TMI Blog1983 (9) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... n, purchased the said property under a sale deed dated 15-5-1972 and got it registered as document No. 839 of 1972-73 in the sub-registry, Hoskote. Out of the four partners mentioned above, Shri Pedda Sekhar died on 9-7-1977. The three remaining partners were continuing their business in partnership under the deed dated 15-7-1977. They wanted to set up industries mainly connected with the manufacture of electronic equipments. For the said purpose, they wanted to convert the property which they had purchased as industrial plot. They approached the concerned authority for the said purpose. The Special Deputy Commissioner, by his order No. B. DIS. ALN. S.R. 20 (205 of 1976-77) permitted conversion of the schedule property for industrial purposes subject to payment of conversion fee of Rs. 4,000 per acre. The said firm of three partners paid Rs. 5,000 in order to augment its capital and with a view to improve its business and for other reasons, they enlisted three more partners into the firm under the deed of partnership dated 1-4-1979. The newly entered partners are G. Pitcheswara Rao, G. Seshagiri Rao and G. Mohan Rao. Now, we are concerned with Shri G. Seshagiri Rao (HUF) in this ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted. True copy of the note submitted was furnished at page 18 of the paper compilation and it is extracted as under : " N.B. : I was a partner with a 1/12th share in the firm of Whitefield Industrial Corporation. Whitefield, Bangalore district. A reconstitution had taken place on 23-11-1979 as per deed dated 24-11-1979 ; I had retired from the said firm on 20-2-1980 with the consent of all the other partners having received a sum of Rs. 2,00,000 by way of a demand draft. I had also passed a receipt in token of my retirement from the said partnership stating therein that nothing more was due to me from the co-partners. A true copy of the receipt as passed on by me on my retirement on 20-2-1980 is herein enclosed. I was also formerly a partner in the said firm on the basis of the partnership deed dated 1-4-1979. Since it is a case of pure and simple retirement by receiving the amount due as per the books of the firm, it does not amount to a transfer of property within the meaning of section 2(47) of the Act. Hence no question of capital gain arises (vide 115 ITR 95 at page 116 in re : CIT v. Tribhuvandas G. Patel. " The ITO completed his assessment under section 143(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee cannot be assessed as capital gains as no profit arises by mere revaluation. On 20-2-1980, the assessee was paid an amount of Rs. 2,00,000 which was standing to his credit in his capital account. Nothing more was paid than what was standing in his capital account. Therefore, by a payment of Rs. 2.00,000 on retirement, there is no transfer of any capital asset, and no capital gains can arise. It is further argued that the assessee had not executed any deed relinquishing his rights in the partnership firm. It is also argued that retirement from the firm on receipt of money do not amount to transfer within the meaning of section 2(24) of the Act. Lastly, it is contended that the action under section 263 is ab initio void and illegal. In support of the above contentions, the assessee relied upon various decisions cited in the impugned order of the learned Commissioner. After considering the objections as well as the decision cited on behalf of the assessee, the learned Commissioner did not agree with any of the contentions advanced on behalf of the assessee. The learned Commissioner held that one important feature in this case is that all the relevant dates fall within the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in mind the facts and circumstances of the case the relevant provisions of the Act and various case laws discussed in his order while redoing the assessment. 5. As against the impugned order dated 1-12-1982 passed by the Commissioner, the present appeal is brought before us. The main contention in this appeal is that the assessment of the ITO dated 10-12-1980 is not in any way erroneons or prejudicial to the interests of the revenue. On the other hand, it is correct according to law. In those circumstances, the orders passed by the learned Commissioner under section 263 are quite unwarranted and merit annulment. We have heard Shri S. Balasubrahmanyam, learned advocate for the appellant and Shri N. Santhanam, learned departmental representative. The main question at issue is whether there is any transfer or relinquishment of the assessee's rights in the partnership firm, viz., Whitefiled Industrial Corporation involved in the way in which the assessee retired from the partnership after accepting Rs. 2,00,000 on 20-2-1980. At page 23 of the paper compilation the extract of both the capital account as well as current account of Shri G. Seshagiri Rao is furnished and they are as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is due to him in respect of his share, may assign his interest by a deed or he may, instead of assigning his interest, take the amount due to him from the firm and give a receipt for the money and acknowledge that he has no more claim on his co-partners. The former type of transactions will be regarded as sale or release or assignment of his interest by a deed attracting stamp duty while the latter type of transaction would not. In other words, it is clear, the retirement of a partner can take either of two forms, and apart from the question of stamp duty, with which we are not concerned, the question whether the transaction would amount to an assignment or release of his interest in favour of the continuing partners or not would depend upon what particular mode of retirement is employed and as indicated earlier, if instead of quantifying his share by taking accounts on the footing of notional sale, parties agree to pay a lump sum in consideration of the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners, the transaction would amount to a transfer within the meaning of section 2(47) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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