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TMI Blog1996 (9) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... Messrs. Nathmal Nihalchand, Pokhraj Hirachand and Hiralal Hargovindas. This arrangement was as contained in the letter written by the assessee to Messrs. Nathmal Nihalchand and Pokhraj Hirachand on the 31st of October, 1946. The letter stated that the assessee was agreeing to purchase about 1,29,000 parachutes from Messrs Tata Aircraft Limited in partnership on the terms as stated thereafter. Under these terms Messrs. Nathmal Nihalchand and Pokhraj Hirachand were to pay ₹ 10 lakhs as deposit towards the transaction, which was to be paid to Messrs. Tata Aircraft Ltd. as deposit and they were to be given a net profit share of nine annas in a rupee in the transaction and the balance was to go to the assessee. They were not to be responsible for any loss in the transaction and the assessee was to be wholly responsible for the same. Messrs. Nathmal Nihalchand and Pokhraj Hirachand also were entitled to withdraw after the acceptance of the goods if they so chose and they were in that event to take 5 per cent, commission on the entire value of the goods. They were not to invest more than 10 lakhs in the transaction and on the 10 lakhs paid by them they were to get interest at 6 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and and Hiralal Hargovindas, gave to the assessee a letter recording that in consideration of the assessee having agreed to transfer the benefits of the agreement made by him with Messrs. Tata Aircraft Ltd., for purchase of parachutes at their request, they had cancelled the arrangement arrived at between them and the assessee and recorded in the assessee's letter addressed to them of the 31st of October, 1946. The letter further stated that since the assessee had agreed that the sum of ₹ 10 lakhs which had been paid by them to the assessee and which the assessee had deposited in pursuance of the agreement of purchase with Messrs. Tata Aircraft Ltd. was to be handed over to Messrs. Pokhraj Hirachand by the Tata Aircraft Ltd. and that they had no claim for the said amount against the assessee. In pursuance of this new arrangement, the assessee wrote to the Tata Aircraft Ltd. requesting them to substitute the name of Messrs. Pokhraj Hirachand for his name in the contract for the purchase of the parachutes on certain terms and conditions as stated in the said letter. This letter was endorsed by Messrs. Pokhraj Hirachand signifying their willingness to be substituted as the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -recurring one and was exempt under section 4(3)(vii) of the Act. His contentions were negatived by the Income-tax Officer and the amount of ₹ 3 lakhs was held to be income from the business of the assessee and brought to tax. In the appeal before the Appellate Assistant Commissioner, the same contentions were raised by the assessee and it was also further argued that the transaction of the assessee being merely a transfer of the benefits of the agreement was really a sale of the right to carry on the business and, therefore, the amount received by the assessee was for the sale of the source of his business and as such it was not an income receipt. The Appellate Assistant Commissioner did not accept any of the contentions raised by the assessee and dismissed the appeal. In the appeal before the Tribunal, the Tribunal held that the assessee had only received ₹ 1,87,000 and not ₹ 3 lakhs as held by the department. It further held that this amount, which the assessee received, was his profit from a business venture and was, therefore, income received by the assessee, which was liable to income-tax. In view of these conclusions, the Tribunal allowed the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Kolah. In the present case the assessee was a businessman dealing in articles including parachute silks. His contract with the Tata Aircraft Limited was a contract for the purchase of stock-in-trade for the business, which he was carrying on. It was, therefore, an ordinary contract entered into by him in the course of his business although the magnitude of this contract was a large one. What he received from Messrs. Pokhraj Hirachand when he transferred the benefit of this contract was a receipt in respect of one of the contracts, which he had entered into in the ordinary course of his business. In our opinion such a receipt could be regarded as only a trading receipt received by him. We may refer in this connection to the observations of the Supreme Court in the case of Commissioner of Income-tax v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 ; [I959] Suppl. 1 SCR 110. Their Lordships have observed: When once it is found that a contract was entered into in the ordinary course of business, any compensation received for its termination would be a revenue receipt, irrespective of whether its performance was to consist of a single act or a series of acts spread over a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese four persons for the deal which was to be entered with the Tata Aircraft Limited. No doubt, the contract with the Tata Aircraft Limited was entered into in the name of the assessee, but in view of the partnership arrangement of the previous day, it was a transaction entered into by the assessee on behalf of the partnership. Subsequently, on the 13th of November, 1946, the assessee withdrew from the said partnership leaving the deal to be worked out by the other three partners. It is for this withdrawal from the partnership, which incidentally also required him to take steps to transfer the contract which had been entered into in the individual name of the assessee with the Tata Aircraft Ltd. in the name of M/s. Pokhraj Hirachand, that he had agreed to receive a sum of ₹ 3 lakhs. The amount, therefore, was received by a partner for his going out of the partnership and relinquishing his rights to participate in the profits of the said partnership. Since this was the effect of the arrangements that had taken place between the parties first on the 31st of October, 1946, and subsequently, on the 13th of November, 1946, it must be held that the amount received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order that the legal relationship should be a partnership is that there should be an agreement to share the profits and each partner should be the agent of all the other partners. Now, in the first place, an agreement of partnership will require an agreement between all the partners. The arrangement, therefore, has to be agreed to by each one of the partners. What we find in the letter, which the assessee has written on the 31st of October, 1946, is that he agreed to purchase the goods in partnership on the terms and conditions as contained in his letter. It does not show whether these terms were agreed to by the others in the proposed partnership, so that a partnership could in fact be said to have come into existence as stated in this letter. What can at best be said in favour of Mr. Kolah is that a partnership arrangement had been proposed by the assessee. Reading the terms of the proposed arrangement it seems to us that the terms were proposed by the assessee to the financiers because he was short of funds for entering into the contract with the Tata Aircraft Limited and was prepared to offer very favourable terms to the financiers, agreeing to take upon himself an onerous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution and accordingly the contract for the purchase of the parachutes was transferred by the assessee to Messrs. Pokhraj Hirachand. It is undisputed that the assessee agreed to receive ₹ 3 lakhs from Messrs. Pokhraj Hirachand. In the partnership deed, which was executed between the six persons on the 22nd of November, 1946, it was stated in the preamble that Messrs. Milkhiram Bros., who had made the contract to purchase the parachutes from Messrs. Tata Aircraft Ltd. on the 1st November, 1946, in their own name, i.e., Messrs. Milkhiram Bros., had transferred the same subsequently in the name of Messrs. Pokhraj Hirachand of Champa Galli, Bombay, on payment of ₹ 3 lakhs by Messrs. Pokhraj Hirachand to Messrs. Milkhiram Bros. It will be noticed that there is no reference in this preamble to the partnership between the assessee and the three financiers of the 31st of October, 1946. In our opinion, on the facts and circumstances that are disclosed on the record before us, on the 13th November, 1946, the position between the parties was that any previous arrangement between them whether by way of partnership or otherwise was to be treated as cancelled. The contract with Mes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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