SUKHBIR PARSHAD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS judgment will dispose of three Income-tax References Nos. 39, 40 and 48 of 1976, as the decision of the questions referred in all of them are inter-dependant.

(2.) THE assessment year in all the three references is 1967-68, and the facts involved which are common in all of them are that 8 persons, (1) Kirat Chand Jain, (2) Jaini Lal Jain, (3) Mahabir Parshad, (4) Jai Prashad Jain (5) Darshan Lal Jain, (6) Sukhbir Parshad, (7) Trilok Chand Jain, and (8) Phool Chand were carrying on business at Jagadhri in the name of two partnership firms, that is, M/s. Kewal Ram Uggar Sain Jain and M/s. Swastiga Metal Works. Four at its partners, Kirat Chand, Mahabir Prashad, Sukhbir Parshad and Phool Chand retired from the partnership on January 19, 1967, on the terms and conditions contained in the written memorandum dated January 28, 1967, which was written between the outgoing partners, continuing partners and incoming partners, namely, Moti Lal, Nem Chand, Janki Devi and Jinendra Kumar Jain. The relevant clauses for the purpose of these references are as under:

(3.) THAT the retiring partners received Rs. 10 lakhs only in proportion to their respective shares in the old firm as lump sum consideration in full and final settlement of the transfer of the goodwill, quota rights, quota entitlements and all other rights, titles, and interest in the movable and immovable properties of the old firm comprising of the stock-in-trade, materials, book debts, contracts, effects used in the business or belonging to the old firm (as specified in the schedule attached to this memorandum), in favour of the reconstituted firm and with effect from 20th January, 1967, the reconstituted firm became absolute and irrevocable owner of all the movable and immovable properties, titles, rights and interests in the properties of the old firm as specified in the Schedule. It was specifically agreed to between the partners that machinery, plant, furniture, lands and buildings were transferred at their written down value. 7. That the retiring partners agreed that with effect from 20th January, 1967, the reconstituted firm became entitled to recover all money due to the old firm and the reconstituted firm also became entitled to the benefit of all the executed and unexecuted contracts, all existing and future quota rights, entitlements, trade marks, ISI mark, import licences and industrial licences, etc. , of the old firm. 8. That retiring partners also agreed not to carry on any business in the same trade name and style, i. e. , M/s. Kawal Ram Uggar Sain Jain, Jagadhri and Swastika Metal Works, Jagadhri. They further agreed not to use the trade mark particularly the emblem "swastika" as used by the old firm which exclusively vested in the reconstituted firm as its property. "" 3. The new firms furnished its returns for the accounting year from April 1, 1966, to March 31, 1967, and claimed Rs. 10 lakhs paid to the outgoing partners as a revenue expense contending that the same had been paid in consideration of the purchase of quota rights and its entitlement. The assessing authority turned down the plea holding that the payment was in consideration of an enduring benefit and as such was not revenue expense. The appeal by the assessee was also dismissed by the AAC but slightly with a different finding that the amount of Rs. 10 lakhs was paid to the outgoing partners in lieu of their shares in the assets of the firm, The view of the AAC was confirmed by the Tribunal, vide its judgment dated January 24, 1974. But on the application under Section 256 (1) of the I. T. Act by the assessee, the following questions have been referred to this court: