D. K. Jain ( 1 ) THE Income-tax Appellate Tribunal has, at the instance of the revenue, REFERRED TO to this Court under Section 256 (1) of the Income-tax Act, 1961 (for short the Act), the following questions for opinion : "1. Whether, on the facts and in the circumstances, of the case, the Tribunal was right in holding that the amount of Rs. 62,500. 00 was a capital receipt ? 2. If the answer to the first question is in the affirmative then was the Tribunal right in holding that the amount of Rs. 62,500. 00 was not assessable u/section 45 of the Income-tax Act, 1961, as capital gains ?" ( 2 ) THE case relates to the assessment year 1971-72 for which the relevant previous year ended on 31 December, 1970. The assessee is an incorporated Company engaged in the business of exhibition of cinematographic films. It signed agreements with the producers of three films namely "saheli", "sagaai" and "aaye Din Bahar Ke" for their distribution, exhibition and exploitation in the territories of Delhi and U. P. On I September, 1965 it entered into a partnership with eight partners and the firm was styled as "films Friends". The business of the firm was to take over the above three films for, the purpose of exploitation. As per the terms of partnership, the distribution and exploitation of the films was to be done exclusively by the assessee, who was to sign the agreement of exhibition with cinemas in its own name and also to deal with the producers. For such distribution the assessee was to receive 5% as commission on the collections of the films on screening. Subsequently, the assessee signed agreements with the producers of three more films for their distribution, exploitation and exhibition in the above territories. The share of the assessee in the firm was to be 25% and the remaining 75% was to be distributed amongst other partners. Besides the above, the assessee also signed two more agreements with the producers of two films, namely, "saajan" and "aaya Sawan Jhoom Ke" for their distribution, exploitation and exhibition. For the exploitation of the said two films the assessee entered into another partnership of 17 March, 1967 with ten other partners and that firm was styled as "films Enterprises". Besides the above, the assessee also signed two more agreements with the producers of two films, namely, "saajan" and "aaya Sawan Jhoom Ke" for their distribution, exploitation and exhibition. For the exploitation of the said two films the assessee entered into another partnership of 17 March, 1967 with ten other partners and that firm was styled as "films Enterprises". In this firm also the assessee held 25% share and was also entitled to 5% commission on the collections of the films for the work performed on behalf of the firm. Subsequently, vide two separate sale deeds, both dated 28 December, 1970, the assessee sold its interest in the above two firms to S/shri B. N. Gupta and Vijay Sharma and received Rs. 30,500. 00 for M/s. films Friend and Rs. 32,000. 00 for M/s. Film Enterprises by way of compensation for the unexpired period of the contracts with the producers of the aforenoted films, taken over by the two firms, with the result that the assessee ceased to be a partner in the said two firms and the said two persons were admitted as new partners with 12% share in each of the said firms. ( 3 ) DURING the course of assessment proceedings for the relevant assessment year, the question arose about the taxability of the said amount of Rs. 62,500. 00 in the hands of the assessee. On behalf of the assessee it was claimed that the receipt was of capital nature and it was not a receipt from carrying on of business or trade. It was also claimed that in view of Section 47 (1) of the Act, as it existed prior to its omission with effect from I April, 1985, the said amount could not be taxed as capital gains either. The Assessing Officer did not agree with the asscsse and held that the amount represented trading receipt in the hands of the assessee in lieu of profits of the unexpired period of contracts for distribution and exploitation of the films. He also rejected the stand of the assessee that the provisions of Section 47 (1) of the Act were attracted to the facts as in his opinion it was not a receipt on the distribution of capital assets on the dissolution of the firm. He also rejected the stand of the assessee that the provisions of Section 47 (1) of the Act were attracted to the facts as in his opinion it was not a receipt on the distribution of capital assets on the dissolution of the firm. He held that what had been transferred by the assessee was its right of distribution of films for the unexpired period of contracts and accordingly brought the entire amount of Rs. 62,500. 00 to tax as assessee s income. ( 4 ) ON appeal, while agreeing with the Assessing Officer, the Appellate Assistant Commissioner observed that the unexpired life of the films was held by the firm as business asset which could be exploited further in the market and, therefore, the consideration received on their sale formed part of the assessee s business receipts and, therefore, it was business income. ( 5 ) BEING dissatisfied with the decision of the Appellate Assistant Commissioner, the assessee took a second appeal to the Income-tax Appellate Tribunal. Before the Tribunal, on behalf of the assessee it was reiterated that the amount received represented the capital receipt of the assessee inasmuch as it was a receipt for relinquishment of the assessee s interest in the two firms namely, M/s. Films Friends and Film Enterprises. On the other hand on behalf of the revenue it was urged that the assessee infact sold the film prints which formed part of the firm s stock-in-trade and, therefore, the receipt represented business receipt. It was also contended on behalf of revenue that the assessee could not legally sell its right in the firm to an outsider and, therefore, there was no question of any capital receipt. In the alternative it was submitted that in any case the receipt represented capital gain to the assessee as it had parted with its capital asset, as claimed, and Section 47 (ii) had no applicability to the facts of the case. ( 6 ) THE Tribunal felt that it was not a case of sale of stock-in-trade and if at all it was, the same being the property of the firm, in view of the principle laid down by the Supreme Court in the case of Addanki Narayanappa and Anr. ( 6 ) THE Tribunal felt that it was not a case of sale of stock-in-trade and if at all it was, the same being the property of the firm, in view of the principle laid down by the Supreme Court in the case of Addanki Narayanappa and Anr. v. Bhaskara Krishnappa, AIR 1966 SC 1300 , to the effect that a partner is not entitled to deal with any portion of the property of the firm as his own during me subsistence of the partnership nor can he assign his interest in a specific item of partnership property to any one, the assessee could not assign its share to any one. The Tribunal observed that the assessee had surrendered its right to share in the said two firms in favour of two outsides and had received Rs. 62,500. 00 as consideration thereof. Relying on a judgment of the Madars High Court in the case of A. K. Shar fuddin v. C. I. T. , (1960) 39 ITR 333, wherein it was held that the compensation received by one partner of a partnership from another partner for relinquishing all his rights in the partnership is compensation for loss of a capital asset and is not a trading receipt, the Tribunal held that even though in the present case the relinquishment was made in favour of outsiders, the compensation received by the assessee represented capital receipt in its hands and could not be taxed as its business income. The Tribunal also held hat the said amount could not be brought to tax as capital gains in view of the udgment of the Gujarat High Court in the case of CIT v. Mohan Bhai Pama Bhai, 1973)91 AIR 393, inter alia, holding that when an assessee retires from a firm and receives an amount in respect of his share in the partnership, there is no transfer of mterest of the assessee in the goodwill of the firm and no part of the amount, received by him would be assessable to capital gains tax under Section 45 of the Act. ( 7 ) AS noted above, on the application thereafter of the revenue, the questions eproduced above, were REFERRED TO. ( 8 ) DESPITE service the assessee remains unrepresented. We have, however, heard Mr. Rajendera, learned Counsel for the revenue. Mr. ( 7 ) AS noted above, on the application thereafter of the revenue, the questions eproduced above, were REFERRED TO. ( 8 ) DESPITE service the assessee remains unrepresented. We have, however, heard Mr. Rajendera, learned Counsel for the revenue. Mr. Rajendra has submitted that what the assessee has sold in its right of exploitation and distribution of the films, which was the stock-in-trade of the firm and, therefore, the amount received by the assessee really represents the profits which it would have earned had the right for further exploitation of the films been not surrendered in favour of S/shri B. G. Gupta and Vijay Sharma. He has thus contended that the amount received was in the nature of a revenue receipt in the hands of the assessee. ( 9 ) THE question whether a receipt is capital or revenue in nature has invariably presented difficulties in solution despite the fact that attempts have been made time and again to enunciate various principles to distinguish a capital receipt from revenue receipt. But, as observed by the Supreme Court in Commr. of Inc. Tax v. Rai Bahadur Jairam Valji, (1959) 35 ITR 148 and often repeated thereafter, it is not possible to lay down any single or exhaustive test as infallible or any single criterion as decisive for determination of the question. The authorities having some bearing on the question are valuable only as indicating the broad factors to be taken into consideration for reaching a conclusion. The character of a receipt cannot, thus, be adjudged by applying some set principles. It has to be determined on a proper appreciation of guiding factors of each transaction with reference to facts and circumstances of each case, which may differ from case to case. Broadly stated, to determine the character of a receipt in such like cases what has to be seen is whether the venture in which an assessee is giving up its rights was by itself the profit earning apparatus and such an action would disrupt the entire profit earning structure of the assessee. If that be so, anything received would partake the character of a capital receipt. But where, however, the venture is only for the purpose of carrying on the existing business by taking the help of another, compensation, received for relinquishing a right in such a venture would be a revenue receipt. If that be so, anything received would partake the character of a capital receipt. But where, however, the venture is only for the purpose of carrying on the existing business by taking the help of another, compensation, received for relinquishing a right in such a venture would be a revenue receipt. ( 10 ) THEREFORE, the question which falls for consideration in the instant case is whether the two partnerships entered into by the assessee were ventures for only facilitating carrying on its existing business of film distribution or these were the structures of profit making apparatus of the assessee. This question, obviously, cannot be answered by merely taking note of the terms of the sale agreements dated 28 December, 1970. It will be necessary to take into account the nature and the purpose for which the assessee had entered into the aforenoted two partnerships, in which it has now sought to relinquish its interest by way of sale to S/shri B. N. Gupta and Vijay Sharma. ( 11 ) AS noticed above, the assessee was engaged in the business of distribution and exhibition of cinematographic films, for which it was entering into independent agreements with the producers of each of the films separately. It is apparent from Clause 3 of the two deeds of partnership, the assessee s partnership with outsiders was for a limited purpose for the business under the rights of distribution acquired by it in respect of the films mentioned therein with the respective producers under the respective agreements. The two covenants reflect the main object of the assessee joining hands with nine persons, viz. , for raising finance from them to the extent of 3/4th of the total amount payable to the producers of the films by the assessee. As per the partnership deeds, despite substantial investment by the other partners, the distribution and exploitation of films was to be done exclusively by the assessee and heard Mr. Rajendera, learned Counsel for the revenue. Mr. Rajendra has submitted that what the assessee has sold in its right of exploitation and distribution of the films, which was the stock-in-trade of the firm and, therefore, the amount received by the assessee really represents the profits which it would have earned had the right for further exploitation of the films been not surrendered in favour of S/shri B. G. Gupta and Vijay Sharma. He has thus contended that the amount received was in the nature of a revenue receipt in the hands of the assessee. it was only the assessee who was to deal with the producers and the exhibitors and none else. In nutshell, the arrangement was only of financing by the other partners for which they were to get return on their investments in the form of profits of the firm and nothing more. They had absolutely no part to play in the distribution and exploitation of the films. Such arrangements are normal features in the film trade to raise finance. ( 12 ) ON conspectus of these facts, we feel it difficult to hold that the two partnerships were the structure of the profit earning apparatus of the assessee. In our view, these two ventures were for the limited purpose of carrying on assessee s existing business of film distribution and exploitation more effectually and effectively by taking the financial help of others. Though the deeds of partnership seek to reflect the acquisition of films for distribution and exploitation as joint ventures but in effect these were only entered into by the assessee for a limited purpose of obtaining and securing commercial assets in the form of the aforementioned films, which were undoubtedly stock-in-trade of the assessee in the first instance and later of the two firms. Any compensation, received for relinquishing interest in such an asset would be a revenue receipt. ( 13 ) IT is in the light of this background that we have to consider the nature of the transaction which the assessee has entered into with S/shri B. N. Gupta and Vijay Sharma. To appreciate the exact nature of the transaction between the assessee and S/shri B. N. Gupta and Vijay Sharma, it will be useful at this stage to refer to some terms of one of the agreements dated 28 December, 1970; And Whereas as orally settled between the "sellers" and the "purchasers", the "purchasers" are willing to take rights of the "sellers" for the said five pictures in the said firm "film Friends", the "sellers" havewillingly agreed to retire from the partnership firm. The "purchasers" have further agreed to pay to the "sellers" compensation for the unexpired period of the contracts for all the five pictures above named and the "purchasers" have further agreed to associate themselves with other partners of the firm "film FRIENDS" in place of "sellers" "and WHEREAS in consideration of the "sellers" relinquishing their rights in favour of the "purchasers" for the unexpired period of the distribution contracts of these pictures the "purchasers" have agreed to pay to the "sellers" Rs. 30,500. 00 (Rupees thirty thousand and five hundred only) by way of compensation for the unexpired period of the contracts; (emphasis supplied by us) ( 14 ) IT is evident from the above extracted terms of agreement that what the assessee had said to S/shri B. N. Gupta and Vijay Sharma was its interest/right of exploitation of the films for the unexpired period of distribution contracts with the producers of five films. In effect the assessee sold for consideration its interest in the commercial assets in two ventures limited to the distribution and exploitation of a few films and nothing more, which, we feel, does not amount to abandoning of any capital asset by the assessee as such as such so as to make the compensation received a capital receipt. The decision of the Madras High Court in A. K. Sharfliddin