B VIRDHAGIRI Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THE following common question of law, at the instance of the assessee relating to his asst. yrs. 1974 75 to 1978 79, has been referred to this Court by the Tribunal, Madras, for our opinion :

(2.) THE assessee during the relevant previous years for the asst. yrs. 1974 75 to 1978 79 was a partner in three firms of which S. Natesa Iyer & Co., was one. The firm, Natesa Iyer & Co., was constituted by a deed of partnership dt. 4th Sept., 1974, and the firm consisted of three partners, by name, N. Srinivasan, S. Jayaraman and B. Virdhagiri. On 26th March, 1974, a deed of release was executed by one of the partners, by name N. Srinivasan, who retired from the partnership firm from that date relinquishing all his right, title, shares and interest in the partnership firm in favour of other two partners, namely, S. Jayaraman and B. Virdhagiri, the assessee in the tax cases. In consideration of retirement of N. Srinivasan relinquishing his right, title, etc., the remaining partners agreed to pay on account of his capital, share and interest including name and goodwill in the partnership a consolidated sum of Rs. 1,50,000 in full settlement to be paid in the manner stated in cl. 1 of the release deed.

(3.) THE assessee preferred appeals against the orders of assessment before the AAC questioning the addition made on account of his share in the goodwill. The AAC accepted the case of the assessee that the excess payment was made to the retiring partner as an ad hoc measure to get rid of him and unless goodwill was paid by the firm no value could be added in respect the same as per the terms of r. 2C(b) of the WT Rules. The AAC took into account the nature of the business of the firm and the assets of the firm mostly consisting of sundry debtors and bank balance and held that it is not likely that the excess payment would represent any share in the appreciated value of the said assets. The AAC also held that the provisions of r. 2C are not applicable and since no asset was shown in the balance sheet, he held that no amount could be added on account of goodwill. The Revenue, aggrieved by the orders of the AAC, preferred appeals before the Tribunal.