Satish Chandra, J. - (1.) ON 10th January, 1965, one Ramesh Chand entered into a partnership with three other persons. This partnership was to carry on the business of distributing a film called "Haqiqet". The share of Ramesh Chand in this firm was 40%. He was liable to contribute a sum of Rs. 1,00,000. He actually contributed Rs. 75,000. He did not have the balance. So, he borrowed Rs. 25,000 from B. S. Goyal, the assessee in the present case. ONly eighteen days later, namely, on 28th January, 1965, Ramesh Chand and the assessee entered into an arrangement under a written document, which is called a deed of sub-partnership. It began by saying that "the assessee was insistent upon getting his money back for the sake of better investment....." This statement comes in the partnership deed only after eighteen days of the money being lent to Ramesh Chand. The sub-partnership consisted of only two partners, namely, Ramesh Chand and the assessee. This sub-partnership was only in respect of the share of profits of Ramesh Chand in the principal partnership. Both the partners were to have a half share in the 40% share of Ramesh Chand in the principal firm. The assessee was required to contribute a further sum of Rs. 25,000 for being paid over to the principal partnership. The partnership was expressly stated to be at will.
(2.) HARDLY one year had elapsed, when on 11th of December, 1965, the sub-partnership was dissolved by a written deed. According to the deed, the assessee was desirous of dissolving the partnership. The assessee had actually invested till that time a sum of Rs. 45,000 only. He was paid back that amount. In addition, he was held entitled to be paid a sum of Rs. 35,000 as follows: (a) Rs. 15,000, the amount of estimated profit for the period between commencement and the dissolution of the sub-partnership, (b) Rs. 20,000 as compensation in lieu of the cessation of business by the assessee and for premature termination of partnership rights of the assessee. The assessee relinquished all his rights and interests in the sub-partnership. In the course of the assessment for the year 1966-67 the ITO brought both these sums of Rs. 15,000 and Rs. 20,000 to tax. The assessee went up in appeal. His case was that the amount of Rs. 20,000 represented compensation for relinquishment of his share in the partnership on dissolution. It was not a revenue receipt. The AAC accepted this plea. He held that the assessee was a partner. He had retired from the firm. He received the money value of his share in the assets of the firm. It was settled that distribution of the assets of the firm was not a transfer, and hence the sum of Rs. 20,000 did not represent either revenue income or capital gains. He deleted this amount.
(3.) THE ITO went up in appeal to the Tribunal. THE Tribunal did not agree with the AAC. It held that the transaction with Ramesh Chand was an ordinary trading contract incidental to the money-lending business carried on by the assessee. THE receipt of Rs. 20,000 was revenue in nature and was rightly brought to tax. At the instance of the assessee, the Tribunal has referred for our opinion the following question of law : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,000 received by the assessee under Clause (3) of the dissolution deed represented an income receipt liable to tax ?" ;