TMI Blog1987 (8) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... le by the assessee ? (4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that an amount of Rs. 90,000 was not liable for capital gains tax ?" The assessee was a partner of the partnership firm known as M/s. Patel Desai and Company. Apart from the assessee, there were two other partners. On January 19, 1973, the assessee gave notice to the other partners indicating his intention to retire from the partnership. Accordingly, the assessee retired from the partnership. At the time of his retirement, his account in the partnership books showed a debit balance of Rs. 1,04,940.49. Obviously, the assessee had overdrawn his account. It may be mentioned that the aforesaid debit balance was arrived at after crediting to his account his share of profits till the date of retirement on January 19, 1973. It appears, the share of profit was ascertained as Rs. 14,879 and credited to his account. On January 22, 1973, an indenture was drawn, described as a deed of dissolution. The deed was executed by the assessee described as the retiring partner on the one hand, and the remaining two partners described as the continuing partners on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al against the abovementioned decision of the Appellate Assistant Commissioner and contended that the sum in question was not liable to be taxed as income and cannot also be considered for the purpose of ascertaining any capital gain allegedly involved in the transaction. The Income-tax Appellate Tribunal accepted both the contentions of the assessee and held that the Appellate Assistant Commissioner erred in coming to the conclusion that the sum of Rs. 90,000 represents future profits taxable in the assessee's hands as income. The Tribunal also held that there was no transfer of the assessee's interest according to law and consequently no capital gain was liable to be assessed in the assessee's hands. The Commissioner of Income-tax applied under section 256(1) for reference to this court and sought reference of the four questions of law set out above in paragraph 1. On the Tribunal declining to refer the questions to this court, the Commissioner moved this court under section 256(2) of the Act and a direction was then given to the Tribunal to refer the said questions. That is how the present reference is before us. Taking up the first question, the controversy appears to be wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 was liable to be taxed in the assessee's hands as income attributable to the future profits. Learned standing counsel adopted the reasoning of the Appellate Assistant Commissioner for this purpose. We may mention that it was not the Income-tax Officer's case when the assessment was made that the sum of Rs. 90,000 represented future profits to which the assessee would have been entitled had he continued to remain a partner. That view was taken only for the first time by the Appellate Assistant Commissioner referring to certain outstanding contracts of the partnership firm at the time of retirement of the assessee and to the possibility of profit being derived on the sale of closing stock. The Tribunal dealt with this question at considerable length and demonstrated that there was no possibility of the sum of Rs. 90,000 representing the assessee's share of future profits. Indeed, neither the entries made in the account books nor the recitals in the documents would support any such conclusion. The Tribunal pointed out, in our opinion rightly, that there can be no assumption of profit being realised in the course of transactions at a future date. A business may conceivably result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise, there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners. It was further held by this court that for the purpose of section 45 of the Act, no distinction can be drawn between an amount received by the partner on the dissolution of the firm and that received on his retirement, since both of them stand on the same footing. In that view, the amount received by a partner from the partnership in excess of the capital and profits standing to his credit in the partnership books at the time of retirement, was held to be not capital gain under section 45 of the Act inasmuch as there is no transfer within the meaning of section 2(47) of the Act and such excess is not exigible to tax on capital gains. These authorities, in our opinion, concluded the question against the Revenue. Learned standing counsel, however, invited our attention to the decision of the Bombay High Court in N. A. Mody v. CIT [1986] 162 ITR 420. We may point out that the decision of the Bombay High Court relied upon by learned standing counsel follows its earlier view in CIT v. H. R. Aslot [1978] 115 ITR 255 (Bom). That view was expressly dissente ..... X X X X Extracts X X X X X X X X Extracts X X X X
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