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TMI Blog1985 (7) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and the retirement had to take effect from 21st Oct., 1979. On the last date of the accounting year the building was revealed in the books of accounts of the firm at Rs. 1,76,800. The retiring partners are Shri Arjun Shankar Kudchi and Shri Kiran Vasudeo Kudchi. It was agreed under the deed of retirement that the building bearing No. 736/1,2 should be taken out from the firm's assets and it should be given in settlement of the dues of the retiring partners Shri Vasudeo Kudchi and Arjun Shankar Kudchi. They should take over the building in equal joint share, Accordingly the value of the building was debited one half each in the capital accounts of the firm in the names of Shri Vasudeo Shankar Kudchi and Shri Arjun Shankar Kudchi. Both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing this year itself, the entire excess consideration has to be considered as short-term capital gains. The ITO followed the directions of the IAC and held that the difference between the value for which the property was made over to the retiring two partners viz., Rs. 1,76,800 and the original value of the property to the assessed-firm viz., Rs. 1,24,916 (Rs. 43,770 + 81,146 = 1,24,916) is the short-term capital gains derived by the assessee-firm. Thus the ITO computed the short-term capital, at Rs. 51,884 and levied capital gains tax thereon. 3. The assessee-firm came up in appeal before the CIT (Appeals) and argued on the basis of the Gujarat High Court decision reported in CIT vs. Mohanbhai Parmabhai (1973) 91 ITR 393 (Guj) where it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g partners on the eve of their retirement and there was no question of any capital gains. Without prejudice to the above contention an alternative contention was also raised stating that the original date of purchase of the property was in 1975 and hence that capital gains resulted, if any, should have been treated as long-term capital gains and necessary deduction under s. 80T should have been given. 5. We have considered the arguments of ld. counsel for the assessee and the ld. Departmental Representative. In support of his contention that when an asset of a firm is given to a retiring partner in lieu of the amount due from the firm to the retiring partner it does not amount to a transfer of the asset of the firm to the retiring partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the next partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges." The ld. counsel argued that as is stated in the decision of the Hon'ble Supreme Court quoted above the retiring partner is entitled to receive his share in the net partnership assets as on the date of retirement after deduction of liabilities and prior charges. Now what happened in this case is that after deducting debts and liabilities of the partnership firm the amount that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue wanted to treat Rs. 46,500 as capital gains. The Andhra Pradesh High Court held that for purposes of s. 45 of the IT Act no distinction can be drawn between an amount received by a partner on dissolution of a firm and that received on his retirement since both of them stand on the same footing. Therefore, the amount received by a partner in the partnership in excess of capital and profits standing to his credit in the partner in the partnership in excess of capital and profits standing to his credit in the partnership at the time of retirement cannot be construed as capital gain under s. 45 of IT Act inasmuch as there is no transfer within the meaning of s. 2(47) of the Act and such excess is not exigible to capital gains tax. Alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding bearing D. No. 736/1,2 was adjusted to some extent towards the amount due to each of the retiring partners from the partnership firm. Therefore, there is no question of any excess having been paid to the retiring partners. In fact, in our opinion, the facts before the Andhra Pradesh High Court represent an extreme case where the amount due to the retiring partners as per their capital account but also some excess viz., Rs. 46,500 was paid to the retiring partners. viz., Rs. 46,500 was paid to the retiring partners. Even in that case the excess that was paid to the retiring partner was not considered as a capital gain in the hands of the retiring partner. When that was the case there is no question of considering any capital gains in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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