COMMISSIONER OF INCOME TAX Vs. JACOB E C

JUDGEMENT

(1.) The question referred for the opinion of the court is:

(2.) During the assessment proceedings, the assessee took up the stand that the aforesaid Rs. 32,000/- received by him in two instalments was not liable to be taxed. The Income Tax Officer, on the other hand, proceeded on the basis that with the formation of the partnership the assessee must be deemed to have transferred the goodwill of his profession and that the entire amount of Rs. 32,000/- was taxable as 'capital gains'. In the appeal preferred by the assessee, the Appellate Assistant Commissioner substantially confirmed the assessment on somewhat different grounds. The assessee thereupon took the matter in appeal before the Income Tax Appellate Tribunal, where he reiterated the earlier contention and pressed into service S.47 (ii) of the Income Tax Act as well. The Tribunal held that the assessee was entitled to succeed on both grounds. With regard to the question whether the transfer of the goodwill would give rise to the levy of capital gains, the Tribunal followed the decision of the Madras High Court reported in Commissioner of Income tax v. Rathanam Nadar 71 ITR. 433 and decided in favour of the assessee. On application by the revenue, the Appellate Tribunal has referred the question cited above for the advice of the court.

(3.) What is urged by the revenue is that the entire amount of Rs. 32,000/-received by the assessee in the process of he formation and dissolution of his partnership with Shri Venkatanarayanan, should be treated as 'capital gains' arising out of the transfer of his goodwill and hence assessable to tax. To appreciate the contention of the revenue, the relevant provisions of the Income Tax, Act 1961 (hereinafter referred to as the Act of 1961) may be briefly set out. The charging provision contained in S.45 of the Act may be read as follows: