consent terms, already quoted. The amount was to be paid in full satisfaction of the assessee's share in the outstandings and dues of the firm from the earnings of the firm received by it after September 30, 1961, but earned before that date, on account of work done by the assessee. It was submitted by Mr. Dwarkadas that this amount had been received by the assessee from a source of income which was lost and that this amount was, therefore, a capital receipt. The Appellate Assistant Commissioner had spread out the levy of tax upon this amount between the assessment years mentioned and the correctness of this is not questioned by the Revenue. The question is whether the aggregate amount of Rs. 40,600 is a capital receipt, as contended by the assessee, or a revenue receipt, as contended by the Revenue. Having regard to the clear terms of clause 12, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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