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Issues Involved:
1. Dissolution of the firm upon the assessee's retirement. 2. Nature of the Rs. 90,000 credited to the assessee's account. 3. Relation of Rs. 90,000 to future profits. 4. Taxability of Rs. 90,000 as capital gains. Summary: Issue 1: Dissolution of the Firm The first issue was whether there was a dissolution of the partnership firm on January 19, 1973, when the assessee retired. The court found that the assessee did not give notice u/s 43 of the Partnership Act to dissolve the firm but only to retire. The document dated January 22, 1973, described as a deed of dissolution, did not support the dissolution claim. The court concluded that there was merely a change in the constitution of the firm and not a dissolution. The Tribunal's view of dissolution was erroneous, and the first question was answered in the negative. Issue 2: Nature of Rs. 90,000 Credited The second issue was whether the Rs. 90,000 credited to the assessee's account was on account of goodwill or revaluation of assets. The Tribunal held that the description of revaluation of assets was incorrect and that the amount was indeed for goodwill. The court upheld this view, noting that the sum represented the assessee's share of goodwill in the partnership firm. Issue 3: Relation to Future Profits The third issue was whether the Rs. 90,000 should be related to the share of future profits receivable by the assessee. The Tribunal found no basis for this claim, as there was no evidence or assumption that the sum represented future profits. The court agreed, stating that neither the account books nor the document recitals supported the notion of future profits. The Tribunal's view was upheld, rejecting the Revenue's contention. Issue 4: Taxability as Capital Gains The fourth issue was whether the Rs. 90,000 was liable for capital gains tax. The court referred to the Supreme Court's decision in Addl. CIT v. Mohanbhai Pamabhai, which held that no transfer of interest occurs when a partner retires and takes their share, thus no capital gains arise. The court also noted that the amount represented goodwill, which, according to CIT v. B. C. Srinivasa Setty, does not attract capital gains tax. The court rejected the Revenue's argument that the sum was a result of a transfer of partnership interest to a new partner, Mrs. Tarulatha Modi, as there was no evidence of such a transaction. Conclusion: The court answered all questions in favor of the assessee and against the Revenue, concluding that the Rs. 90,000 was not taxable as income or capital gains. No costs were awarded.
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