Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the inference drawn by the Tribunal that the payment of Rs. 36,292 made by the assessee to Sri Parmanandbhai Patel was prompted by extracommercial considerations is justified ?

H.S. Shrivastava, for the Assessee : B.K. Rawat, for the Revenue

N.D. OJHA, C.J.:

The Tribunal, Bombay Bench ‘A’, Bombay, has referred the following two questions to this Court for its opinion :

” 1. Whether, on the facts and in the circumstances of the case, the inference drawn by the Tribunal that the payment of Rs. 36,292 made by the assessee to Sri Parmanandbhai Patel was prompted by extracommercial considerations is justified ?

2. Whether, on the facts and in the circumstances of the case, the claim of the assessee to deduct a sum of Rs. 36,292 representing payment to Sri Parmanandbhai in the computation of its business income is allowable ?”

Brief facts as appear from the statement of the case are that the assessee is a registered firm of which Parmanandbhai Patel was a partner along with Smt. Ujjambai by virtue of a deed of partnership dt. June 21, 1961, a copy of which has been annexed by the Tribunal to the statement of the case as Annexure ‘ A ‘. Subsequently, one more partner was inducted, namely, Shravankumar, by virtue of a deed of partnership dt. September 19, 1963, copy of which has been attached as Annexure ‘ B ‘ to the statement of the case. Parmanandbhai Patel became a Minister in the Madhya Pradesh Government and retired from the firm as per deed of retirement, copy of which has been annexed as Annexure ‘ C ‘ to the statement of the case. In terms of the deed of retirement, the continuing partners agreed to pay Rs. 50,000 per annum to Shri Parmanandbhai for the use of his onehalf share of the goodwill of the partnership. The assessee claimed deduction of the sum paid to Parmanandbhai for user of his share of goodwill as revenue expenditure. The Tribunal has taken the view that Parmanandbhai did not appear to have made any contribution for acquisition of the goodwill of the firm and that when he joined the partnership firm, it had already acquired goodwill and in the absence of any material to indicate as to how he acquired any interest in the goodwill, the payment made to him for user of his alleged share in the goodwill was indeed for extracommercial purpose and could not be treated as revenue expenditure.

Having heard learned counsel for the parties, we are of the opinion that a very important aspect of the matter seems to have been ignored in the proceedings. Even from Annexure ‘ A ‘ to the statement of the case, namely, the deed of partnership dt. June 21, 1961, it is apparent that there were two partners in the firm, namely, Smt. Ujjambai and Smt. Jadavbai. It further appears from this document that Smt. Jadavbai died on April 12, 1961, i.e., about two months before execution of this deed of partnership. Annexure ‘ A ‘ to the statement of the case, namely, the deed of partnership dt. June 21, 1961, further indicates that Smt. Jadavbai was the widow of Mohanlal whereas Annexure ‘ B ‘ to the statement of the case, namely, the deed of partnership dt. September 19, 1963, shows the parentage of Parmanandbhai as that of Mohanlal. We are informed that Parmanandbhai is not a natural son but an adopted son of Mohanlal. Be that as it may, the relationship of Parmanandbhai with Smt. Jadavbai is apparent from these two documents. In the normal course, for purposes of succession, it would not be material whether Parmanandbhai is a natural son of Mohanlal or his adopted son. Consequently, in the absence of anything to the contrary, on the death of Smt. Jadavbai, which took place on April 12, 1961, her interest in the assets of the irm including goodwill, which even according to the Tribunal had already been acquired, would devolve on Parmanandbhai. As such, when consequently Parmanandbhai entered into partnership with the surviving partner, Smt. Ujjambai, on June 21, 1961, he would, in the normal course, be deemed to have an interest in the assets including the share of goodwill of Smt. Jadavbai by inheritance unless Smt. Jadavbai had disposed of her interest either by will or otherwise. Since, however, this aspect of the matter has not been considered and there is no finding of the Tribunal on this point, it is not possible to answer the questions referred to us on the premise that Parmanandbhai had acquired an interest in the assets including the goodwill of the firm by inheritance. Since this point, however, goes to the very root of the matter, it is, in our opinion, expedient in the ends of justice, to require the Tribunal to submit a supplementary statement of the case after recording a finding in this behalf. Before doing so, however, the Tribunal shall give the parties an opportunity to substantiate their cases on this point.

4. In the result, we direct the Tribunal to submit a supplementary statement of the case in the light of the observations made above within four months. The case may be listed for hearing after the receipt of the supplementary statement of the case.

[Citation : 174 ITR 26]