9911796707
TMI Blog2005 (4) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... took over the business of the proprietary concern as a going concern with effect from 7-4-1997. At that point of time a power of attorney was executed by the partners of the reconstituted firm styled as M/s. Electronics Controls by way of which the assessee individual was appointed as an attorney on behalf of the firm. In terms of the said Power of Attorney, the assessee was given the powers, to run the day-to-day production, purchase and marketing policies based on the policy decision taken by the firm. A copy of the said Power of Attorney has been placed in the paper book filed before us. Clause 6 of the said Power of Attorney states that the said Attorney shall be the full-time working manager responsible for all day-to-day activities of the firm except insofar as for the purposes of financial borrowings and policy decisions. The assessee contended that in terms of the said Power of Attorney it was clear that there was no employer-employee relationship between the partnership firm and the assessee individual and if at all there was a relationship, it was of a principal-agent relationship. It appears that subsequently certain differences arose between the assessee and the heir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided for in clause 6 above, Mr. B.L. Subbaraya agrees that any settlement as may be made in this respect arising out of resignation of Mrs. Srilakshmi Subbaraya and payable to Mrs. Srilakshmi Subbaraya will constitute and be a part of the settlement of the compensation of Rs. 100 lakhs as described in clause 3 of this agreement and shall constitute as final settlement from the firm on this account." Further, in terms of the said agreement extended to the partnership firm of the group M/s. Sulax Corporation, in which Smt. Srilakshmi Subbaraya , wife of the assessee was a partner. In terms of the retirement deed dated 27-10-1997, the wife of the assessee, Smt. Srilakshmi Subbaraya retired. In terms of clause 2 of the retirement deed, a sum of Rs. 20 lakhs was agreed to be paid to her in lieu of her share of profits up to the date of retirement. This amount was payable to her in addition to the amount standing to her credit as on 31-3-1997. The relevant clause i.e., clause 2 of the retirement agreement is being reproduced hereinafter to facilitate appreciation of the matter : "The final account of the partnership have been drawn as of 31st March, 1997. As at the said da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership firm. Noticing that since a sum of Rs. 23 lakhs has already been withdrawn by the assessee which constituted the sum of Rs. 100 lakhs, the same was liable to tax. According to the Assessing Officer, the amount of Rs. 23 lakhs was to be treated as an amount in lieu of salary being the sums being withdrawn by the assessee out of which Rs. 2,50,000 was given as deduction under section 10(10), holding it as gratuity and the balance of Rs. 20,50,000 was brought to tax. The balance sum of Rs. 77,00,000 ( i.e., Rs. 100 lakhs minus Rs. 23 lakhs) was brought to tax as assessable under section 17(3) of the Income-tax Act. Noticing that there was a litigation with regard to the settlement agreement, the Assessing Officer concluded that there was a claim for recovery of certain sums from the firm and the matter was subjudiced and pending before the Court. In this view of the matter, although he proceeded to assess the sum of Rs. 77 lakhs in the hands of the assessee, but made the assessment on a protective basis. 5. Aggrieved by the aforesaid stand of the Assessing Officer, the matter was carried in appeal before the CIT(A). The CIT(A) firstly held that Rs. 20 lakhs receivable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Electronics and Controls, supra , Sulax Corporation, ECPL and other businesses. Thus, the settlement extended not only to the assessee s relationship with M/s. Electronics and Controls, a firm in which the assessee was a Power of Attorney but also to other group concerns. In terms of clause 6 of the settlement, reference is also made to the affairs of M/s. Sulax Corporation in which the wife of the assessee Smt. Srilakshmi Subbaraya was a partner. In terms of the said clause, the said Smt. Srilakshmi Subbaraya was to resign from the partnership of M/s. Sulax Corporation. Further, in terms of clause 7 it was provided that in lieu of the resignation of Smt. Srilakshmi Subbaraya from the partnership of Sulax Corporation, the amount payable shall constitute and be a part of the settlement of the compensation of Rs. 10 lakhs described in clause 3. Thus, in view of the aforesaid, it cannot be deduced that the sum of Rs. 20 lakhs to be paid to Smt. Srilakshmi Subbaraya at the time of retirement from the firm M/s. Sulax Corporation and was not a part of compensation settled in terms of the settlement deed dated 9-8-1997 between the assessee and Mrs. Sundari Ramachandran. On this count, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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