COMMISSIONER OF Income Tax, MADRAS vs P. R. A. L. M. MUTHUKARUPPAN CHETTIAR.

BEASLEY, 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) of the Indian Income Tam Act. The petitioner was a partner in the S. P. K. A. A. M. Firm in Colombo. He retire from that firm; and an

account was taken of the capital and of the profits etc., and the petitioner was given his share and he 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 Commissioner of Income Tax, Madras v. Siddha Gowder & Sons in which the decision in Inland Revenue

Commissioners v. Burrell was applied. The Commissioner of Income Tax contests this position and contends that the principle of the later 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 Commissioner of Income Tax v. Siddha Gowder and Sons was incorrect. I may here observe, however, that in that case it was put in

the forefront of the Income Tax Commissioners case that the principle laid down in Burrells case 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 case was incorrectly decided, it must

be applied. He 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 vies completely ignores the provisions of Section 253 (7) of the Indian 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 the question that the other partners continued in the business together. Their doing so

was merely in the capacity of partners in a new firm, the legal position clearly being that the old firm had ceased to exist. This case is not at all

seemlier to the another case relied upon by the Commissioner of Income Tax Viz., Arunachalam Chettiar v. Commissioner of Income Tax,

Madras. There what was being considered was a partition of a hindu joint family. In my view, totally different considerations apply to such as that.

For the reason 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 profits. The assessee will allowed Rs. 250 costs.

RAMESHAM, J. - I agree.

SUNDARAM CHETTY, J. - I agree.

Reference answered accordingly.