COMMISSIONER OF INCOME TAX Vs. UTTAMA REDDY M

JUDGEMENT

(1.) THE assessee in this group of tax cases is a tax lawyer. He was taken as a partner in a law firm in the year 1967. He was expelled from it on January 23, 1970. He, thereafter, continued his law practice on his own. But he took up the matter of his expulsion with his erstwhile partnership. On February 2, 1970, the assessee and his former partners settled their outstanding differences and entered into what they called "Heads of Agreement". Under the terms of this settlement, it was, inter alia, agreed that all work with the assessee as on January 23, 1970, as regards company law and taxation may be taken by him and the continuing partners shall not be entitled to any fee in respect of such work. THE implication was that the assessee should alone be entitled to the entire fees for all his work in these case up to January 23, 1970. THEre was, however, one particular company law work in respect of Binny's amalgamations. THE assessee was entitled to fees as counsel for work done to this company up to January 23, 1970. It was, however, agreed that the assessee was entitled to receive the fee from Binny Limited only of an amount equivalent to one-fourth of the firm's bill on this account. THEse two points of agreement are set out in cls. 3 and 4 of the Heads of Agreement. Having regard to the important part they have played in the controversy between the parties, we set out the text of these clauses :

(2.) PURSUANT to these terms, the assessee subsequently received from Binny Limited 1/4th of the fee bill of the firm up to January 23, 1970. As for the fees in respect of other work to which the assessee was entitled under clause 4, the money came to the assessee in a span of three years after the date of his expulsion. The amounts were Rs. 2,18,300, Rs. 1,26,835 and Rs. 62,550 in the three years ended April 30, 1970, April 30, 1971, and April 30, 1972. These amounts which the assessee received in the relevant years related to work done by him to the taxation and company law clientele prior to January 23, 1970, when he was a partner of the law firm.

(3.) THE difference between a business and a profession is more pronounced in partnerships. A partnership business like a proprietary one needs capital and almost the first thing that has got to be secured for starting a trading partnership is the contribution by partners to the capital of the firm. In the case of professional partnerships, however, such as in a law firm, the matter of greatest concern is not the capital base, but the existence of suitable men who could draw clientele, and this has to do with what may be called the personal equation. A professional partnership especially that of lawyers can be started with little or no capital contributions from the partners. A law firm or an accountant's firm runs not on partnership capital, but on the professional talent of its members. Such a partnership by no means involves the risking or sinking of any capital by any of the participating lawyers or accountants. It would almost seem that the old legal definition of partnership had yielded place to a new definition only to accommodate professional partnerships. Under the ancient definition, a partnership required the contribution of labour or capital by those who become partners. THE present day definition has eschewed all reference to capital. It is enough that a business (which includes, under the partnership law, a profession) is carried on by all the contracting parties or any one of them acting for all.