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TMI Blog1979 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... retire from the firm with effect from September 30, 1963. On October 8, 1963, a deed of dissolution was drawn up between the retiring partners on the one hand and the continuing partners on the other. Clauses 1, 2 and 3 of this deed of dissolution are relevant and may be set out here: " 1. That the parties to this deed have thoroughly and satisfactorily checked, scrutinised and gone through the entire existing stock-in-trade at the above-mentioned premises, the accounts which stand rightly, regularly and correctly posted in the books of account of partnership, the recoveries and outstandings due to the partnership, the liabilities of the partnership, the bank accounts of the partnership. That as per books of account of the partnership Rs. 37,323.10 (Rupees thirty-seven thousand three hundred and twenty-three and paise ten only) stands entered as the capital investments of Shri Kanwal Kishore Khanna, member of the party of the 1st part, and Rs. 75,200.41 (Rupees seventy-five thousand two hundred and paise forty-one only) stands entered as the capital of Shri Krishan Kishore Khanna who, was the other member of the party of 1st part, which sums are refundable and payable to them by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to the same without any let or hindrance and that the retiring partners shall have no right, title or interest in the same. In pursuance of the above agreement a sum of Rs. 1 lakh was paid to the two retiring partners. In the cash book of the firm as on . September 28/30, 1963, which was signed by all the four partners, however, the payment of Rs. 1 lakh was split up into two component parts. A sum of Rs. 48,076.15 was stated to be the amount of goodwill paid to the retiring partners and the balance of Rs. 51,923.85 was stated to represent the amount of appreciation in value of stocks and licence paid to retiring partners. It was stated that this sum of Rs. 51,923.85 had been determined by taking the profits on the stocks held by the assessee at various offices at certain rates ranging between 25% and 27%. It was, however, stated that this profit rate was determined on the basis of the normal profit margin obtained by the firm and this was sought to be supported by reference to the copies of the trading account of the firm for the years ending on December 31, 1963, to December 31, 1966. The question that arises in this reference is whether the sum of Rs. 51,923 is liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant is the main object of payment and having regard to that object we have no doubt at all in our minds that the payment in question was payment-of a capital nature. It was a payment which was not incidental to the carrying on of the business but to its reconstitution or to the fundamental structural changes in its framework. The disallowance was, therefore, in order and the same is upheld." Mr. G. C. Sharma, learned counsel for the assessee, submitted that the Tribunal had committed an error in assuming that any payment made to a former partner of a firm would necessarily be of capital nature. According to him, on the dissolution of the firm, the interest of the retiring partners was evaluated by reference to the amounts standing to their credit in their capital accounts in the firm. These figures are Rs. 37,323 in the case of Kanwal Kishore and Rs. 75,200.41 in the case of Krishan Kishore. Mr. Sharma contends that this was the only payment made to these two partners in respect of their interest in the firm. The amount of Rs. one lakh paid under the second clause of the deed of dissolution, according to Mr. Sharma, represents a payment over and above the amounts due to the reti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only amounts standing to the credit of the partners in their capital account. But apparently the parties were of opinion that this did not represent the entirety of the value of their interests. The language of cl. 2 clearly shows that the sum of Rs. one lakh mentioned in that clause has been made by way of consideration for the relinquishment by the retiring partners in favour of the continuing partners of any rights that they may have in respect of various assets of the firm. The fact that some of these assets are mentioned by specific reference does not mean that the payment was intended to be made for the use of these assets. The reference to import licences, quota licences, cars and telephones are only to emphasise that the retiring partners were giving up all their rights, title and interest in the firm in consideration of the payment of the sum of Rs. 1 lakh. In the above view of the matter, we are of the opinion that the decisions of the Madras High Court cited by Mr. Sharma have no relevance in the present case. This is not a case where amounts have been paid by way of payment for the use of quota rights or by way of profits in respect of certain contracts which were ke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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