COMMISSIONER OF INCOME TAX GUJARAT III AHMEDABAD vs. MANHARLAL GIRDHARLAL DOSHIT

ITR/378/1983HC GujaratGJHC24011844198312 December 1997Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE8 pages
AI SummaryAllowed

What were the facts?

The assessee, a former partner in a solicitor firm, retired on December 31, 1972. He was entitled to his share of profits for work done prior to retirement. The firm maintained accounts on a cash or receipt basis, with the calendar year as its accounting year. On December 27, 1976, the assessee executed a deed of settlement, irrevocably assigning his right to receive his share of profits from the firm to a trust for his children. For the calendar year 1976, Rs. 49,890 became payable to the assessee. He did not include this in his income, claiming it was settled on trust. The Income Tax Officer (ITO) rejected this, considering it an application of income after accrual. The Commissioner (Appeals) accepted the assessee's contention, holding that income accrued only at the end of the accounting year. The Tribunal upheld this, relying on a Bombay High Court decision in a similar case.

What did the High Court hold?

The High Court held that the Tribunal was right in concluding that the sum of Rs. 49,819 was not liable to be included in the assessee's income under Section 60. The Court reasoned that the solicitor firm's accounting year was the calendar year, and accounts were settled at the end of the year. Therefore, the assessee's right to receive his share of profits for 1976 only vested at the end of that year, i.e., December 31, 1976. The deed of settlement was executed on December 27, 1976, which was prior to the accrual of the right to receive the income. The Court found that the assessee had transferred his actionable claim qua the firm irrevocably in favour of the trust before the income accrued, thereby diverting the source of income. The Court also noted that Section 29 of the Partnership Act was not applicable as the settlement was post-retirement, and Section 130 of the Act allowed assignment of actionable claims. The Court affirmed the Tribunal's decision, citing the Bombay High Court's ruling in CIT vs. Kanchanlal L. Talsania and the Supreme Court's dismissal of the SLP in that case. Regarding Section 176, the Court held it was not applicable as there was no discontinuation of the profession by the assessee. Both questions were answered in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that a sum of Rs. 49,819 was not liable to be included in the income of the assessee under Section 60 of the Income Tax Act, 1961? Assessee's Contention: The income had not accrued to the assessee at the time of the settlement deed, as accrual only occurred at the end of the accounting year (December 31st). Therefore, the assignment was of the source of income before it accrued. Revenue's Contention: There was no diversion of the source of income. The right to recover the amount had already crystallized, and the settlement was merely an application of income after its accrual. Assignment of a retired partner's share after retirement was not permissible under Section 29 of the Partnership Act. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in concluding that the sum of Rs. 49,819 was not liable to be included in the income of the assessee under Section 176 of the Income Tax Act, 1961? Assessee's Contention: Not explicitly recorded, but impliedly that Section 176 is not applicable. Revenue's Contention: Not explicitly recorded, but impliedly that Section 176 is applicable.

Which sections of the Income-tax Act were involved?

Section 60,Section 176,Section 29,Section 130

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 378 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 60

All 68 judgments and leading authorities on Section 60 →

Recent GST High Court judgments

Search GST case law →