9911796707
TMI Blog2001 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... en the assessee went out of the partnership business while the other two partners took over the continuing business. The assessee got Rs.6,47,176 against his entitlement of Rs.2,84,545 on account of his capital and share of profit for the year ended May 19, 1974, i.e., the assessment year 1975-76. The assessee claimed that the excess sum of Rs.3,62,631 was not assessable to capital gains, as the same is exempted under section 47(ii) of the Income-tax Act, 1961 ("the Act") being the assets received on dissolution of the firm. The Income-tax Officer, however, held that there was no dissolution of the firm and the assessee had retired from the firm and, therefore, capital gain was attracted. The Income-tax Officer held that the assessee's going out of the firm and the other two partners continuing the business was merely a change in the constitution of the partnership and payment to the outgoing partner came within the meaning of transfer under section 2(47) of the Act. The assessee preferred an appeal thereagainst before the Commissioner of Income-tax (Appeals) (in short the "CIT(A)"). The Commissioner of Income-tax (Appeals) while accepting the contention of the assessee, held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eskayef Ltd. v. ITO [1986] 160 ITR 164 (Karn) and Tribhuvandas G. Patel v. CIT [1999] 236 ITR 515 (SC). Mr. R.C. Pandey, the learned counsel appearing on behalf of the Revenue, on the other hand, submitted that it is not a case where the Assessing Officer has not allowed the claim as regards the assets derived from the partnership firm. Learned counsel contended that the assets received by the assessee from the partnership firm amount to Rs.2,84,545 in relation whereto, there does not exist any dispute. It was further contended that over and above the assessee has received a sum of Rs.3,62,631, which cannot be considered to be allowable in terms of section 47(ii) of the Act, as it stood prior to its amendment in 1988. According to learned counsel, the excess amount of Rs.3,62,631 cannot but be said to be a capital gain. The contention of the learned counsel for the Revenue appears to be correct. In Tribhuvandas G. Patel's case [1978] 115 ITR 95 (Bom) the question which arose for consideration was: "3. Whether, on the facts and in the circumstances of the case, the sum of Rs.4,77,941 or any part thereof was liable to tax as capital gain by reason of section 47(ii) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: 1. There was a transfer of the shares when the assessee made them over to the partnership firm as his capital contribution. 2. When the assessee transferred his shares to the partnership firm, he received no consideration within the meaning of section 48 of the Income-tax Act, 1961, nor did any profit or gain accrue to him for the purpose of section 45 of the Income-tax Act, 1961." It may be stated that the Gujarat High Court decision in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 is the only decision directly on the point at issue before us but the question is whether the position of a retiring partner could be equated with that of a partner upon the general dissolution for capital gains tax purposes? The equating of the two done by the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, was not for capital gains tax purposes but for considering the question whether the instrument executed on such occasion between the partners inter se required registration and could be admitted in evidence for want of registration. For capital gains tax purposes, the question assumes significance in view of the fact that under section 47(ii) any distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n three situations contemplated by clauses (a), (b) and (c) of sub-section (1) of section 32. It may be that upon retirement of a partner his share in the net partnership assets after deduction of liabilities and prior charges may be determined on taking accounts on the footing of notional sale of partnership assets and be paid to him but the determination and payment of his share may not invariably be done in that manner and it is quite conceivable that, without taking accounts on the footing of notional sale, by mutual agreement, a retiring partner may receive an agreed lump sum for going out as and by way of consideration for transferring or releasing or assigning or relinquishing his interest in the partnership assets to the continuing partners and if the retirement takes this form and the deed in that behalf is executed, it will be difficult to say that there would be no element of "transfer" involved in the transaction. A couple of things emerge clearly from the aforesaid passages. In the first place, a retiring partner while going out and while receiving what is due to him in respect of his share, may assign his interest by a deed or he may, instead of assigning his intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and other ancillary reliefs. Ultimately, the dispute was settled between the parties under a deed dated January 19, 1962. Under this deed of settlement the asses see was deemed to have retired from the firm with effect from August 31, 1961, and the remaining partners were authorised to continue to carry on the business of the firm. The assessee was paid a sum of Rs.1,00,000 as his share of profits of the firm for the period ending August 31, 1961. In addition to Rs.1,00,000 he was also paid Rs.8,00,000 including the sum of Rs.50,000 representing his share in the goodwill (question No. 2) and Rs.4,77,941.47 representing his share in the assets of the firm (question No. 3). In his assess ment proceedings, the assessee himself contended that only the sum of Rs.1,00,000 should be brought to tax and not the other amounts. In the assessment proceedings of the firm, however, the share of the assessee in the profits was arrived at Rs.1,72,155 later reduced to Rs.1,36,930. The assessee's contention was that notwithstanding the said fact, only a sum of Rs.1,00,000 should be treated as his income. This was not agreed to by the authorities. When the matter came before the High Court, it an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
