9911796707
TMI Blog2023 (10) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership Firm M/s. Jyoti Quarry Works along with other three Partners and the assessee received a sum of Rs. 70.38 lacs on his retire. Out of this the assessee made investment in a residential flat for Rs. 26,52,850/- and claimed deduction u/s. 54F of the Act. During the assessment proceedings, the assessee was issued show cause, why the claim u/s. 54F should not be disallowed, since the Relinquishment of a right in a Partnership Firm is not a capital asset within the meaning of section 2(14) of the Act. 2.1. In response, the assessee filed his reply letter dated 21-03- 2016 observing as follows: "Clarification in regard to deduction claim w's 54F of the act: during the year under consideration, the assessee had relinquished his share in firm - Jyoti quarry works and the capital gain derived therefrom were invested in residence premise, hence a deduction u/s. 54F claimed. In this connection your good self have raised the issue that deduction u/s 54F could be claimed against any other long term capital assets and thus relinquishment of right in firm would not be long term assets, hence the deduction will not be allowed. In this connection, I would like to draw your attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners specifically surrenders their rights and interest in a firm when the same was taken over by some other partners. In this case, however, none of these facts are applicable. I have perused the reconstitution of partnership deed dated 03/04/2017 which simply states that the appellant is desirous of leaving the firm where he was a partner i.e. Jyoti Quarry Works, and that the remaining partners have agreed to let him leave w.e.f. 01/04/2012. There is no mention anywhere in the deed that the appellant is relinquishing any right in the firm or that he is leaving due to any other circumstances whereby he is giving up his rights to any of the assets of the firm. This is a simple case where the appellant has retired from the firm, as mentioned in the deed." In view of the discussion above, I do not agree with the submissions made by the appellant and the action of the rejecting the claim of the appellant u/s. 54F of the Act of Rs. 26,52,850/- is confirmed. Ground of appeal is dismissed. 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: 1. The Ld. CIT (A) erred in law and on facts in sustaining the disallowance of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed the income thereon, but when it come for the claim of deduction u/s. 54F of the Act, the same was denied to the assessee on the ground that relinquishment of right from partnership firm is not a capital asset as per section 2(14) of the Act. As rightly pointed out by the Ld. Counsel as per Section 2(14) of the Act capital asset means property of any kind held by the assessee, whether or not connected with his business or profession, but does not include stock-in-trade, raw materials held for the purpose of business or profession. The Ld. A.O. in the computation of income has accepted the receipt on relinquishment of his share from the Partnership Firm of Rs. 70,38,450/- as capital gain, but only denied the benefit of Section 54F of the Act, which in our considered opinion legally not correct. Our above view is supported by the following judicial precedents. 7.1. The Hon'ble Supreme Court in the case of Mansukh Dyeing and Printing Mills (cited supra) held as follows: "Section 45, read with sections 2(47) and 147, of the Income-tax Act, 1961 Capital gains Chargeable as (Firm, in case of) Assessment years 1993-94 and 1994-95 Whether word "otherwise used in section 45(4) ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains arising from the transfer of capital asset are chargeable to tax as income of the firm. It is contended on behalf of the assessee that even after introduction of section 45(4), the position will be the same as the definition clause se namely section 2(47) has not been amended. Secondly it is contended that the expression "otherwise" must be read edjusdem generis with the expression dissolution of firm. So considered, there is no dissolution on the firm. So considered, there is no dissolution on the facts of the case. On behalf of the revenue, it was, however, argued that the amendment was brought about to remove the mischief occasioned by parties avoiding to pay tax, considering the law as declared and to plug the loopholes. The expression otherwise must be read to mear transfer of capital assets of the assessee firm include to a partner. As the section is a self-contained code, there was no need to amend the definition of transfer under section 2(47) of the Act. The Position therefore, will have to be examined in the context of the law as amended after 1988............. ** ** ** 21. With the above, we may now proceed to answer the issue. On retirement of a partner or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Supreme Court in (Kartikeya v. Sarabhai v C.I.T), 1985 (156) LTR. 509 took a view that this would not amount to transfer and, therefore, fell outside the scope of capital gain. The rationale being that the consideration for the transfer of the personal asset was indeterminate, being the right which arose or accrued to the partner during the subsistence of the partnership to get his share of profit from time to time and on dissolution of the partnership to get the value of his share from the not partnership asset. Parliament with the avowed object of blocking this escape route for avoiding capital gains tax by the Finance Act, 1987 has introduced sub-section (3) of section 45. The effect of this was that the profits and gains arising from the transfer of a capital asset by a partner to a firm is chargeable as the partner's income of the previous year in which the transfer took place. On a conversion of the partnership assets into individual assets on dissolution or otherwise also formed part of the same scheme of tax avoidance. To plug these loophole the Finance Act, 1987 brought on the statute book a new sub-section (4) in section 45 of the Act. The effect is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right in the partnership and its assets in favour of the continuing partners. We are of the view that the manner of the retirement in case of the assessee is such that it can be regarded as assigning or relinquishing by the retiring partner of her share or right in the partnership firm and its assets in favour of the continuing partners. Therefore, we are of the view that the assessee satisfies the parameters laid down by the Bombay High Court in the cases referred to above and, therefore, there was a transfer of interest of the retiring partner over the assets of the partnership firm on her retirement and, therefore, there was a liability to tax on account of capital gain. 8. Respectfully following the above judicial precedents, we have no hesitation in holding the receipt of Rs. 70,38,450/- on relinquishment of assessee's share from partnership firm is a capital gain wherein the claim of reinvestment on residential flats of Rs. 26,52,000/- is an allowable claim deduction under section 54F of the Act. Therefore the disallowance made by the Lower Authorities are hereby set aside. Thus the grounds raised by the Assessee is hereby allowed. 9. In the result, the appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
