COMMISSIONER OF INCOME TAX Vs. P H PATEL

JUDGEMENT

(1.) Pursuant to the directions of this court under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Tribunal referred four questions of law for the consideration of this court. They are as under :

(2.) The assessee was a partner of the partnership firm known as M/s. Patel Desai and Company. Apart from the assessee, there were two other partners. On 19/01/1973, the assessee gave notice to the other partners indicating his intention to retire from the partnership. Accordingly, the assessee retired from the partnership. At the time of his retirement, his account in the partnership books showed a debit balance of Rs. 1,04,940.49. Obviously, the assessee had overdrawn his account. It may be mentioned that the aforesaid debit balance was arrived at after crediting to his account his share of profits till the date of retirement on 19/01/1973. It appears, the share of profit was ascertained as Rs. 14,879 and credited to his account. On 22/01/1973, an indenture was drawn, described as a deed of dissolution. The deed was executed by the assessee described as the retiring partner on the one hand, and the remaining two partners described as the continuing partners on the other. The deed sets out that the assessee expressed his desire to retire from the partnership business and the continuing partners expressed their willingness to the retirement of the assessee from the partnership. The deed also records that one Mrs. Tarulatha Modi of Secunderabad agreed to join the partnership firm as partner. It proceeded to state that a sum of Rs. 90,000 was agreed to be credited to the account of the assessee towards his share in the goodwill of the partnership firm.

(3.) On these facts, the questions that arose for consideration are : (i) whether there was a dissolution of the partnership firm on 19/01/1973, as was specified in the deed of dissolution dated 22/01/1973; (ii) whether the sum of Rs. 90,000 credited to the assessees account by way of his share in goodwill is liable to be taxed as income; and (iii) whether sum of Rs. 90,000 is, in any event, liable to be taxed in the hands of the assessee as capital gain.