Deductibility of payment to outgoing partner upheld where award reflected settlement dues and asset-use compensation, not capital acquisition.

A payment made by a firm to an outgoing partner after dissolution was treated as deductible business expenditure to the extent upheld by the Tribunal, because the material supported a finding that the consolidated award covered settlement dues and compensation for use of partnership assets, not merely the price of acquiring a capital asset. The partnership had ended on expiry of the notice period, so the retiring partner was only entitled to settlement of accounts and amounts due on dissolution. Section 37 of the Indian Partnership Act was held inapplicable on the facts, and the outgoing partner could not be treated as continuing to share profits after dissolution.

---

---

Issues: Whether the amount paid by the assessee to the outgoing partner under the award and decree was a deductible business expenditure or represented payment for acquisition of a capital asset.

Analysis: The partnership had come to an end on the expiry of the notice period, and thereafter the retiring partner was entitled to settlement of accounts and payment of what was due to him. The arbitral award was a consolidated amount without reasons, and the material justified an inference that the payment covered, at least in part, compensation for the use of the partnership assets, interest on amounts invested, and amounts payable on settlement, rather than merely the price of acquiring the partner's interest. The reference to section 37 of the Indian Partnership Act was held inapplicable on the facts, and the outgoing partner could not be treated as continuing to hold a one-third share in the profits after dissolution.

Conclusion: The amount paid was deductible to the extent upheld by the Tribunal, and the question was answered in the affirmative, against the applicant.

---