03 June 2010
1. The payment made by the firm to the retiring partner will be allowable expenditure in the hands of the firm.
2. Please refer Sec.28(va) where it says any sum received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business, then it will be taxable under the head "Profits and Gains of business or profession". Therefore, the amount so received by the retiring partner will be taxed in his hand as business income.
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