9911796707
TMI Blog1982 (7) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... eet in lieu of current profits and payment of 50 per cent of the same within a month and balance with interest within a year. It further provided for arbitration under the Arbitration Act, 1940, in the event of disputes between the partners. It appears that there was misunderstanding between the partners sometimes prior to 1-4-1975 due to the alleged non-co-operation of Mrs. Margaret Pinto in signing certain papers for loan and other acts. Mrs. Deanna Lobo also wished to leave the partnership allegedly due to the hostile attitude of Mrs. Margaret Pinto. Partner Mr. Francis Xavier Denis Pinto had also meanwhile died. This resulted in the creation of a fresh partnership by a deed dated 1-4-1975 between the remaining partners (1) Harold Charles Pinto, (2) Cuthbert Joseph Pinto (the partners of the erstwhile firm), (3) David J. Pinto, (4) Paul J.C. Pinto (sons of the deceased) and (5) Mrs. Beatrice Pinto, who stepped into the shoes of Mrs. Deanna Lobo to form a fresh partnership. This partnership deed provided for payment of 25 per cent of the net profits to Mrs. Margaret Pinto before the division of profits between the partners. The remaining partners seem to have taken the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two documents and the case law relied upon by the first appellate authority and sought to distinguish the same on facts. His alternative contention, in short, was that the lady Mrs. Margaret Pinto was merely entitled, if at all, to an interest at 7 per cent of the balance to her credit and that the payment of 25 per cent was not justified in law. Even if it was payable under the new agreement, he argued that it was not wholly and exclusively necessary for the purpose of the business. The learned representative four the assessee relied upon the order of the first appellate authority. He claimed that Mrs. Margaret Pinto was entitled to her share of partnership assets and share of goodwill even in the event of retirement. 'Expulsion', even if justified, cannot defeat her legal rights over the assets, including the goodwill, of the partnership firm. From 1-4-1975, she had ceased to be a partner, according to the new deed. But she was entitled to her share of the assets. The accounts were not settled. In absence of settlement of accounts he claimed that section 37 of the Indian Partnership Act, 1932, would come into play. The assessee was entitled to have her share of profits whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits to Mrs. Margaret Pinto and in the event of loss they stipulated a minimum payment of 6 per cent per annum on the amounts standing to her credit. It is also made amply clear that she was not a partner in the new firm and she had forfeited her right as a partner because of her conduct during the existence of the partnership prior to 1-4-1975. The partnership had even immovable property in the form of a Tiles Factory. The business was continued in the same name, i.e., with goodwill. In other words, the payment to Mrs. Margaret Pinto was not gratuitous. It was in lieu of her right as an erstwhile partner whose account had not been settled. Neither the quantum of payment nor the genuineness has been questioned in the assessment orders. Section 37 of the Partnership Act provides as under : " Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding goodwill. Hence, the compensation is not a share of profits as a partner even as pointed out by the learned representative for the assessee. Such a payment was treated as a payment by diversion of overriding title by the Bombay High Court. Even the other decisions cited by the learned representative for the assessee are to the same effect, though the facts in each case are different. As for the argument that the estate of Mrs. Margaret Pinto would not be entitled to any share after her death merely because she has no issue, it is rather naive. She had left a number of close relatives to contend for her property after her death. It makes no difference that she herself had no issue of her own. The legal heirs entitled to the estate of late Mrs. Margaret Pinto would step into her shoes from the date of her death till there is a settlement of accounts between the estate and the partnership firm. It appears that there had been such a settlement in a later year. The learned representative also referred to section 88 of the Trusts Act 1882, for the proposition that the partnership firm was holding and managing the share of the partnership assets belonging to Mrs. Margaret Pinto in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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