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Issues Involved:
1. Taxability of the receipt of Rs. 1,12,500 u/s 10(3) of the Income-tax Act, 1961. 2. Nature of the receipt of Rs. 71,900 and its chargeability to capital gains tax. 3. Nature of the receipt of Rs. 40,600 and its classification as revenue receipt. Judgment Summary: Issue 1: Taxability of Rs. 1,12,500 u/s 10(3) of the Income-tax Act, 1961 The court examined whether the receipt of Rs. 1,12,500 by the assessee was of a casual and non-recurring nature and thus not taxable. The argument was based on the premise that the assessee received his share in the partnership, implying no transfer and hence no tax liability. The court found that the consent terms indicated the retirement of the assessee from the partnership rather than its dissolution. Consequently, the court held that there was a transfer of the assessee's share in the partnership, making the receipt taxable. The first question was answered in the negative and in favor of the Revenue. Issue 2: Nature of the receipt of Rs. 71,900 and its chargeability to capital gains tax The court considered whether the receipt of Rs. 71,900 was a 'capital receipt' and if Rs. 31,200 or any part thereof was chargeable to capital gains tax. The court referred to the decision in CIT v. Srinivasa Setty and Evans Fraser & Co. Ltd. to conclude that the amount attributable to goodwill was not liable to capital gains tax. The Tribunal was directed to bifurcate the amount received on account of goodwill and other assets. The second question was answered as follows: the part of Rs. 31,220 attributable to goodwill shall not be liable to capital gains tax, while the balance amount shall be liable to capital gains tax. Issue 3: Nature of the receipt of Rs. 40,600 and its classification as revenue receipt The court examined whether the sum of Rs. 40,600 payable to the assessee was a capital or revenue receipt. The amount was for the assessee's share in the outstandings and dues of the firm earned before dissolution but received after. The court found it to be a payment on account of the firm's earnings and thus a revenue receipt. The third question was answered in the affirmative and in favor of the Revenue. Conclusion: The court answered the questions as follows: 1. In the negative and in favor of the Revenue. 2. That part of Rs. 31,220 (Rs. 71,900 less Rs. 40,680) attributable to goodwill shall not be liable to capital gains tax. The balance amount shall be liable to capital gains tax. 3. In the affirmative and in favor of the Revenue. The assessee was directed to pay the costs of the reference to the Revenue.
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