1964 (12) TMI 52 - HC - Income Tax

Summary

Issues:
1. Taxability of the sum received by the assessee from a partnership deed under the Indian Income-tax Act.

Detailed Analysis:
The judgment concerns the taxability of a sum of Rs. 1,109 received by the assessee from a partnership with Messrs. Chenab Forest Company, Jammu, as per clause 10 of the partnership deed dated February 16, 1956. The partnership involved exploiting forests in Jammu and Kashmir. The partnership agreement specified that a payment of 7?% of the yearly net profits would be made to the second party (assessee) for the use of goodwill and technical knowledge. The dispute arose regarding whether this sum was a revenue receipt taxable under the Income-tax Act. The Appellate Assistant Commissioner initially held that a portion of the amount was for the use of goodwill and hence a revenue receipt, while the balance was for disclosing "KNOW-HOW" and considered a capital receipt based on precedents from the Madras High Court and English tax cases.

The Income-tax Officer, however, treated the entire amount as a revenue receipt. On appeal, the Appellate Tribunal sided with the Income-tax Officer, considering the sum as a commission paid to the assessee for his technical knowledge and efficiency. The Tribunal viewed the income as a revenue receipt based on a precedent involving Rani Amrit Kunwar. The assessee argued that only a portion of the amount should be considered a revenue receipt, citing English decisions like Handley Page v. Butterworth and Rolls Royce Ltd. v. Jeffrey to support the contention that part of the sum should be treated as capital gains.

The court analyzed various precedents cited by both parties, emphasizing the distinction between cases involving inventors selling inventions and partners utilizing such inventions for commercial ventures. The court delved into the specifics of each case cited, highlighting the importance of the nature of the transaction in determining taxability. The judgment discussed the concept of "KNOW-HOW" and its treatment as a revenue receipt or capital gains based on the commercial context and purpose of the payment. Ultimately, the court concluded that the sum received by the assessee was in the nature of a revenue receipt for the successive use of "KNOW-HOW" in a joint commercial venture, making it assessable income under the Income-tax Act.

In conclusion, the court answered the question referred in the affirmative, affirming the taxability of the sum received by the assessee. The respondent was awarded costs amounting to Rs. 250.