COMMISSIONER OF INCOME TAX Vs. JAYA BHASKARAN

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax. The Income-tax Appellate Tribunal, Patna Bench, has referred the following question of law for our opinion :

(2.) THE facts which are clear from the statements of the case are these.

(3.) THE sheet-anchor of the decision of the Tribunal in the instant case is, therefore, the decision of the Cochin Bench of the Tribunal in which detailed reasons have been given (annexure D). We, therefore, think it meet and proper to proceed to examine the correctness or otherwise of the decision of the Cochin Bench of the Tribunal (annexure D). Since the facts are identical, we need not detain ourselves over the facts involved in annexure D. We, therefore, proceed upon the merits of the matter decided straightaway by the Cochin Bench. Incidentally, it may be mentioned here that Mrs. Sankari Rama Aiyar was the appellant before the Tribunal (Cochin Bench). Relying on the different clauses of the partnership agreement and the covenants incorporated therein, the Tribunal in that case discussed the matter and stated that relying on the different clauses and agreements of the partnership deed, learned counsel in that case has strenuously argued that the payment of 15% of the profits of the firm was only in lieu of postponement of the exercise of the right either to become a partner of the firm or nominate a third person as partner of the firm which meant that up to that point of time, the surviving heirs of the partners denied themselves or lost the congeries of the rights of becoming or nominating a full-fledged partner. THErefore, the 15% net profits payable to the children of the deceased partner was clearly in the nature of payment of capital payable in instalments since the payment had to be made until the right to nominate a partner was exercised by the eldest child of the deceased partner. THE Tribunal (Cochin Bench) also took notice of the fact that the revenue authorities had overlooked the legal position as to the nature and character of the interest of a partner in a firm, in lieu of which the payment had to be made to the heirs of the deceased partner under the relevant agreement. It also proceeded to examine the correctness of the contention put forth on behalf of the assessee that in determining whether payment amounted to a return for the loss of the capital asset or income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment, the substance of the contract or agreement, if any, under which it is payable and not merely the mode by which the payment is estimated. Having taken notice of these facts and submissions, the Tribunal (Cochin Bench) dealt with the question in the following manner :