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2016 (5) TMI 326 - AT - Income TaxTaxability of amount withdrawn by the partner from the firm - Applicability of section 2(47) - receipt on relinquishment of Right as Long Term Capital Gains - Held that:- On the reconstitution of firm, the profit share of assessee got reduced to 0.25%. The assessee (along with other two partners i.e. Smt. K Amin and Shri D Amin), on reconstitution, chose to withdraw the amount lying to his credit. The assessee continued as partner and had not retired from firm. As per MOU between parties a goodwill account was to be created. However, after partnership deed no goodwill was credited or paid was not done. As per the partnership deed the rights and duties of partners have been decided interse. The AO treated the revaluation of asset and introduction of new partners as estinguishment of assessee’s shares in the asst of the firm by treating the same as transfer within the meaning of Section 2(47) and tax the difference as capital gain in the hands of each of the partners. We found that even after introduction of the new partners and revaluation of the asset the partnership firm was continued and the assessee was continued as partner in the same firm and land remained the assets of the firm. Merely because the partners have withdrawn money from the firm does not constitute consideration for proportionate reduction in their share in firm. There was neither a transfer of assets of the firm to the partner nor the assets ceased to be owned by the firm. CIT(A) has dealt with the issue threadbare and after applying to provision of law laid down by various High Courts recorded a finding that there was no transfer of assets on extinguishment of right of the assessee partner merely on introduction of new partner in the firm. Accordingly amount withdrawn by the assessee partner was not liable to tax as capital gain. We do not find any infirmity in the order of CIT(A) for deleting the addition so made - Decided in favour of assessee
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