Law:

Section:

section 4 of the Income-tax Act, 1961 - Capital or revenue receipt - Assessee's father was a partner in a firm of chartered accountants - As per partnership deed he had a right to nominate a partner and in case of his death without exercising such right firm had to pay an amount equal to 15 per cent of firm's net income for 15 years to children of deceased partner - Assessee was not a qualified chartered accountant and as his father died without nominating a partner, assessee became entitled to receive a share of profit from firm as per aforesaid provision in partnership deed - Whether share of profit so received was a capital receipt in assessee's hands - Held, yes Facts B, the father of the assessee, was partner in a firm of chartered accountants and the deed provided that some partners could introduce new partners, preferably the eldest surviving child of a deceased partner. It was also provided in clause 23 of the partnership deed that if one of the first partners, namely, the father of the assessee and his brother, died without introducing any new partner, that right could be exercised by the eldest surviving child and in the absence of exercising that right the firm had to pay to the children of the deceased every year an amount equal to 15 per cent of the firm's net income for a period of 15 years from the date of death of partner. Late Shri B died in 1954 without introducing any new partner and his eldest child also did not nominate any new partner. None of his children qualified as a chartered accountant. According to the covenant in the deed, 15 per cent of the net profits of the firm had to be shared by the children of late B. The assessee, under the same arrangement, received different amounts in earlier year and those amounts were not taxed. However, the amount received in the relevant year was Rs. 7,042 and it was held by the ITO, who completed the assessment, that it was the income in the hands of the assessee as it followed from the contract and was to be received from year to year. On appeal, the Tribunal held that the amount in question was not in the nature of income. On reference : Held In the present case, it was quite manifest from the…

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