GANGADHAR BAIJNATH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a statement of case submitted under section 66(1) of the Income-tax Act by the Income-tax Appellate Tribunal, Allahabad Bench, partly the instance of the assessee and partly at the instance of the Commissioner of Income-tax, U.P. It arises out of an order passed by the Tribunal on June 27, 1959, in respect of assessment of the assessee to income-tax for the assessment year 1948-49, the accounting been framed by the Tribunal and are to be answered by us are as follows :

(2.) THE first question is the question that requires to be answered first and it was framed at the instanace of the Commissioner. THE other two questions arise only if the first question is answered against the Commissioner. THE second question is framed at the instance of the assessee and is to be answered before the third question framed at the instnace of the Commissioner. THE third question is to be answered only if the second question is answered against the assessee; otherwise it does not arise.

(3.) ANOTHER important fact to notice is that the managing agency acquired by the partnership has not been terminated and it has received no compensation from the Swadeshi Cotton Mills Co. Ltd. for its premature termination and there does not arise any question of the nature of the compensation received for termination of a managing agency agreement. The managing agency agreement continues (I am speaking with reference to the accounting year) and the only alteration that has taken place is in the constitution of the partnership, which holds the managing agency. No assistances is, therefore, to be obtained from the decisions laying down that compensation paid for terminating a managing agency agreement is a capital receipt or a revenue income. Similarly, the question whether managing agency is a capital asset or something acquired in the course of carrying on a business also is irrelevant; it could have arisen only if the partnership were the assessee. So also the question whether something recevied for sale of managing agency is a capital receipt or a revenue income is irrelevant. It is irrelevant for another reason also, it being that there is no sale or any other kind of transfer of the managing agency; it was acquired by the partnership and continues to be with it. The relinquishment by the firm of its half share in the partnership may be a sale or transfer of another kind to the Jaipurias, the surviving partners, but it would be a sale or transfer of another kind of its right, title and interest in the partnership and not in the managing agency. It never surrendered its whatever right, title and interest it had in the managing agency.