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TMI Blog1989 (9) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to 50% profit. Thereafter Shri Sravankumar, son of Shri Parmanand Patel, joined the partnership and a fresh partnership deed was drawn on 19-9-1963. According to the said partnership, the profit-sharing ratio of the partners was as follows: (1) Smt. Ujjambai - 6 (2) Shri Parmanand Patel - 8 (3) Shri Sravankumar Patel - 2 It was indicated in the deed dated 21st June 1961 that Smt. Ujjambai may, if she wishes to retire from the firm, do so at any time leaving the business to be carried on by the said Shri Parmanand Patel on his own account and the said Shri Parmanand Patel shall be liable to pay the said Smt. Ujjambai the amount then standing to her credit and no value shall be placed upon the goodwill including the firm name and trade marks. More or less, the same clause was also inserted in the deed dated 19th September 1963. Shri Parmanand Patel was appointed as a Minister in the Madhya Pradesh Government, and as a Minister, he could not carry on the business and had, therefore, to retire from the partnership business. He retired on 24th October 1964 and a Memorandum of Agreement between Shri Parmanand Patel and the remaining two partners was executed. In the said Memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 213/Jab./1979, after quoting the earlier order in extenso did not agree with the CIT(Appeals) on the ground that Shri Parmanand Patel has not paid any amount towards the goodwill of the firm and, therefore, the payment made by the assessee to Shri Parmanand Patel was for extra commercial consideration. Similar payments made for the assessment years 1977-78 and 1978-79 were also disallowed by the Assessing Officer and the CIT(Appeals), following the decision of the Tribunal for the assessment year 1975-76 (ITA No.213/Jab./1979) did not allow the claim of the assessee. When the matter came before the Tribunal, the Bench found contradictory decisions on the point and, consequently, the point was referred to the Hon'ble President for constituting a larger Bench. The Hon'ble President was pleased to constitute a larger Bench for the consideration of the following point. "Whether the amount of Rs. 30,000 per year paid to the retired partner Sri Parmanandbhai Patel is a proper deduction in the computation of the total income of the firm?" 4. Shri Dastur, the counsel for the assessee, filed a paper-book containing 38 pages. He has also filed a copy of the will left by Smt. Jadaobai. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is going to argue the case that on the basis of the partnership deed, Shri Parmanand Patel was given certain amount for the use of the goodwill. 5. Shri Dastur, after replying to the said query of the Departmental Representative, urged that if the various partnership deeds and documents are carefully perused, it is clear that Shri Parmanand Patel joined the partnership with Smt. Ujjambai on 21-6-1961. There was no clause about the sharing of the assets including goodwill and, therefore, section 48 of the Partnership Act would apply for the division or share of the assets in the event of dissolution or retirement. Shri Parmanand Patel was sharing the profit at 50%. Further, it was indicated in the deeds dated 21-6-1961 and 19-9-1963 that the goodwill was exclusively owned by Shri Parmanand Patel. Therefore, Shri Parmanand Patel was the sole owner of the goodwill but he limited his claim to 50% and, accordingly, the partners agreed to pay Rs. 50,000 for the use of the goodwill which is evidently clear from the various partnership deeds and memorandum of agreement. The concept of payment for acquisition of goodwill and use of goodwill has been clarified by the Supreme Court in Devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, he retired from the partnership on 24-10-1964. A memorandum of agreement was executed between him and the remaining partners and it was provided therein to pay him a sum of Rs. 50,000 per annum for the use of the goodwill. Shri Parmanand Patel, in between, again joined the firm and retired and subsequently the payment was reduced to Rs. 30,000 per annum. As mentioned earlier, the Tribunal passed one order for the assessment years 1970-71 to 1974-75 and another order for the assessment year 1975-76 and subsequently the Bench did not follow the earlier order passed by the predecessor-Bench, though the earlier order was accepted by the Department. A reference was made to the Hon'ble High Court against the said order (ITA No. 213/Jab./79) and the High Court has called for a supplementary statement of the case. The said order of the High Court in Mohanlal Hargovinddas v. CIT [1988]174 ITR 26 (MP). It was informed in the course of the argument that the supplementary statement of the case has not been forwarded to the High Court. However, the point raised in the order of the Hon'ble High Court has been explained by Shri Dastur that Smt. Jadaobai bequeathed all movable and immovable ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten in Trego v. Hunt as the 'sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as a whole and a going and developing concern. It has been zoologically explained by Rich J. in Federal Commissioner of Taxation v. Williamson, quoted at pages 39-40 of the 4th edition of The Valuation of Company Shares and Business by Adamson and Coorey in these terms: 'In Whiteman Smith Motor Company v. Chaplin the types were zoologically classified into cats, dogs, rats and rabbits. The cat prefers the old home to the person who keeps it, and stays in the old home although the person who has kept the home leaves, and so it represents the customer who goes to the old shop whoever keeps it, and provides the local goodwill. The faithful dog is attached to the person rather than the place, he will follow the outgoing owner if he does not go too far. The rat has no attachments, and is purely casual. The rabbit is attracted by mere propinquity. He comes because he happens to live close by and it would be more trouble to go elsewhere. These categories serve as a reminder that the goodwill of a business is a composite thing refe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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