Law:

Section:

Section 4 of the income-tax act, 1961-Capital or revenue receipt-Assessee, an erstwhile partner in a firm of lawyers, who on his expulsion from said firm on 23-1-1970 continued his practice on his own, choosing a new accounting year, was allowed by other partners by an agreement, to receive directly from clients, fees for work done up to 23-1-1970 in certain matters-Whether tribunal was justified in holding that said fees received after 23-1-1970 were capital receipts being in nature of distribution of assets by firm-Held, no Whether where accounts of said firm of lawyers and of assessee's private practice were both maintained on cash basis and assessee had adopted new accounting year for his private practice, it could be held that said private practice was a new profession with the result that receipts from 'discontinued' profession became capital receipts-Held, no Facts The assessee, who was a partner in a firm of lawyers, was expelled from it on 23-1-1970 after which he continued his law practice on his own choosing a new accounting year. Under an agreement between the assessee and his former partners, all work with the assessee as on 23-1-1970 in the matters of company law and taxation were to be taken by him and he alone was entitled to fees for this work up to 23-1-1970 which he was to receive directly from the clients. The assessee claimed that the fees received by him were in the nature of capital receipts, but the ITO treated the fees received as professional earnings taxable in the year of receipt. The assessee, however, succeeded in first appeal which decision was confirmed by the Tribunal, holding (i) that what was received by the assessee was a disbursement of assets by the firm out of its balance sheet and not a share of profits, and (ii) that as the accounts of the said law firm and of the assessee's private practice were both maintained on cash basis and the assessee had adopted a new accounting year for his private practice, the said private practice was a new profession and receipts from the 'discontinued' profession became capital receipts. On reference : Held It has been held by the Privy Council in CIT v. P.R.A.L. Muthu Karuppan Chettiyar…

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