COMMISSIONER OF INCOME TAX Vs. BHARATKUMAR R PANCHAL

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act, 1961, at the instance of the Revenue. The following question of law has been referred for our opinion :

(2.) THE facts giving rise to this reference are as under : The assessee along with his father, Babubhai alias Ranchhodbhai Panchal, and two brothers were partners in a firm named Panchal Engineering Works. There were other four partners who were real brothers of the assessee. A dispute arose between the partners and on 23rd July, 1977, the other four partners separated from the said firm to start a new firm in the name and style of New Panchal Works. At the time of separation of the abovementioned partners from Panchal Engineering Works, the plant and machinery as also two cars were revalued at a sum of Rs. 1,60,000 and were divided amongst the partners in their profit sharing ratio. It was done by debiting the machineries revaluation account and crediting the respective accounts of the partners. In the asst. year 1978 79, the ITO took the view that the sum of Rs. 22,400 received by the assessee was taxable as income under S. 28(iv) of the Act. In the appeal preferred by the assessee, the AAC took the view that the amount received by the assessee as a partner was not only taxable under S. 28(iv) but also taxable under S. 41(2) of the Act. The assessee then approached the Tribunal. The Tribunal, relying on the decision of a Division Bench of this Court in CIT vs. Dilip Engineering Works (1981) 21 CTR (Guj) 213 : (1981) 129 ITR 688 (Guj), came to the conclusion that the amount received by the assessee as a partner of the erstwhile partnership would not be taxable under the provisions of S. 41(2) of the Act. The Tribunal also held that the amount would also not be taxable under S. 28(iv) of the Act. It is on the above facts that the abovequoted question has been referred to us for our opinion.

(3.) WITHOUT reference to any case law on the subject, in our considered opinion, on the plain language of cl. (iv) of S. 28, the amount received by the assessee as a partner in the erstwhile partnership, on separation of some of the partners, cannot be described as a benefit or perquisite having arisen from the business or the exercise of a profession. The amount has been received by the assessee when four of his partners separated from the erstwhile partnership and shares of erstwhile partners in that firm were divided along with the assets.