1986 (9) TMI 112 - AT - Income Tax

Summary

Issues:
1. Allocation of share of profit to a partner who retired during the accounting year.
2. Interpretation of partnership deed regarding the accrual of share of profits.
3. Validity of the AAC's decision to delete the share income included in the assessment.
4. Applicability of the Supreme Court's decision in CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42.
5. Assessment of share income in the hands of the retiring partner.

Detailed Analysis:
1. The issue in this case revolves around the allocation of the share of profit to a partner who retired from the firm during the accounting year. The Income Tax Officer (ITO) brought into the assessment the amount of Rs. 14,845 as the share of profit from the firm till the date of retirement of the partner.

2. The interpretation of the partnership deed regarding the accrual of share of profits is crucial. The partner contended that the profits were to be ascertained only on the normal closing date of the accounts, and only partners at that point in time had the right to the share of profit. The Additional Commissioner of Income Tax (AAC) deleted the amount included in the assessment, citing the terms of the partnership deed.

3. The validity of the AAC's decision to delete the share income included in the assessment was challenged by the revenue in the appeal. The revenue argued that the AAC's decision was against the law and the facts of the case, emphasizing that the share income was adopted as per the Income Tax Act.

4. The applicability of the Supreme Court's decision in CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 was invoked during the proceedings. The partner's counsel argued that the Supreme Court's decision supported the deletion of the share income, as the profits were apportioned only to the partners who were active at the end of the accounting year.

5. The assessment of the share income in the hands of the retiring partner was a key point of contention. The departmental representative argued that the retiring partner was entitled to the share income as per the assessment order, while the partner's counsel relied on the partnership deed and the timing of profit allocation to support the deletion of the share income.

In conclusion, the Tribunal confirmed the AAC's order and dismissed the appeal filed by the revenue. The judgment highlighted the importance of the partnership deed terms in determining the accrual of share of profits and emphasized that the retiring partner was not entitled to the share income allocated after her retirement based on the Supreme Court's precedent.