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TMI Blog1984 (11) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to 303 and 304, Fatehpuri, Chandni Chowk, Delhi, in which the firm's business was being carried on, to M/s. Bata Shoe Company. The contentions of the assessee before the Income-tax Officer were that the sum was a capital receipt or a casual receipt not liable to tax. The Income-tax Officer rejected these pleas holding that possession had been handed over on receipt of Rs. 1,60,000 and so the amount could not be treated as a windfall or a casual receipt. Before the Appellate Assistant Commissioner, it was contended that this sum was not income received from trade. It was also pointed out that out of the sum of Rs. 1,60,000, Rs. 1,20,000 had been credited to the accounts of the three partners of the firm and the remaining amount of Rs. 40,000 had been credited to the account of Shri Rajinder Singh, brother of the three partners, who was not connected with the firm. It was urged that the tenancy rights were a part of the goodwill which, according to a will dated May 8, 1956, made by Shri Harnam Singh, the father of the partners, had to be inherited in equal shares by the four sons i.e., Shri Mohan Singh, Shri Dalip Singh, Shri Gian Singh and Shri Rajinder Singh, who was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of both shops. Shri Gurbachan Singh retired from the partnership and then a new partnership was created between Shri Harnam Singh and his two sons, Shri Mohan Singh and Shri Gian Singh. This partnership deed provided that the business premises would belong on dissolution exclusively to Shri Harnam Singh. There was yet another change in the partnership when Shri Dalip Singh, another son of Shri Harnam Singh, was taken as a partner. In this deed also, it was provided that the tenancy rights in the business premises would vest exclusively in Shri Harnam Singh and none of the other partners would be entitled to a claim therein. Shri Harnam Singh executed a will on May 8, 1956, which was registered and this will provided that as long as he was alive, he would be the sole owner of the goodwill and on his death, the goodwill will pass to his four sons in equal shares and the daughters were not entitled. Shri Harnam Singh died in October, 1956. The three surviving partners continued the business under the old name and style of B. Harnam Singh Sons as per the partnership deed dated November 3, 1956. The premises were eventually surrendered on March 31, 1961, and let out to M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship. This also specified in para No. 6 that the tenancy rights and goodwill would belong exclusively to party No. 1 alone and none of the other partners Nos. 2, 3 or 4 were entitled to any claim therein. It follows that on the death of Shri Harnam Singh on October 17, 1956, the tenancy would be inherited by his legal heirs. Subsequently, on November 3, 1956, three of the sons entered into another partnership also to carry on business under the name of B. Harnam Singh Sons. This deed is entirely silent as to the rights in the premises. It merely says that the business would be continued in the same premises, or at such other place as might be mutually agreed upon. It, therefore, follows that there was no alteration in the legal position regarding the ownership of the tenancy rights. Under the law of partnership, some property remains the individual property of a partner and some property becomes partnership property. On dissolution, the partnership property has to be divided amongst the partners in accordance with the partnership deed, but the individual property reverts back to the individual owner. On the death of Shri Harnam Singh, the firm stood dissolved and, therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve other persons who could have claimed that they were entitled to the tenancy rights, but are not before us. So, we will say nothing about the four daughters and the widow having any rights in the firm. The legal position is that the heirs of Shri Harnam Singh are entitled to the sum of Rs. 1,60,000. From the manner in which the sons have dealt with the amount, it appears that they have divided it into four parts and thus each received Rs. 40,000. In other words, they at least have accepted the fact that none of the other legal heirs succeeds to this SUM. Some other cases have been cited before us relating to goodwill and partnership property. As a matter of fact, the present case does not involve any of the questions decided in those cases. In CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC), a goodwill of a firm was transferred to a newly constituted firm and the question arose whether capital gains arose. It was there held that the preponderance of judicial opinion was of the view that the transfer of goodwill initially generated in a business does not give rise to capital gains. As observed above, we have held that this is not a case of goodwill because it was the indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property will cease to be his individual property. There can be no doubt on the reading of the various partnership deeds in the present case that Shri Harnam Singh always had a clause in the partnership to the effect that he would enjoy the tenancy rights and the goodwill of the firm on its dissolution. Therefore, there was no intention to treat this property as a partnership asset. The next stage is after Shri Harnam Singh's death. It was possible for the other legal heirs to give up their rights in the tenancy, but no such intention can be made out from the mere fact that the partnership firm paid the rent. This position was true right from the inception. The finding is that from 1952 onwards, the rent was paid by B. Harnam Singh Sons, i.e., even in the lifetime of Shri Harnam Singh, the rent was paid by the firm. Clearly, such payment was on behalf of the tenant, Shri Harnam Singh. After the death of Shri Harnam Singh, the payment would be on behalf of the legal heirs. Thus, at no stage did the property become a partnership asset and, consequently, the answer to the question referred to us has to be in the affirmative to the effect that the Tribunal was right in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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