TMI Blog2024 (4) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... n Chalasani Venkateswara Rao [ 2012 (9) TMI 12 - ANDHRA PRADESH HIGH COURT] has been accepted by the Tribunal while making the aforesaid observations. However, while concluding, the Tribunal took a different view altogether which, therefore, would not be in the opinion of this Bench, proper, legal and justified. Therefore, the respondent-Department cannot tax the amount received by the appellant upon retirement from the partnership as capital gains as there is no specific transfer of a capital asset affected when the appellant had retired from the partnership firm. So also, the finding of the Tribunal holding that the receipt of share in value of goodwill by the appellant is taxable as capital gains is not proper. Therefore, the impugned order passed by the Tribunal is unsustainable and the same deserves to be and is accordingly dismissed. Assessee appeal stands allowed. - HON BLE SRI JUSTICE P. SAM KOSHY AND HON BLE SRI JUSTICE N. TUKARAMJI For the Appellant(s) : Mr. C.V. Narsimham For the Respondent(s) : Mr. Vijhay K. Punna JUDGMENT: (PER THE HON BLE SRI JUSTICE P. SAM KOSHY) The instant is an appeal preferred by the appellant under Section 260-A of the Income Tax Act, 1961 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in value of goodwill by the appellant is taxable as capital gains under the Act ? and (3) Whether the Income Tax Appellate Tribunal was correct in law in holding that there was transfer of capital asset by the appellant upon retirement from the partnership firm ? 9. Considering the three questions framed earlier by this Court, what is required to be answered is Question No. 1 where the substantive question is as to whether the Income Tax Appellate Tribunal was justified in holding that the payment of the credit balance in her capital account with the firm received by the appellant upon her retirement from the partnership is taxable as capital gains under the Income Tax or not. 10. Learned counsel for the appellant contended that there is in fact no transfer of capital asset by the appellant in favour of the firm, viz., M/s. Montage Manufacturers upon her retirement. He also contended that of the amount so received by the appellant is only the balance of the capital account standing in the name of the appellant. He further contended that receipt of the share value of goodwill cannot be subjected to capital gains tax as there was no transfer of goodwill to the firm by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change or transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the respondent under the arrangement of his share was therefore not in consequence of any sale, exchange or transfer of assets. 20. The Supreme Court upheld the contention of the assessee that no part of the amount of Rs. 1,25,000 received by the assessee represented capital gains and relied on CIT v. Dewas Cine Corporation (1968) 68 ITR 240 (SC) referred to above. It held that adjustment of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer for a price. The facts of the instant case are identical with the facts of the case in CIT v. Bankey Lal Vaidya (1971) 79 ITR 594 (SC) . 21. In CIT v. L. Raghu Kumar (1983) 141 ITR 674 (AP), a Division Bench of the Andhra Pradesh High Court followed the judgment of the Gujarat High Court in CIT v. Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj ) and held that no transfer is involved when a retiring partner receives at the time of retirement from the firm, his share in the partnership assets either in cash or any other asset. It further held that for the purpose of section 45 of the Income-tax Act, no distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(4) of the Income-tax Act, 1961, and not the partner. Section 45(4) states as follows: 45.(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. Thus, it is clear that the Legislature, even though it was aware of the above decisions, did not choose to amend the law by making the partner liable when it amended the Income-tax Act, 1961, by introducing clause (4) to section 45 by the Finance Act, 1987, with effect from April 1, 1988, and made only the firm liable. Therefore, the contention of the assessee has to be accepted and that of the Revenue is liable to be rejected. 15. Learned Senior Standing Counsel for the respondent-Department further con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to further challenge in any forum. So far as the decisions relied upon by the learned Senior Standing Counsel for the respondent-Department in R.F. Nangrani (2 supra) (also relied upon by the learned counsel for the appellant) and the decision in Mansukh Dyeing and Printing Mills (1 supra) are concerned, the said decisions do not lay down any law as the said decisions have been decided in an entirely different contextual backdrop unlike in the present. Therefore, the said decisions are distinguishable on facts alone. 17. Coming to the impugned order passed by the Tribunal in I.T.A. No. 297/Hyd/2012, dated 25.05.2012 , it is relevant at this juncture to take note of the contents of paragraph No. 44 of the said judgment, which for ready reference is being reproduced as under, viz., 44. Thereafter the Hon ble Court held that where accounts are taken and the partner is paid the amount standing to the credit of his capital account there would be no transfer. If, on the other hand, the partner is paid a lump-sum consideration for transferring or releasing his interest in the partnership assets to the continuing partners then there would be an element of transfer. This aspect we have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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