Law:

Section:

Section 5 of the Income-tax Act, 1961-Income-Accrual of-On 31-5-1968, assesses retires from partnership firm which maintains accounts on cash basis-Partnership deed provides for division of outstanding dues in profit-sharing ratio as and when realised-On 17-12-1970, assesses irrevocably settles his right to receive outstanding dues, in favour of sons-On 31-12-1970, firm realised dues-Whether assessee's share in said dues includible in his income-Held, on facts, no Facts On 31-5-1968, the assessee-advocate retired from the firm of advocates in which he was a partner. The firm was maintaining its accounts on cash basis, and under the partnership deed, the professional outstanding dues when recovered were to be divided and credited to the respective accounts of the partners in their profit-sharing ratio. On 17-12-1970, the assessee executed an indenture of settlement under which, out of love and affection, he irrevocably settled his right of recovery of outstandings from the firm, in favour of his two sons. During the calendar year 1970, the firm realised outstanding dues and the assessee's share therein was accordingly paid. The assessee's claim for excluding the amounts so received from his taxable income was rejected by the ITO on the ground that the said amounts, though received subsequently, were in existence on the date of execution of the indenture of settlement. The AAC also confirmed the ITO's view holding, inter alia, (i) that though the money was paid subsequently to the trust, it was earned by the assessee during the period he was the partner in the said firm; (ii) that the assessee had in law no right to assign his right to receive the share from an erstwhile firm in any manner; and (iii) that the income had in the first instance accrued to the assessee, and thereafter stood transferred to the trust. The Tribunal, however, set aside the AAC's orders on the grounds, inter alia, (i) that the right to receive the dues was an actionable claim capable of being assigned (ii) that the impugned right arose only on accounts being settled, i.e., on31-12-1970; and (iii) that as under the said indenture of settlement, the assessee had transferred the said…

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