9911796707
TMI Blog1994 (8) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of Cochin Shipping " (firm) and claimed it to be exempt from tax as capital receipt. The assessment was completed on 20-10-1984 without bringing to tax the impugned amount. Then by an order under section 154 of the Income-tax Act, the Assessing Officer rectified the assessment by bringing to tax the impugned amount as follows : Receipts on retirement from the firm as discussed above Rs. 5,64,346 Less : Income-tax liability paid as per retirement agreement Rs. 41,267 -------------------- Rs. 5,23,079 -------------------- In the course of the discussion, the Assessing Officer adverted to the history of the case as follows : " The firm of M/s. Cochin Shipping Company was in existence right from 1966. It had two business plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the amount was held to be taxable in the ratio of the decision of the Supreme Court in the case of CIT v. Gangadhar Baijnath [1972] 86 ITR 19. The assessee carried the matter in appeal. The CIT (Appeals) after tracing the history of the case held that this is a case where the assessee retired from the partnership firm and obtained payment towards goodwill and agency rights. He further field that this is not a case where the assessee was indulging in entering into partnership and withdrawing therefrom. In other words, it is not the business of the assessee to enter into partnerships now and then and withdraw therefrom now and then. Goodwill was a valuable asset and equally so the agency lights. Therefore, he held that the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The revenue is on appeal before us. 3. We have heard rival submissions and perused the records, which included the partnership deed and the agreement governing the retirement of the assessee-company. We do not see any parallel between the facts in the case of Gangadhar Baijnath and the facts in the assessee's case. In the former case, there was no partnership deed. In the instant case, the relationship was governed by a duly executed indenture of partnership dated 1-4-1980. In the former case their Lordships of the Supreme Court have observed that it was one at will : whereas in the instant case it is found that the partnership shall not stand dissolved on the insolvency of any of the partners or on the death of any of the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solvency of the partners. Therefore, it cannot be said that the assessee-company was indulging in or retiring from the partnership as part of its normal trading activity. Thus, there is no parallel in the facts of the case relied on by the revenue and the facts of the case before us. On the other hand, the learned CIT (Appeals) has rightly placed reliance in the decision of the Allahabad High Court in the case of Smt. Mahinderpal Bhasin and of the Rajasthan High Court in the case of Brahm Swaroop Bros. to hold that the payment that were received by the assessee-company on its retirement towards goodwill and agency rights of the partnership firm was only in the nature of capital receipt. It must be stated in this context that in the case b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective accounts in their profit sharing ratio and paid off to them by continuing partners together with all other amounts standing to their credits in the books of the firm. 4. The party of the first part hereto to take over from the firm such of the assets and liabilities listed in the Schedule ' A ' annexed hereto (including the balance standing to the credit of the fourth party hereto and after effecting the adjustments as stated above) at the respective book values as on 1st April, 1981 and the value of the assets so agreed to be taken over by the first party shall be set off against the amounts payable as stated in clause 3 above. 5. The amounts standing to the credit of the outgoing partners shall be paid off to them by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the rights of the assessee to a share in the profits and assets of the firm. The reasoning of the learned CIT (Appeals) in holding that the payment was in the nature of capital receipt and as such it is not exigible to tax is supported by the recital in the deed of retirement. 4. Only if a business is subsisting any benefit or advantage accruing to the assessee can come within the ambit of section 28(iv) of the Income-tax Act. The payments received on retirement in lieu of the interest in the partnership firm cannot come anywhere near the provisions of section 28(iv) of the Act. At any rate the issues dealt in by the Assessing Officer in the rectification order are debatable issues and, therefore, the learned CIT (Appeals) is right ..... X X X X Extracts X X X X X X X X Extracts X X X X
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