2019 (4) TMI 979

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....made to the legal heir of the deceased partner Shri Anand Bhat, as admissible expenditure under the provisions of the partnership deed?" 2. The RespondentAssessee is a partnership firm. The assessee paid certain amount to a retired partner on the basis of the provisions made in the partnership deed. The deed provided that the partner whose share is determined on account of resignation, retirement or death, shall also be paid by the continuing partners of the firm, a sum equivalent to one and a half times the share of the profits and remuneration received by him in the last accounting year immediately preceding the date of determination of his share. This was primarily based on the premise that the partner of the firm during his tenure wo....

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.... appreciation in the value of the immovable properties held by the assessee firm to the extent of his share of the partnership and also for the work done during the period of partnership, which was in progress on account of the fact that the work had not been completed and therefore the clients could be charged for the same. The assessee pointed out that in the partnership agreement itself there was formula to compensate the outgoing partner for his share of those profits of the firm in relation to the period during which he was a partner and which profits had not been realized by the firm on account of non-completion of the work during the tenure of the partner. The assessee firm further pointed out that it would be paying taxes on the ent....

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....is was also an instance of the source of income being subject to an obligation. We are in agreement with the Calcutta decision and hold that the amounts so paid by the assesseefirm to the heirs of the deceased partners cannot be assessed as the income of the firm." 5. The decision in the case of Mulla and Mulla and Craigie, Blunt and Caroe (supra) was followed by this Court in Income Tax Appeal No.2277 of 2013 in the case of Commissioner of Income Tax11, Mumbai v. M/s Kanga & Co. (ITXA 2277/2013) decided on 1st February, 2016. The Court observed as under: 3. "The only issue in this appeal is the exclusion from the income of the firm, the amounts relatable to the retired/deceased partner/s share by diversion on account of o....