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2019 (5) TMI 354 - HC - Income TaxCapital gain u/s 45(4) in partnership firm on retirement of a partner - dissolution/reconstitution of partnership firm - valuation of the assets and liabilities of the firm and allottment of assets among the retiring and continuing partners took place - as per assessee properties obtained by the retiring partners through a family arrangement was not “transfer” for the purpose of capital gain - whether Section 45(4) applies on retirement of a partner from the partnership business? - whether the word “otherwise”, it would take into its sweep not only cases of dissolution of partnership firm but also cases of reconstitution of a partnership firm on retirement of a partner - HELD THAT:- Hon'ble Supreme Court in CIT VERSUS R. LINGMALLU RAGHUKUMAR [1997 (1) TMI 74 - SUPREME COURT] had held that on retirement, the settlement to a partner of his share in the assets of the partnership after deduction of liabilities is not assessable to capital gains. In the present case, very significantly, there was only a reconstitution of the partnership firm by retirement of two partners and admission of another partner. The partnership firm continued. It must also be further noted that the assets of the firm originally belonged to the father of the retiring / continuing partners and there was only a division of the assets on retirement in accordance with their entitlement on the shares in the partnership. As pointed out earlier, the National Company was originally a sole proprietorship concern started by N.Munuswamy Mudaliar. It was in the business of construction and assets had been acquired even at that particular point of time. The two daughters and two sons-in-laws of N.Munuswamy Mudaliar were subsequently admitted as partners and on division of the assets, it can also be arguably pointed out that one daughter and one son-in-law were allotted a share which they were otherwise legally entitled to out of the holdings N.Munuswamy Mudaliar. In view of the peculiar facts of the case in hand, we hold that the provisions of Section 45(4) would not be attracted on the retirement of the two partners and consequential allotment of their share in the assets in the Assessee Firm. We therefore answer the substantial question of law in favour of the Assessee and against the Revenue.
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