Law: Income Tax Act, 1961

Section: 45,47

(a) Income-tax----Capital gains---Firm---Partner---Goodwill---Retirement of partner from firm---Amount paid as his share in, goodwill of firm---Amount paid towards his share in assets of firm---Not assessable as capital gains---Indian Income Tax Act, 1961, Ss.45 & 47(ii). (b) Income-tax--- ----Income---Firm---Partner---Accrual of income---Deed of settlement under which one of partners, retired from firm while other, partners continued business of firm---Certain amount paid to retiring partner as his share of profits---Actual share of profits till date of his retirement accrued to partner and assessable in his hands---Indian Income Tax Act, 1961---[CIT v. Tribhuvandas G, Patel (1978) 115 ITR 95 partly affirmed and partly reversed]. The assessee was a partner in a firth. Disputes arose among the partners. Ultimately the dispute was settled. Under the deed of settlement, the assessee was deemed to have retired from the firm with effect from August 31, 1961 and the remaining partners were authorised to continue to carry on the business of the firm. The assessee was paid. a sum of Rs.1,00,000, as his share of profits of the firm for the period ending August 31, 1961. In addition to this Rs.1,00,000 he was also paid Rs.8,00,000 including the sum of Rs.50,000 representing the share in the goodwill and Rs.4,77,941,47 representing his share in the assets of the firm. The assessee contended that only the sum of Rs.1,00,000 should be brought to tax and not the other amounts. In the assessment proceedings of the firm, however, the share of the assessee in the profits was arrived at Rs.1,72,155, which was later reduced to Rs.1,36,930. The assessees contention was that notwithstanding the said fact, only a sum of Rs.1,00,000 Should be treated at his income. This was not agreed to, by the authorities. The, High Court upheld this decision. On appeal to the Supreme Court: Held, (i) that the sum of Rs.50,000 received by the assessee as his share of the value of the goodwill was not assessable as capital gains. CIT v. B C. Srinivasa Setty (1981) 128 ITR 294 (SC) fol (ii) that even .where a partner retires and some amount is paid to him towards his share in the assets, it…

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