Law:

Section:

Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922] - Income - Chargeable as - Assessment year 1958-59 - Assessee-company obtained a lease for exploiting forest in a State - Later on it entered into partnership with a firm to carry on said exploitation of forest contract - Assessee received certain percentage of profit in new firm for user of its goodwill as well as exclusive knowledge in technicalities involved for mechanical sawing operations - Whether since there was a joint commercial exploitation by partners and payment to assessee was for successive user of goodwill and know-how, amount received by assessee was in nature of revenue receipt assessable to income-tax - Held, yes FACTS The assessee was carrying on business of exploitation of forests products. The assessee had taken a lease for exploiting Forests in State. By a partnership deed, the assessee joined as a partner with another private limited company, to exploit its forest contracts. In terms of partnership deed assessee was given certain percentage from its profits of firm for his exclusive knowledge in technicalities involved in successful accomplishment of mechanical sawing operations. The said amount received by assessee from the firm was treated as revenue income by the ITO. On appeal, the AAC found that the assessee merely allowed the use of its goodwill in consideration of payment of some part of the annual net profits for the period during which the goodwill was used and he estimated 1/3rd of the amount received by the assessee as per the deed, which, according to him, could be held to be payment received for the use of the said goodwill by the partnership concerned. In that view, he held that 1/3rd of the amount was taxable and the balance was "capital gains". On further appeal, the Tribunal treated entire amount to be taxable. On reference : HELD When a trader sells all the assets of his business, this would not give rise to a taxable profit except insofar as profit is made thereby on trading assets such as stocks, etc. If, however, the operation consists of a sale of part of the assets and the trader continues his trade, a part or the…

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