1996 INSC 0321
                                              Tribhuvan Das G. Patel

                                                           Vs

                                         Commr. of Income Tax, Bombay

                                      Civil Appeal No. 2053 (NT) of 1979

                                   (J. B. Jeevan Reddy, K. S. Paripoornan JJ)

                                                      14.02.1996

                                                        ORDER

1. Heard counsel for the parties.

2. The following three questions were stated by the Tribunal for the opinion of the High Court under
Section 256(1) of the Income Tax Act, 1961 :

                  "1. Whether on the facts and in the circumstances of the case, Rs 1,72,182 or Rs
                  1,00,000 were liable to be included in the total income of the assessee as his share of
                  profit from the firm of Kumar Engineering Works ?

2. Whether on the facts and in the circumstances of the case, sum of Rs 50,000 received by the
assessee as his share of the value of the goodwill or any part thereof was liable to tax as capital gain
?

3. Whether on the facts and in the circumstances of the case, sum of Rs 4,77,941 or any part thereof
was liable to tax as capital gain by reason of Section 47(ii) of the Act ?"

                  3. So far as Question 2 is concerned, it has already been answered in favour of the
                  assessee. In view of the decision of this Court in CIT v. B. C. Srinivasa Setty [(1981)
                  2 SCC 460 : 1981 SCC (Tax) 119 : (1981) 128 ITR 294] the said questions must be
                  held to have been rightly answered in favour of the assessee.

4. So far as Question 3 is concerned, the assessee invoked clause (ii) of Section 47 to contend that
the said sum of Rs 4,47,941 does not represent a capital gain. Mr Sharma, learned counsel for the
appellant-assessee, has brought to our notice the decision of this Court in CIT v. Mohanbhai
Pamabhai [1987 Supp SCC 704 : 1988 SCC (Tax) 99 (I) : (1987) 165 ITR 166] where it has been
held, following - the decision in Sunil Siddharthbhai v. CIT [(1985) 4 SCC 519 : 1986 SCC (Tax)
50 : (1985) 516 ITR 509] that even where a partner retires and some amount is paid to him towards
his share in the assets, it should be treated as falling under clause (ii) of Section 47. Therefore,
following this decision, this question has to be and is answered in favour of the assessee and against
the Revenue. Now survives Question 1. A few facts need to be stated in that behalf :

                  The assessee was a partner with two others in a partnership firm, Kumar Engineering
                  Works. On 5-12-1960, the assessee served a notice of his intention to dissolve the
                  firm with effect from 31-12-1960. Since the other partners refused to agree with the
                  said demand, the assessee filed a suit being Suit No. 72 of 1961 in the Bombay High
                  Court for a declaration that the firm was dissolved with effect from 31-12-1960 and
                  for accounts and other ancillary reliefs. Ultimately, the dispute was settled between
                  the parties under a deed dated 19-1-1962. Under this deed of settlement, the assessee
                  was deemed to have retired from the firm with effect from 31-8-1961 and the
                  remaining partners were authorised to continue to carry on the business of the firm.
                  The assessee was paid a sum of Rs 1,00,000 as his share of profits of the firm for the
                  period ending 31-8-1961. In addition to this Rs 1,00,000, he was also paid Rs
                  8,00,000 including the sum of Rs 50,000 representing the share in the goodwill
                  (Question 2) and Rs 4,77,941.47p. representing his share in the assets of the firm
                  (Question 3). In his assessment proceedings, the assessee himself contended that only
                  the sum of Rs 1,00,000 should be brought to tax and not the other amounts. In the
                  assessment proceedings of the firm, however, the share of the assessee in the profits
                  was arrived at Rs 1,72,155, later reduced to Rs 1,36,930. The assessee's contention
                  was that notwithstanding the said fact, only a sum of Rs 1,00,000 should be treated as
                  his income. This was not agreed to by the autgorities. When the matter came before
                  the High Court, it answered the said Question 1 in the following words :

                  "In view of the above discussion, the first question is answered thus : on the facts and
                  in the circumstances of the case, not Rs 1 lakh but the assessee's share of profit that
                  may ultimately be determined in the assessment of the firm as his share of profit
                  from the firm is liable to be included in his total income."

5. In our opinion, the answer given by the High Court is the correct one in law. We cannot agree
with Mr Sharma that inasmuch as he has actually received only a sum of Rs 1,00,000, only that
amount should be taken as his share of profits and not the actual amount worked out in the
assessment of the firm. The amount over and above Rs 1,00,000 is also his income in law. It has
accrued to him. It is immaterial that he may choose not to recover it.

6. We, therefore, reiterate that the answer given by the High Court extracted hereinabove is the
correct one in the facts and circumstances of the case.

7. The appeal is accordingly dismissed so far as Question 1 is concerned but allowed so far as
Question 3 is concerned. (Question 2 is not an issue before us.)

8. No costs.