TMI Blog1978 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the partners, retired from the firm with effect from October 1, 1967. The remaining two partners continued the business. A deed of retirement was executed on October 1, 1967, under which the assessee was paid her share of the capital and her share of profits up to the date of retirement and also a sum of Rs. 20,000 as consideration for relinquishment of her interest in the partnership firm. On October 3, 1968, Smt. Mahinderpal Bhasin filed a return for the assessment year 1968-69. In it she showed receipt of Rs. 20,000 as capital gains. The ITO held that the sum of Rs. 20,000 received by her as consideration for relinquishment of her interest in the partnership, in law, was a revenue receipt. He brought it to tax as such. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the sum of Rs. 20,000 was not taxable either as revenue receipt or as capital gains. At the instance of the department, the Tribunal has referred the following questions of law for our opinion: " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of of Rs. 20,000 received by the assessee could not be taxed as revenue receipt ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 20,000 was not liable to tax even as capital gains ?" On the first question, learned counsel for the department relied upon a decision of this court in Gangadhar Baijnath v. CIT [1966] 60 ITR 626 (All), which was affirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds where from the full value of the consideration received, the cost of acquisition of the capital asset is deducted. The Tribunal has held that either as a share of the goodwill or as compensation for her relinquishment of the partnership interest the so-called capital asset did not cost anything initially to the assessee. Since no cost of acquisition could be deducted, no capital gains could accrue. As already stated, in support of this view, the Tribunal relied upon the decisions of Delhi, Madras and Calcutta High Courts mentioned above. We are, however, not disposed, to go into that question because the controversy can satisfactorily be resolved from another view-point. As already mentioned, capital gains accrue on transfer of a capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liabilities. It is not consideration for transfer of his interest in the partnership to continuing partners. In the transaction of a retirement of a partner, just as in the case of a dissolution of partnership, there is no element of transfer. The transaction is in law an adjustment of the rights of the partners and not relinquishment or even extinguishment of interest of the retiring partner. The net position, therefore, is that on the retirement of the assessee from the partnership firm no transfer of any capital asset takes place within the meaning of s. 45. There was hence no question of any income being chargeable to tax as capital gains. In the result, we answer both the questions referred to us in the affirmative, in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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