TMI Blog1985 (12) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... share in Brundavan Talkies and requested to pay the proportionate capital in the form of cash. However, as the firm had already borrowed certain loans and together with interest, an amount of Rs. 88,000 is to be repaid by the firm to the third parties, Brundavan Talkies, the firm was not able to accept the offer made by the assessee-HUF. However, Mr. G. Narasimharaju and Mr. G. Ramaraju offered to contribute in cash a sum of Rs. 1,40,000 to the firm and requested that they may be allotted some share in Brundavan Talkies and they agreed to abide by all the terms and conditions under which the firm was hitherto governed and also by the terms which may be mutually agreed upon between all the partners thereafter. The said firm admitted both of them as its partners. Thus, for the first time, the firm was reconstituted under the deed of partnership deed dated 26-7-1978. Under the terms of the partnership deed, the assessee-HUF restricted its share in the firm to 30 paise instead of 50 paise. The newly admitted partners were each given 10 paise share. It was clearly agreed that the reconstituted firm should come into effect from 26-7-1978. Under the deed of reconstitution dated 26-7-1978, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 979 as per the terms of the deed dated 28-4-1979. In the said deed, there is a clear stipulation that the four partners were carried on the business till 31-3-1979 and ascertained and divided the profits up to the said date between themselves. Before the date of reconstitution, the firm owed Rs. 35,000 to Shri K. Narayanaraju son of Nagaiah Garu Rs. 33,000 to Shri G. Haranadh son of late Butchi Venkateswarlu, minor, and Rs. 33,000 to Shri G. Venkata Madhavaraju son of late Ramalakshmamma Garu on three separate pronotes dated 27-7-1978, though the firm undertook to pay the said amounts to the above-said parties' creditors of the firm before 4-3-1979 they were not able to do so and the said creditors were pressing for repayment of those loans or alternatively they sought admission as partners of the firm for which all the existing partners agreed. Therefore, they have admitted Shri K. Narayanaraju as a full-fledged partner and Shri G. Haranadh and Shri G. Venkata Madhavaraju being minors were admitted to the benefits of partnership. Each of the three new admitted partners were given 5 paise share each and their capital was stated to be Rs. 35,000 each. The share of the assessee-HUF w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts, the decision of the Tribunal for the assessment year 1979-80 should not be followed by this Tribunal while disposing of this appeal. On the other hand, the learned departmental representative argued that the decision of the lower authorities was supported by the earlier decision in this very assessee's case but also by the decision of the Gujarat High Court's decision in Kartikey V. Sarabhai's case and, therefore, it is neither just nor necessary to interfere with the impugned order already passed by the AAC. We have considered the rival contentions. We are inclined to agree with the learned advocate for the assessee. Our reasons are as follows. Firstly, we have to hold that restricting the shareholding by a partner in a firm especially when such restricted share was not sold to a new partner does not amount to effecting a transfer within the meaning of section 2(47). Now on the facts before us by 31-3-1979, the existing partners, by that time, settled their accounts and also closed and finalised their accounts. This is a partnership at will, it can be terminated at any time by mutual agreement among the partners. There was an agreement to close the old firm by 31-3-1979 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: "... That there was no element of capital gains arising merely because the valuation of his share on the retirement of the assessee from the firm resulted in an excess over the book value of the net assets of the firm referable to his share." We have already stated that there is a complete settlement of the accounts and the assets and liabilities of the firm were ascertained and the profits and losses were also ascertained by 31-3-1979. We are considering the situation as on 1-4-1979 immediately after the settlement of the accounts took place on the previous day. Therefore, in our opinion, the Madras High Court's decision fully applies to the facts of our case and we are constrained to observe that while giving decision the previous Bench did not take into consideration the effect of the either of the decisions as perhaps none of the parties brought them to their notice. Further, the Tribunal while deciding the issue for the assessment year 1978-79 appeared to have been greatly influenced by the Gujarat High Court's decision in Kartikey V. Sarabhai's case. In that case, the shares held by the assessee in Ahmedabad Mfg. Calico Printing Co. Ltd. as well as Karamchand Prem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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