Satish Chandra, J.
1. On 10th January, 1965, one Ramesh Chand entered into a partnership with three other persons. This partnership was to carry on the business of distributing a film called 'Haqiqet'. The share of Ramesh Chand in this firm was 40%. He was liable to contribute a sum of Rs. 1,00,000. He actually contributed Rs. 75,000. He did not have the balance. So, he borrowed Rs. 25,000 from B. S. Goyal, the assessee in the present case. Only eighteen days later, namely, on 28th January, 1965, Ramesh Chand and the assessee entered into an arrangement under a written document, which is called a deed of sub-partnership. It began by saying that 'the assessee was insistent upon getting his money back for the sake of better investment.....' This statement comes in the partnership deed only after eighteen days of the money being lent to Ramesh Chand. The sub-partnership consisted of only two partners, namely, Ramesh Chand and the assessee. This sub-partnership was only in respect of the share of profits of Ramesh Chand in the principal partnership. Both the partners were to have a half share in the 40% share of Ramesh Chand in the principal firm. The assessee was required to contribute a further sum of Rs. 25,000 for being paid over to the principal partnership. The partnership was expressly stated to be at will.
2. Hardly one year had elapsed, when on 11th of December, 1965, the sub-partnership was dissolved by a written deed. According to the deed, the assessee was desirous of dissolving the partnership. The assessee had actually invested till that time a sum of Rs. 45,000 only. He was paid back that amount. In addition, he was held entitled to be paid a sum of Rs. 35,000 as follows:
(a) Rs. 15,000, the amount of estimated profit for the period between commencement and the dissolution of the sub-partnership,
(b) Rs. 20,000 as compensation in lieu of the cessation of business by the assessee and for premature termination of partnership rights of the assessee.
3. The assessee relinquished all his rights and interests in the sub-partnership.
4. In the course of the assessment for the year 1966-67 the ITO brought both these sums of Rs. 15,000 and Rs. 20,000 to tax. The assessee went up in appeal. His case was that the amount of Rs. 20,000 represented compensation for relinquishment of his share in the partnership on dissolution. It was not a revenue receipt. The AAC accepted this plea. He held that the assessee was a partner. He had retired from the firm. He received the money value of his share in the assets of the firm. It was settled that distribution of the assets of the firm was not a transfer, and hence the sum of Rs. 20,000 did not represent either revenue income or capital gains. He deleted this amount.
5. The ITO went up in appeal to the Tribunal. The Tribunal did not agree with the AAC. It held that the transaction with Ramesh Chand was an ordinary trading contract incidental to the money-lending business carried on by the assessee. The receipt of Rs. 20,000 was revenue in nature and was rightly brought to tax.
6. At the instance of the assessee, the Tribunal has referred for our opinion the following question of law :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,000 received by the assessee under Clause (3) of the dissolution deed represented an income receipt liable to tax ?'
7. The Tribunal analysed the legal position accurately as follows :
'We have considered the case and we are of opinion that the departmental appeal has to succeed. To us it appears that this is a very simple case where a money-lender has entered into an ordinary contract in the normal course of his business. He advanced moneys this time not for interest but in lieu of a share of profit of the venture which he was financing. Though styled a partnership, it was a very simple case of an ordinary contract by a money-lender by which he lent moneys and in return expected certain profits. The sub-partnership itself had no assets or other properties. Its only, business was to receive the share of Ramesh Chand in the principal firm and to divide it between the two partners. It is also very significant that this partnership was one terminable at will. In other words, all that the assessee did was to advance moneys stipulating that he should receive a share of the profits of Ramesh Chand from the business which he carried on along with the stipulation that the assessee would be entitled at any moment to get out of this bargain. In our view entering into a contract as well as getting out of it which was also contemplated even at the time of the formation of the sub-partnership were ordinary incidents of the money-lending business carried on by the assessee. No doubt there are cases which say that a share in a firm constitutes movable property and it would constitute a capital asset but this principle has to be applied having regard to the facts and circumstances of each case.
That which is a capital asset in the hands of the assessee will not be so in the hands of another. We have, therefore, to look at the question not on broad generalities as urged by Shri Agarwal, but by looking at the substance of the transaction entered into by the assessee. Looking at the matter in this way, we agree with the contention of Shri Kanwal Krishan that the contract entered into by the assessee on January 28, 1965, was a contract entered into by him in the ordinary course of money-lending business. That contract itself envisaged its cancellation at any time and the compensation received on such cancellation of an ordinary trading contract, it is settled, is a revenue receipt. This point is covered by much authority but it would be sufficient to refer to the case of Gangadhar Baijnath [ : 86ITR19(SC) , on which the departmental representative placed considerable reliance. That was actually a case where partners of the assessee-firm had entered into another partnership which had substantial assets and goodwill. The partners retired from that firm and the question was whether the amounts received by them on the occasion of their retirement would represent revenue receipts or not. The question was answered in the affirmative by the Supreme Court holding that what had happened was only the termination of an ordinary trading contract incidental to the business carried on by the assessee. In our opinion, that is precisely the position here also. We are of the view that the amount of Rs. 20,000, therefore, constituted a revenue receipt and was rightly brought to tax.'
8. It is clear that the Tribunal was not satisfied that this was a genuine sub-partnership intended to last for some time in order to do the business for which it was constituted. The Tribunal has remarked that the sub-partnership itself had no assets or other properties. It was found that the assessee was carrying on the business of money-lending. This transaction itself initiated in lending a sum of Rs. 25,000 to Ramesh Chand. Within eighteen days of it the sub-partnership was constituted and the same was dissolved within a year. The inference drawn by the Tribunal was that it was a device under which the assessee only carried out financing Ramesh Chand, and that the termination of the partnership was, in substance, the termination of an ordinary trading contract of financing another. Since financing was the normal business of the assessee, the amount of Rs. 20,000 constituted a revenue receipt. In our opinion, the Tribunal had examined all the relevant materials and aspects and had drawn proper inferences. The case was clearly governed by the decision of the Supreme Court in CIT v. Gangadhar Baijnath : 86ITR19(SC) .
9. Learned counsel for the assessee invited our attention to a case in Addl. CIT v. Smt. Mahinderpal Bhasin : 117ITR26(All) . In that case Gangadhar Baijnath's case : 86ITR19(SC) was distinguished on the ground that in Gangadhar Baijnath's case the assessee-firm carried on the business of financing and entering into the partnership and retiring therefrom. In the case of Smt. Mahinderpal Bhasin : 117ITR26(All) , it was found that there was no material to establish that the assessee entered into the partnership as a part of her trading activity. On this ground, it was held that the receipt of moneys as share of profits up to the date of retirement could not be treated as revenue receipt. On the same grounds, this decision is distinguishable from the facts of the present case.
10. In the result, we answer the question referred to us in the affirmative, in favour of the department and against the assessee. The Commissioner would be entitled to costs which are assessed at Rs. 200.