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2018 (8) TMI 516 - AT - Income TaxCapital gain tax u/s 45 - shares distributed in family settlement - Held that:- Under normal circumstances, when the asset of the firm was distributed to the partners on retirement, it is liable for capital gain tax under Section 45. There was a family settlement by which all the coparceners agreed to pay specified sum to the retiring partner - This family settlement was to protect the family business among the coparceners of the Hindu Undivided Family. Therefore, this Tribunal is of the considered opinion that there is no transfer of capital asset, hence, it is not taxable for capital gain tax under Section 45 of the Act. Moreover, it is also not a case of the Revenue that capital gain tax is leviable. AO found that it is not an expenditure relatable to the business or the royalty. This Tribunal is of the considered opinion that it is not a payment made towards business expenditure or towards royalty, but it is only a distribution of asset of the partnership firm on retirement of the partner due to family settlement. Since the business and its assets were kept by the coparceners intact, Shri Rengasamy and Smt. Vellaiammal were compensated by making payment of ₹ 2, 03, 40, 000/- and a sum of ₹ 22, 60, 000/- respectively. Therefore, even though it cannot be construed as expenditure for business or for royalty, certainly it is a division / distribution of partnership firm’s asset by way of paying compensation to Shri Rengasamy and Smt. Vellaiammal. Merely because the payment was made to financial institutions and banks at the instructions of Shri Rengasamy and Smt. Vellaiammal, that may not change the character of payment. Since the capital of the assessee was kept intact and the business was continued by other coparceners / partners, this Tribunal is of the considered opinion that this payment made to Shri Rengasamy and Smt. Vellaiammal, consequent to family settlement, is allowable / deductible while computing the taxable income. Disallowance made by the Assessing Officer as confirmed by the CIT(Appeals) is deleted. - decided in favour of assessee.
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