G.K.MITTER J. - (1.) THIS is a reference under s. 66(1) of the IT Act at the instance of the assessee for determination of the question : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,25,000 was assessable in the hands of the assessee under s. 7(1) of the Indian IT Act r/w Expln. 2 thereof as it stood at the material time ?" The facts of the case given in the statement of case and the order of the Tribunal are scanty. The Tribunal is, however, not to blame in any respect for the paucity of facts. The fault, if any, lies with the assessee who, in my opinion, might, without difficulty, have put more material before the IT authorities. The assessee came out to India as an assistant of a firm of tea brokers by the name of W. S. Cresswell and Co. in the year 1937. The firm had three partners by the name of N. D. Gye, W. N. Batty and N. F. F. Massy, the shareholdings being 8 as. 6 p., 7 as. and 6 p. respectively.
(2.) THE firm was dissolved of 30th June, 1947, its business being taken over by a private limited company named W. S. Cress-well & Co. Ltd. The company started carrying on business as from 1st July, 1947. In the books of the company a goodwill account was created for a sum of Rs. 5,00,000, Batty being credited with Rs. 3,33,000 and Massy with Rs. 1,66,000. N. D. Gye did not take any share in the goodwill and according to the statement of case, Gye had relinquished his interest in favour of his copartners. There was no explanation given as to the allotment of goodwill of the value of Rs. 1,000. On 1st April, 1948, the assessee purchased 300 shares in the company from W. N. Batty for cash. On 30th Oct., 1948, the goodwill account in the company's books was modified and the old account written off. A fresh account was started in which Batty was credited with Rs. 2,00,000, Massy with Rs. 1,75,000 and Carter with Rs. 1,25,000. Subsequently, the amount of Rs. 1,25,000 was transferred to a loan account. The assessee did not show this amount in his original return nor was the fact brought to the notice of the ITO at the time of assessment for the corresponding previous year. Subsequently proceedings were started under s. 34 and in response to a notice the assessee filed a return showing his income from salaries and dividends. In section D of the return he showed Rs. 1,25,000 as gift as explaination in his letter dt. February 11, 1954. The relevant portion of it as quoted by the ITO in his assessment order reads : "I wish to emphasise that I was never a partner in the firm of W. S. Cresswell and Co. I was an assistant in that firm from 1st April, 1937, until the date the company was incorporated. People who were just senior to me in the firm were partners of that firm and have been associated with me during my sojourn with the firm. They felt that the fact that I had arrived in India a short while after them and being junior to them had prevented me from enjoying the benefits of being a partner in the firm. The payment to me was only an acknowledgment of their friendship and sympathy."
(3.) THE ITO proceeded on the basis that this was a monetary recognition of the assessee's valuable services and in consideration of his deprivation of a share in the partnership. Treating this as payment in consideration of his services with the firm the ITO held that it was assessable under s. 7(1) r/w Expln. 2 of the Indian IT Act. The appeal to the AAC by the assessee was dismissed as also that to the Tribunal.;