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Issues Involved:
1. Apportionment of profits between old and new partners. 2. Deductibility of payments made to retiring partners from taxable profits. Issue-Wise Detailed Analysis: 1. Apportionment of Profits Between Old and New Partners: The first issue addressed whether the Tribunal was correct in upholding the Income-tax Officer's decision to apportion the firm's profit between the three present partners rather than the five old partners. The court found this contention by the assessee untenable. It was established that the old firm, consisting of five partners, had dissolved on 31st October 1942, and the new firm, comprising the three remaining partners, carried on the business. The profits on the sales of the 334 bales were realized by the new firm, which was conducting business in its own right. Consequently, the profits for the year of account 1943-44 had to be apportioned among the three partners of the new firm, not the five partners of the dissolved firm. Therefore, the Tribunal's decision was upheld, and the first question was answered in the affirmative, against the assessee. 2. Deductibility of Payments Made to Retiring Partners from Taxable Profits: The second issue was more complex and concerned whether the sum of Rs. 18,911-12-0 paid to the retiring partners should be deducted from the taxable profits of the new firm. The assessee argued that this sum did not form part of the taxable profits and represented an expenditure laid out wholly and exclusively for the business purposes of the new firm. The revenue authority contended that the payment was made from the profits of the new firm and was a capital expenditure, thus not deductible under Section 10 (2) (xv) of the Income-tax Act. The court delved into various precedents and principles of income-tax law, emphasizing that the destination or application of profits, once made or ascertained, is immaterial. Payments made in discharge of an obligation contingent upon profits being earned can be admissible deductions if they are necessary for the purpose of enabling the company to carry on its trade. Applying these principles, the court noted that the payments to the old partners were made in respect of their rights under forward contracts, which were isolated and reserved at the time of the dissolution. These payments were part of the price paid by the new firm to acquire full exclusive title to the goods, which formed the stock-in-trade of the new firm. Thus, these payments were considered revenue expenditure laid out solely and exclusively for the business of the new firm. The court distinguished this case from others cited by the revenue authority, noting that the payments were not for acquiring the interest of the partners in the old firm, including its goodwill and other assets, but were for acquiring an exclusive right to the stock-in-trade. Consequently, the sum of Rs. 18,911-12-0 was deemed a revenue expenditure and an admissible deduction in computing the profits of the new firm. The second question was answered in the negative and in favor of the assessee, allowing the deduction. The assessee was entitled to costs fixed at Rs. 250. Conclusion: The court concluded that the profits should be apportioned among the three partners of the new firm, not the five partners of the dissolved firm. Additionally, the payment of Rs. 18,911-12-0 to the retiring partners was considered a revenue expenditure deductible from the taxable profits of the new firm.
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