Judgment

HEGDE, J. :- These are appeals by certificate from the decision of the High Court of Allahabad in a Reference under Section 66 (1) of the Income-tax Act, 1922 (to be hereinafter referred to as the Act).

2. The Income-tax Appellate Tribunal (Allahabad Bench) referred to the High Court for its opinion the following questions :

"(1) Whether on the facts and in the circumstances of the case, the receipt of Rs. 35,01,000/- constituted income liable to tax under Section 10 of the Income-tax Act ?

(2) Whether it was competent to the Appellate Assistant Commissioner to invoke the provisions of Section 12-B for the assessment of Rs. 35,01,000/- when the Income-tax Officer had assessed the amount under Section 10 of the Income-tax Act ?

(3) Whether on the facts and in the circumstances of the case the receipt of Rs. 35,01,000/- was taxable under Section 12-B of the Income-tax Act ?"

3. The High Court answered the first and the second question in favour of the Revenue and on the third question it recorded its opinion that on the facts and in the circumstances of the case, the receipt in question was not taxable under Section 12-B of the Act.

4. Aggrieved by the decision of the High Court the Commissioner of Income-tax has brought Civil Appeal No. 1746 of 1968 and the assessee Civil Appeal No. 2022 of 1968.

5. The material facts of the case as could be gathered from the statement of case are these : The assessee is a partnership firm carrying on business of financing, moneylending, selling agencies and the like pursuits. The relevant assessment year is 1948-49, the concerned accounting year ending in October, 1947. On April 29, 1946 the three partners of the assessee firm entered into an agreement with Gajadhar Jaipuria, R. S. Puran Mal Jaipuria and Mangloo Ram Jaipuria. The terms of the agreement as found by the Tribunal, were :

(1) That the partners should acquire on joint account, the shares of the Swadeshi Cotton Mills Co. Ltd. and Eland Ltd.

(2) The partners of the assessee firm (who will hereinafter be referred to as the "Bagla Group") and the remaining three partners (who will hereinafter be referred to as the "Jaipuria Group") were to invest the amount required to acquire the shares in question equally and all benefits including the managing agency, selling agency, quota rights should be enjoyed in joint account but the selling agency which was in the hands of the assessee firm should continue to be in its hands till the Dussehra of that year. Similarly the quota rights which were in the hands of the Jaipuria Group should continue in the hands of that Group till the Dussehra of that year.

(3) Neither party should acquire any share in his separate account or have any interest directly or indirectly to the exclusion of the other.

6. Till the date of the formation of this partnership, the assessee firm consisting of "Bagla Group" were the selling agents of the Swadeshi Cotton Mills Co. Ltd. The "Jaipuria Group" whichh was a different firm were enjoying some rights in that mill. In pursuance of the agreement above referred to, the new partnership "Bagla Jaipuria and Co." purchased shares of the Swadeshi Cotton Mills Co. Ltd. For that purpose both the groups contributed equally. But no partnership deed as such was entered into by the partners. On July 16, 1946, an agreement was entered into between the Swadeshi Cotton Mills Co. Ltd., and the Bagla Jaipuria and Co. appointing the latter as the managing agents of the Company for a period of twenty years. On October 7, 1946, another agreement was entered into by the partners of the Bagla Jaipuria and Co. whereby it was decided that one of the two Groups would retire from the business with effect from October 6, 1946 subject to the terms and conditions specified in that agreement. The relevant clauses of that agreement read thus :

"It is agreed that one or other of the Bagla or Jaipuria groups shall retire from the said partnership with effect from 6th October, 1946. The continuing group shall