TaxTMI 
TaxTMI 
2011 (5) TMI 278
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....apital receipt instead of revenue receipt since it is not derived by the assessee from any participation in business activity of the firm." 3. Facts of the case are that the assessee received a sum of Rs. 20,26,444 from M/s. K.S. Aiyar & Co., which was claimed as capital receipt and hence not offered for taxation. The facts leading to the receipt of this sum are that the assessee is widow of Late Shri Mani Arjun Aiyer, who before his death was senior Partner of M/s. K.S. Aiyer & Co. As per partnership deed executed on 9-9-1992, the widow of the deceased partner was entitled to receive specified amount on retirement or death of partner of the firm. As per the terms and conditions of the partnership deed on the death of Shri Mani Arjun Aiy....
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....eipt. 4. On being aggrieved the assessee carried the matter before the learned CIT(A). It was submitted before the learned CIT(A) that the amount received by the assessee was not related to any business done or loss of profits and it was not recompense for service, past or future and the payment did not bear the character of income. In support of the contention that the amount in question was capital receipt, the assessee relied on the decision of P.H. Divecha v. CIT [1963] 48 ITR 222 (SC). It was also submitted before the learned CIT(A) that the decision in the case of Mrs. Jaya Bhaskaran (supra) squarely applied to the assessee's case as payment made therein was by the same firm M/s. K.S. Aiyer & Co. to the widow of another partner. Th....
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....er had rightly distinguished the facts of the present case with those of Mrs. Jaya Bhaskaran's case (supra) and rightly held that the payments received by the assessee was not capital receipt. 6. On the other hand the learned Counsel for the assessee strongly supported the decision in the case of Mrs. Jaya Bhaskaran (supra). He submitted that the said decision clearly applied to the assessee's case. He further submitted that the object of the payment made to the assessee was an assurance given to the assessee which is same as in the case of Mrs. Jaya Bhaskaran (supra) where the eldest surviving child was to be nominated as partner i.e., it was on the assurance given to the partners to support their legal heirs in future. He further submi....
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....uld not be charged to tax. Under similar circumstances when some other partner of the firm died and the compensation was paid by the firm, the Revenue sought to tax the same. The Hon'ble Patna High Court in that case of Mrs. Jaya Bhaskaran (supra) upheld the Tribunal order by holding that the receipt was not taxable in the hands of the widow of the deceased. In holding so, reliance was also placed on the decision in the case of P.H. Divecha (supra) wherein the Hon'ble Supreme Court. In the said case of Mrs. Jaya Bhaskaran (supra), the Tribunal while deciding the issue following the case of P.H. Divecha (supra) has noted that the Hon'ble Supreme Court observed that : "In determining whether this payment amounts to a return for loss of a c....
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....her in present or in future. The assessee was neither the principal holder of the partnership firm nor had invested any capital nor had rendered any service to the firm. At the same time, it is palpable that it was her deceased husband, who was partner in the firm, on whose death, the firm paid the said amount to the assessee. It is further important to bear in mind that it was not a one-time payment. Rather it continued to be paid by the firm to the assessee over the period as per the terms of the partnership deed. As the payment was towards the recognition of the valued services rendered by the partner during his life time and it was a sort of relief to the distressed family, and that too as per the terms of the partnership deed, it could....
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....e payment would be determinative factors. Regard must be had only to the nature and quality of the payment. The marginal heading of section 15 is "compensation". The fact that, under clauses (i), (ii) and (iii) of section 15(1), the compensation is paid as of right and in cases falling under clauses (d) of the proviso, it is a discretionary payment, would not stamp the payment with the character of revenue. The payment made by the Government is undoubtedly voluntary. However, it has no origin in what might be called a real source of income. No doubt section 15(1), proviso, clause (d) enables the applicant to seek payment but that is far from saying that it is a source. Therefore, it cannot afford any foundation for such a source. Further, i....