JUDGMENT
1. This is an income-tax reference under Section 256(1) of the Income-tax Act, 1961. The question of law referred to us is as under : .
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the receipt of Rs. 3,75,000 by the assessee was not a revenue receipt and in deleting the addition thereof in the hands of the assessee ?"
2. The assessment year involved is 1969-70. The assessee was a partner in the partnership known as Nayab Biri Factory, Moradabad, created by a deed of partnership which was executed on April 1, 1964. As one of the partners died and another left the partnership, a new deed of partnership was executed on March 17, 1967. The assessee continued to be a partner in the new partnership with his share and thereafter a deed of dissolution of this partnership was executed on March 17, 1969, and the assessee retired from the said partnership with effect from March 17, 1969. The remaining partners continued to be partners of the said firm. A sum of Rs. 3,75,000 was paid to the assessee for relinquishing his share in the partnership firm. The Income-tax Officer held the said amount to be a revenue receipt and his order was affirmed by the Assistant Commissioner. However, the Tribunal placing reliance on the decision in the case of Addl. CIT v. Smt. Mahinderpal Bhasin [1979] 117 ITR 26 (All) held the amount in question a capital receipt and not a revenue receipt. On the application of the Department, this reference has come up to this court.
3. We have heard learned counsel for the parties. It has been held by the Supreme Court in the case of Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 that it cannot be said as a general rule that what is determinative of the nature of a receipt on the cancellation of a contract of agency or office is extinction or compulsory cessation of the agency or office. Where payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business or deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue; where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. In view of the above decision of the Supreme Court in the case of Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 and the decision of this court in the case of Smt. Mahinderpal Bhasin [1979] 117 ITR 26, we answer the question, referred to us, in the affirmative, i.e., in favour of the assessee and against the Department. There shall be no order as to costs.