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1982 (7) TMI 69 - HC - Income Tax

Issues Involved:
1. Scope and ambit of Section 45 of the I.T. Act relating to capital gains tax.
2. Whether the excess amount received by the assessee on retirement from partnership firms is assessable to capital gains.

Summary:

Issue 1: Scope and Ambit of Section 45 of the I.T. Act
The case examines the applicability of Section 45 of the I.T. Act, 1961, which deals with capital gains tax. Section 45(1) states, "Any profits or gains arising from the transfer of a capital asset effected in the previous year shall... be chargeable to income-tax under the head 'Capital gains'." Section 2(14) defines 'capital asset' as property of any kind held by an assessee, and Section 2(47) defines 'transfer' to include the sale, exchange, or relinquishment of the asset or the extinguishment of any rights therein.

Issue 2: Assessability of Excess Amount Received on Retirement
The assessee, a karta of an HUF, retired from two firms and received Rs. 46,500 more than the amount due towards his capital and profits. The ITO treated this amount as capital gains. The assessee contended that the transaction was not a transfer under Section 47(2) as it was not a dissolution of the firms. The AAC upheld the ITO's decision. The Appellate Tribunal, however, accepted the assessee's argument that there was no transfer of any capital asset within the meaning of Section 2(47).

Legal Analysis:
The court referred to the Supreme Court's decision in Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, which clarified that a partner's right is to obtain profits and, upon dissolution or retirement, a share in the net partnership assets. The Gujarat High Court in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 held that a retiring partner's receipt of his share in the partnership assets does not constitute a transfer of interest in the partnership assets.

The court also considered decisions from the Allahabad High Court and the Gujarat High Court, which supported the view that no transfer is involved when a retiring partner receives his share in the partnership assets. The Bombay High Court's contrary view in CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95 and CIT v. H. R. Aslot [1978] 115 ITR 255 was noted but not followed.

Conclusion:
The court concluded that the sum of Rs. 46,500 received by the assessee on his retirement is not assessable to capital gains. The reference was answered in the negative and in favor of the assessee, with costs awarded and an advocate's fee of Rs. 250.

 

 

 

 

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