1996 (9) TMI 639 - HC - Income Tax

Summary

Issues Involved:
1. Whether the receipt of Rs. 1,87,000 in the hands of the assessee is a revenue receipt and liable to income-tax.
2. Whether the amount received by the assessee was for transferring the benefit of a contract or for relinquishing rights to participate in the profits of a partnership.
3. Whether the arrangement between the assessee and financiers constituted a partnership.

Detailed Analysis:

1. Revenue Receipt and Liability to Income-Tax:
The primary issue revolves around whether the sum of Rs. 1,87,000 received by the assessee constitutes a revenue receipt, thereby making it liable to income-tax. The Tribunal held that the amount was received by the assessee as profit from a business venture, thus qualifying as income liable to tax. The assessee contended that the receipt was a capital asset or source of possible income, not an income receipt, and argued that it was a casual and non-recurring receipt exempt under section 4(3)(vii) of the Indian Income-tax Act. However, the Tribunal and the court concluded that the contract with Tata Aircraft Limited was a business transaction, and the amount received was a trading receipt, making it liable to income-tax.

2. Transfer of Contract Benefit vs. Relinquishing Partnership Rights:
The assessee argued that the amount received was not just for transferring the benefit of the contract but also for relinquishing his rights to participate in the profits of a partnership. The court examined the arrangement and concluded that the primary transaction was the transfer of the contract benefit, not relinquishment of partnership rights. The court noted that even if a partnership arrangement existed initially, it was subsequently canceled, and a new arrangement was made where the assessee agreed to transfer the contract benefits for Rs. 3 lakhs. Thus, the amount received was for the transfer of a business contract, not for relinquishing partnership rights.

3. Existence of Partnership:
The assessee claimed that an agreement on October 31, 1946, constituted a partnership between him and the financiers. The court examined the terms of the agreement and the subsequent actions of the parties. It found no evidence that the proposed partnership terms were agreed upon by all parties, nor that a partnership legally came into existence. The court observed that the arrangement appeared more like a financial arrangement rather than a partnership. Additionally, the arrangement of October 31, 1946, was canceled, and a new agreement was made on November 13, 1946, where the assessee transferred the contract benefits to the financiers. Therefore, the court concluded that there was no partnership, and the amount received was for the transfer of the contract benefits.

Conclusion:
The court held that the sum of Rs. 1,87,000 received by the assessee was a revenue receipt and liable to income-tax. The amount was received for transferring the benefit of a business contract, not for relinquishing rights in a partnership. The initial arrangement did not constitute a partnership, and any such arrangement was subsequently canceled. The Tribunal's view that the sum was an income of the assessee liable to income-tax was affirmed. The court answered the referred question in the affirmative and directed the assessee to pay the costs of the department.