Ajit K. Sengupta, J. - (1.) THE assessee was a firm of chartered accountants and the assessee had undergone a change of constitution when some erstwhile partners retired from the firm and, in terms of the deed of retirement, certain specific items of outstanding fees were to be paid to the retiring partners after these had been collected by the present assessee. THE Income-tax Officer, however, assessed these outstanding fees as the income of the present assessee on "receipt basis" as the assessee's accounting system was cash.
(2.) IN appeal by the assessee, the Appellate Assistant Commissioner of INcome-tax held that the amount of Rs. 1,37,518 as has been added by the INcome-tax Officer, cannot be the income of the present assessee as the said income was never received or else was receivable by the present assessee. He further held that the said amount of Rs. 1,37,518 as such cannot constitute income in the hands of the present assessee. The addition was, accordingly, deleted and the assessee got relief. On second appeal by the Department, the Tribunal upheld the decision of the Appellate Assistant Commissioner holding that the assessee-firm is a distinct and separate entity vis-a-vis the firm on whose behalf the amount of Rs. 1,37,518 has been collected and, accordingly, on these facts, it cannot be said that the said amount can be treated as the income of the asses-see-firm as it existed during the accounting period relevant to the assessment year under appeal. On these facts, the following question of law has been referred to this court at the instance of the Commissioner under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 1,37,518 should not be included in the assessee's income for the relevant previous year?"
(3.) AT the hearing, Mr. Moitra, learned advocate for the Commissioner, has contended that the assessee-firm received the amount in question and thereafter, distributed the same to the erstwhile partner. Accordingly, it must be treated as the income of the assessee-firm. He has also submitted that the assessee-firm maintains accounts on cash basis. Accordingly, whatever cash is received has to be accounted for in the account of the firm. Mr.N.K. Poddar, learned advocate for the assessee, has submitted that, in view of the agreement between one of the partners of the present firm and the erstwhile partner, the amount received had to be paid to the erstwhile partner. The collection was made by the assessee-firm on behalf of the erstwhile partner. The assessee-firm has no right to retain any part of the amount which is earmarked for the erstwhile partner.;