Commissioner of Income Tax vs P.R.A.L.M. Muthukarupan Chettiar

Beasley, C.J.—The question referred to us is whether on the facts of this case the sum of Rs. 38,305 is a receipt of capital or of profit

assessable u/s 4(2), Income Tax Act. The petitioner was a partner in the S.P.K.A.A.M. Firm in Colombo. He retired from that firm and an

account was taken of the capital and of the profits, etc., and the petitioner was given his share and went out of the firm with it. His contention is that

his retirement from the firm brought about a dissolution of the firm and that on such a dissolution the profits and capital, etc., of the firm became

consolidated into capital for distribution amongst the partners. He, therefore, contends that the sum in question cannot be assessed to Income Tax;

as profits following the decision in The Commissioner of Income Tax Vs. K. Siddha Goudar and Sons, in which the decision in Inland Revenue

Commissioner v. Burrell (1924) 2 K.B. 52 : 9 T.C. 27 : 93 L.J.K.B. 709 : 40 T.L.R. 562 : 131 L.T. 727 was applied. The Commissioner of

Income Tax contests this position and contends that the principal of the latter decision cannot be applied to the case of a partnership which is not a

corporate body. That argument of course proceeds to the length of saying that the decision in The Commissioner of Income Tax Vs. K. Siddha

Goudar and Sons, was innocent. I may here observe, however, that in that case it was put in the forefront of the Income Tax Commissioner''s case

that the principle laid down in Inland Revenue Commissioner v. Burrell (1924) 2 K.B. 52 : 9 T.C. 27 : 93 L.J.K.B. 709 : 40 T.L.R. 562 : 131

L.T. 727 should be extended to the case of a partnership in India; and if the facts of this case are similar to the facts in that case, then as I see no

reason for thinking that that case was incorrectly decided it must be applied the seeks also to distinguish this case from that because he says that

there was no stoppage of business or final dissolution of partnership accompanied by a distribution of assets.

This view completely ignores the provisions of Section 253(7), Contract Act, which provides that in the absence of any contract to the contrary

if from any cause whatsoever any member of a partnership ceases to be so, the partnership is dissolved as between all the other members. The

legal position, therefore, is that upon the retirement of the petitioner from the partnership, the partnership was dissolved as between all the other

members. It follows, therefore, that there must be deemed to have been an ascertainment of the shares of all the partners and indeed there certainly

was one with regard to the petitioner and distribution of the; partnership assets. It does not in the least degree, in my opinion, affect this question

that, the other partners continued in business together. Their doing so was merely in the capacity of partners in a new firm, the legal position clearly

being that the old him had ceased to exist, this case is not at all similar to another case relied upon by the Commissioner of Income Tax, viz,

V.R.S.A.R. Arunachalam Chettiar Vs. The Commissioner of Income Tax, here what was being considered was a partition of a Hindu joint family.

In my view, totally different considerations apply to such a case and.S that. For the reasons I have already stated, the answer to the question

referred must be that upon the facts of this case the sum of Rs. 38,305 is a receipt of capital and not of profit. The assessee will be allowed Rs.

250 costs.

Ramesam, J.

I agree.