1972 (8) TMI 3 - SC - Income Tax

Compensation for relinquishment of interest in partnership - hold that the entire sum of Rs. 35,01,000 received by the assessee was a revenue receipt assessable under section 10

Summary

Issues Involved:
1. Whether the receipt of Rs. 35,01,000 constituted income liable to tax under section 10 of the Income-tax Act.
2. Whether it was competent for the Appellate Assistant Commissioner to invoke the provisions of section 12B for the assessment of Rs. 35,01,000 when the Income-tax Officer had assessed the amount under section 10 of the Income-tax Act.
3. Whether the receipt of Rs. 35,01,000 was taxable under section 12B of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Whether the receipt of Rs. 35,01,000 constituted income liable to tax under section 10 of the Income-tax Act:
The Supreme Court examined whether the receipt of Rs. 35,01,000 was a capital receipt or a revenue receipt. The court emphasized that the nature of the receipt must be determined based on the facts of the case. The assessee-firm, a partnership involved in financing and money-lending, entered into an agreement with another group, forming a new partnership named Bagla-Jaipuria & Co., which acquired managing and selling agency rights. The agreement included a clause for one group to retire, with compensation paid by the continuing group. The court noted that the new partnership was not a partnership of two firms but of individual partners from each firm. The compensation paid to the retiring group included amounts for capital investment, interest, and compensation for surrendering rights. The court held that the compensation was a revenue receipt as it was paid for the termination of a contract entered into in the ordinary course of business. The court emphasized that the termination of such a contract did not affect the trading structure of the assessee-firm, which continued its business activities. Therefore, the entire sum of Rs. 35,01,000 was assessable under section 10.

2. Whether it was competent for the Appellate Assistant Commissioner to invoke the provisions of section 12B for the assessment of Rs. 35,01,000 when the Income-tax Officer had assessed the amount under section 10 of the Income-tax Act:
The court did not find it necessary to address this issue in detail, as it concluded that the receipt was assessable under section 10. The court's primary focus was on determining the nature of the receipt (capital or revenue) and its taxability under section 10. Since the court held that the receipt was a revenue receipt and assessable under section 10, the question of the Appellate Assistant Commissioner's competence to invoke section 12B became moot.

3. Whether the receipt of Rs. 35,01,000 was taxable under section 12B of the Income-tax Act:
The High Court had held that the receipt was not taxable under section 12B, and the Supreme Court did not find it necessary to delve into this issue further. The court's determination that the receipt was assessable under section 10 rendered the question of its taxability under section 12B irrelevant. The court focused on the nature of the receipt and concluded that it was a revenue receipt, thus assessable under section 10.

Conclusion:
The Supreme Court held that the entire sum of Rs. 35,01,000 received by the assessee was a revenue receipt assessable under section 10 of the Income-tax Act. The court dismissed Civil Appeal No. 2022 of 1968 with costs and dismissed Civil Appeal No. 1746 of 1968 with no order as to costs. The judgment emphasized that the receipt was a revenue receipt arising from the termination of a contract in the ordinary course of business and did not affect the trading structure of the assessee-firm.