Law:

Section:

Section 56, read with section 28(i), of the Income-tax Act, 1961 - Income from other source - Chargeable as - Assessment year 1985-86 - Assessee-trust was carrying on certain business - By a partnership deed, assessee-trust and one another trust became partners of a firm - As per terms and conditions of partnership deed, goodwill of erstwhile business was to remain exclusively with assessee-trust - Subsequently, upon retirement from partnership, assessee-trust ceased to carry on business and permitted other trust to use name and goodwill of erstwhile business for a monthly compensation of Rs. 35,000 - Assessing Officer assessed said amount under head 'Income from business' - Whether since assessee had stopped doing business altogether, assets, viz., name and goodwill, ceased to have character of business or commercial assets, and became capital assets - Held, yes - Whether, therefore, compensation received by assessee upon use of name and goodwill of its business was assessable under head 'Income from other sources' - Held, yes FACTS The assessee-trust was carrying on certain business. By a partnership deed, the assessee-trust and one another trust became partners of a firm. Under the terms and conditions of the partnership deed, the goodwill of erstwhile business was to remain exclusively with the assessee-trust. Thereafter, the assessee-trust retired from the said partnership and ceased to carry on business and permitted other trust to use name and goodwill of business for a monthly compensation of Rs. 35,000. The assessee claimed that the said compensation should be assessed under the head 'Income from other sources'. While framing the assessment under section 143, the Assessing Officer assessed the said amount under the head 'Income from business'. However, the Commissioner (Appeals) as well as the Tribunal directed the Assessing Officer to treat the income by way of the monthly compensation as the income under the head 'Income from other sources'. On reference : HELD From a plain reading of the clauses of the partnership deed as well as the deed of retirement/dissolution, it was apparent that upon formation of partnership the goodwill of the business…

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