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Assessment of Rs. 31,000 as revenue profits for the assessment year 1951-52. Determination of whether the sum of Rs. 31,000 or any part thereof was profit assessable under the Income-tax Act. Analysis: The case involved an application by the assessee to refer certain questions of law arising from the Tribunal's order to the High Court under the Indian Income-tax Act. The assessee, engaged in a hardware business, entered into a partnership for importing scrap iron but was unable to sell the stock due to lack of government permission. Upon dissolution of the partnership, a deed was executed where the retiring partner assigned his share to the continuing partner for a payment of Rs. 31,000. The Income-tax Officer assessed this amount as revenue profits for the assessment year 1951-52, considering it the assessee's share of profits from the business. However, the Appellate Assistant Commissioner disagreed, stating that the payment was not a share of profit but a settlement for ownership of the stock. The Department appealed this decision, arguing that the sum received constituted the assessee's profits in the partnership. The Tribunal, reversing the Appellate Assistant Commissioner's decision, held that the Rs. 31,000 represented profits accruing to the assessee from selling his share of the stock-in-trade and assets, making it assessable in his hands. The High Court analyzed the nature of the payment of Rs. 31,000, concluding that it was compensation for the relinquishment of the assessee's partnership rights. The partnership was formed solely for the purchase and sale of scrap iron, with the capital being borrowed. As the sale could not be completed due to government restrictions, the surviving partner took over the liability and paid compensation to the assessee for giving up his rights in the partnership. The Court applied the principle established in a previous case related to managing agency, emphasizing that the payment was for a capital asset, not a trading receipt. Since the partnership deed focused on a specific business item that the assessee had to forego, the compensation was deemed to be for the loss of a capital asset, not revenue profits. In conclusion, the High Court answered the question in the negative, favoring the assessee, and awarded costs for the reference. The judgment clarified that the payment of Rs. 31,000 was not assessable as profit but was compensation for the relinquishment of partnership rights, constituting a loss of a capital asset rather than revenue profits.
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