TMI Blog1987 (11) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... yle taking over the goodwill. The retirement of the three partners was effective from 1st October, 1974. As per the agreement dated 2nd October, 1974, made by and between the retiring partners and the continuing partners, Surendra Industries (Bombay) Pvt. Ltd. was given the immovable property situate at Majiwada, Thane, along with the liability in respect of the amount due to one Aminchand Pyarelal in full and final satisfaction of the company's claim with regard to the capital, share of profit and all other incidental rights arising out of the partnership deed. Satpal Sharma and Girdhar Rai Sharda were to be paid amounts due to them as per the accounts of the firm as on 30-9-1974 which were yet to be finalised. 3. In the original assessment, the ITO had brought to tax Rs. 9,02,487 as income from short-term capital gain as a result of "transfer" of the thirteen godowns to Surendra Industries (Bombay) Pvt. Ltd. In the appeal, the CIT(A) set aside the same and directed the ITO to redo the same after ascertaining the cost of acquisition of the transferred asset. When the matter came up before the ITO again, he made a reference to the District Valuation Officer (DVO) who determined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 166 the facts of which are comparable to the present one. Arguing for the revenue, Sri Makhija strongly relied on CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95 (Bom.) which has been followed in H.R. Aslot's case to stress that the retirement has resulted in relinquishment of right in the firm's asset (godowns) by the continuing partners to fall within s. 2(47). It was also his submission that the firm having not appealed from the order of the CIT(A) passed in the appeal from the regular assessment, this question is foreclosed and the point should not be allowed to be urged and to support this he relied upon the Tribunal's decision in WTO v. Shiva Prasad Bagaria [1982] 2 ITD 449 (Cal.). The preliminary objection of the learned Departmental Representative may be disposed of before we take up the main issue. In the first place, Shiva Prasad Bagaria's case does not help the revenue as it bears on entirely a different set of circumstances. The first appellate order CIT(A)-II/AV/39/79-80 from the regular assessment was not furnished to us. As we gather from the record, the CIT(A) had set aside the assessment and directed the ITO to do it afresh in the light of his observations and aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd H.R. Aslot's case. 11. The case of the assessee was rejected by the CIT(A) by a simple statement that transaction between the continuing partners and the retiring partners amounted to relinquishment of rights so as to fall within the definition of "transfer" in s. 2(47) relying upon the decision of the Bombay High Court in the case of H.R. Aslot. 12. In H.R. Aslot's case, there was a dispute between two groups amongst the partners. Aslot and another formed one group and the others were on the opposite group. A reference had been made to an Arbitrator who made an award on 13-2-1960. On the basis of the award, an agreement had been executed by Aslot on 9-3-1961. Aslot and another of his fold came out of the firm with effect from 1-1-1960. Pursuant to the award, Aslot had received to his share Rs. 4,67,529 (while the amount standing to his credit, as on 31-10-1979, was Rs. 2,33,535). The continuing partners took over the partnership business and assets completely. The High Court of Bombay, on an interpretation of the award and agreement dated 9-3-1961, held that it was not a case of dissolution of the firm and that Aslot and another had only retired from the firm assigning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In our view, it will depend upon the manner in which the retirement takes place." "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 interest, take the amount due to him from the firm and give a receipt for the money and acknowledge that he has no more claim on his co-partners. The former type of transactions will be regarded as sale or release or assignment of his interest by a deed attracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of liabilities and prior charges is determined on taking accounts on the footing of notional sale of the partnership assets and given to him, what he receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. His share in the partnership is worked out by taking accounts in the manner prescribed by the relevant provisions of the partnership law and it is this and this only, namely, his share in the partnership which he receives in terms of money. There is in this transaction no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners : vide also the recent decision of the Supreme Court in CIT v. Bankey Lal Vaidya [1971] 79 ITR 594. It is true that section 2(47) defines 'transfer' in relation to a capital asset and this definition gives an artificially extended meaning to the term 'transfer' by including within its scope and ambit two kinds of transactions which would not ordinarily constitute 'transfer' in the accepted connotation of that words, namely, relinquishment of the capital asset and extinguishment of any rights in it. But, even in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm is replaced by an exclusive interest in an asset of equal value. That is why it has been held that there is no transfer. It is the realisation of a pre-existing right. The position is different, it seems to us, when a partner brings his personal asset into the partnership firm as his contribution to its capital." The Supreme Court while demonstrating the distinction between the two situations approved in Mohanbhai Pamabhai's case. Quoting Malabar Fisheries Co. v. CIT [1979] 120 ITR 49, their Lordships endorsed the view that what the partner gets upon dissolution or upon retirement is the realisation of a pre-existing right or interest. In summary, the position seems to, us to be this : What the retiring partner gets is realisation of a pre-existing right as shared interest in all the assets of the firm is substituted by exclusive interest in one asset of proportionate value, and, hence, there is no 'transfer'. 18. It seems to us, therefore, that there was no income as capital gains to charge the firm. The assessee succeeds in its appeal. 19. In the revenue's appeal, the first ground, strictly speaking, does not survive for consideration, but if it should be ever mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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