TMI Blog1979 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, with four partners, including the assessee. On 11th October, 1969, the assessee retired from the firm and the assets and liabilities were liable to be taken over by two of the partners who would carry on the distribution of films-thereafter. A dissolution deed was drawn up on 11th October, 1969, in which it was stated that the parties had mutually agreed to dissolve the partnership as and from 11th October, 1969. Clause 6 of the dissolution deed ran as follows : " The party of the 3rd part hereto (the assessee) shall receive and be paid a sum of Rs. 26,000 (rupees twenty-six thousand only) by the parties Nos. 1 and 2 (the two partners who took over the assets and liabilities) in full and complete settlement of all his claims in the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the case. However, Mr. Jayaraman, the learned standing counsel for the Commissioner, stated that this sum represented the share of losses debited to the partners in the respective years in which the losses arose. The entry in the books of the firm would only go to show that the assessee owed to the firm a sum of Rs, 53,130.56. Ordinarily, he should have discharged this debt due to the firm. The question is whether the remission of this amount by the firm can be treated as income in the assessee's hands. It is, settled law that a debt forgiven cannot be treated as income. The question as to whether a remission of debt would constitute income was considered in British Mexican Petroleum Co. Ltd. v. Jackson [1932] 16 TC 570 (HL). The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete settlement of all his claims in the partnership business towards his share of capital, accrued profits or losses, etc. The I.T. authorities have not gone into the question ;is to how this sum of Rs. 26,000 was arrived at. This sum of Rs. 26,000 can fall only into one of two categories. Either it is a payment in respect of profits earned by the firm which was due to him or it is returned to him as his share of capital. In either event, it is not taxable. If it is only the share of profits credited to his account, then when it is paid to him it is not liable to be taxed in his hands. It is common knowledge that in the case of a registered firm, the firm is nominally taxed and the amount due in respect of the share of a particular partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent one, as the only principle decided in that case was that what is received out of profits continue to be profits in the hands of partners notwithstanding dissolution of the firm. In this case, in one view, such profits (if any) having borne tax cannot again be taxed. The second case cited by the learned counsel for the revenue is the one in CIT v. S. Rm. Sathappa Chettiar [1951] 20 ITR 393 (Mad). In that case, there was a firm brought into existence for erecting and establishing spinning mill between two persons, of whom the assessee was one. The assessee erected a building and the other partner purchased machinery of the value of Rs. 79,155. The factory was completed but did not start the business for want of supply of electricity. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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