PARMANANDBHAI PATEL Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THIS is a reference under Section 27(1) of the Wealth-tax Act, by the Income-tax Appellate Tribunal, at the instance of the asses-see, for the opinion of this court, to answer the following question of law :

(2.) MOHANLAL Hargovinddas is an old firm manufacturing bidis and is one of the largest concerns of its kind in India. The firm had undergone several changes in its constitution. Smt. Jadav Bai, mother of the assessee, was a partner in the firm and she died in the year 1961. On her death, the value of the goodwill of the firm was taken at Rs. 36,00,000 in the estate duty assessment of her assets by the Wealth-tax Officer. With effect from June 20, 1961, the firm had two partners, namely, the assessee and Smt. Ujjam Bai with 50% share each. On September 19, 1963, Shravan Kumar Patel, son of the assessee, was taken as a partner, but the share of the assessee remained intact at 50%. The assessee was appointed as a Minister in the Cabinet of the State of Madhya Pradesh, and, therefore, he decided to retire from the firm. An agreement was entered into with the other two partners on October 24, 1963, and the assessee retired from the partnership. It was agreed that the business of the firm shall be carried on by the remaining two partners and the assets and liabilities of the firm shall be the assets and liabilities of the continuing partners. However, it was agreed that notwithstanding the retirement of the assessee from the partnership business, he shall continue to own half-share of the goodwill of the firm. A right was also reserved in the assessee to rejoin the firm as a partner with the same share due to change in the circumstances. Consequently, the assessee was not paid anything on account of goodwill, nor was he to be charged on his re-entry as a partner. But, as the benefit of the goodwill will be enjoyed by the firm as a whole and as the assessee is the owner of half-share of the goodwill, it was agreed that the firm will pay to the assessee a sum of Rs. 50,000 per year in respect of the use of the goodwill. It was expressly agreed that in view of his retirement, the assessee had no concern or share in the profits or losses in the business of the firm.

(3.) ALLOWING the application, the Tribunal, instead, has referred the question, which has been quoted earlier.