(1.) THE question raised in the appeal filed by the assessee is whether the amount of Rs. 50 lakhs received by her under Annex. B agreement was assessable income under the head "Income from other sources" under s. 56 of the IT Act. The facts leading to the case are the following. The assessee along with two others were carrying on business in bakery items under the name Cochin Bakery from 1971 onwards. On the death of one of the partners, the firm was However, later the partners fell out from each other which led to litigation before civil Court. Besides partners filing suits for settlement of account and for dissolution of the firm, employees also filed suit claiming certain amounts. In fact, the decree was not passed and several suits including one filed by the appellant was pending. While so, a purchaser came offering good price for the land in which the building was located wherein business was being carried on by the firm. It is the admitted position that the firm had only tenancy right in the building located on the 25 cents of land owned by two partners other than the appellant. After the two partners namely, the owners agreed to sell the property, they came to a settlement whereunder appellant relinquished her claims as partner of the firm and signed compromise application for
(2.) UNDER Annex. -B agreement, appellant was to get Rs. 50 lakhs reduced by Rs. 1 lakh for brokerage for sale of the land owned by the other two partners. The payments were to be received in two financial yrs. 1995 -96 and 1996 -97. Around Rs. 12 lakhs was received in the financial yr. 1995 -96 and the balance Rs. 37 lakhs was received in the next financial year i.e. 1996 -97. However, the Department considered the entire payments as received in the year in which the property was sold and full consideration was received i.e. 1997 -98 and brought to tax the amount received by the appellant. In the appeal filed by the assessee, the CIT(A) held that the firm which was defunct for several years had assets worth no value and therefore, he allotted Rs.1 lakh towards receipt of appellant's respective share from the firm on dissolution and the balance was taken as gratuitous payment from the other partners and approved assessment of the said amount as income from other sources. In second appeal, the Tribunal confirmed the findings of the CIT(A) against which this appeal is filed. We have heard counsel appearing for the appellant and senior counsel appearing for the respondents.
(3.) ON going through Annex. B, we find that the appellant or the firm in which the appellant was a partner had no right in the ownership of the land. On the other hand, the firm in which the appellant was a partner had only a leasehold right in the building which was located on the land involved. For around six years prior to the final settlement, business was closed and the firm had hardly any asset with any value. However, the protracted litigation pending before civil Courts prevented the owners from selling the property free of any encumbrance because technically lease was still in force in favour of the defunct firm. Therefore, settlement was reached among the partners whereunder landed property was agreed to be sold for the price stated in Annex. B and which was shared among the partners, appellant getting only a meagre share of around 10 per cent of the sale proceeds. Even though we find force in the contention of counsel for the appellant that the finding of the CIT(A) and the Tribunal that the payment received is gratuitous in nature and without consideration is not tenable because but for consideration paid for giving up her claims as partner of the firm, property could not have been sold, we are still not inclined to interfere with the orders of the Tribunal because admittedly appellant had no right in land and the leasehold right itself was in favour of the firm. In fact, the amount paid to the appellant is only to purchase peace and for early disposal of the land or otherwise litigation would have continued and sale would have been delayed. There is no scope for interference with the apportionment of the receipt by allocating Rs. 1 lakh towards consideration of share on dissolution of the firm and balance as payment without consideration because on facts, the firm had hardly any asset with value and the appellant had no right in the land which was sold by the other partners.