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2019 (4) TMI 220 - HC - Income TaxCapital gain u/s 45(4) - scope of word "dissolution of the firm or otherwise" - reconstitution of the firm - share payment to retiring partners - whether transfer of capital asset by way of distribution is involved in payment to the retiring partners - HELD THAT:- The KARNATAKA HIGH in CIT Vs. M/S DYNAMIC ENTERPRISES [2013 (11) TMI 731 - KARNATAKA HIGH COURT] has held that after retirement of partners, the partnership continued and the business was also carried on by the remaining partners. There was thus no dissolution of the firm and there was no distribution of capital asset. What is given to the retiring partners was money representing the value of their share in the partnership. No capital asset was transferred on the date of retirement. In absence of distribution of capital asset and in absence of transfer of capital asset in favour of retiring partners, no profit of gain arose in the hands of partnership firm. In the present case, admittedly there was no transfer of capital asset upon reconstitution of the firm. All that happened was the firm's assets were evaluated and the retiring partners were paid their share of the partnership asset. There was clearly no transfer of capital asset. Revenue has not argued that the reconstitution of the firm was a colourable device to avail tax liability. - Decided against revenue
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