1984 (12) TMI 79 - AT - Income Tax

Summary

Issues:
1. Whether the excess amount received by the assessee upon retirement constitutes capital gains.
2. Whether the retirement of a partner amounts to a 'transfer' within the meaning of section 2(47) of the Income-tax Act, 1961.
3. Comparison of the decisions of the Bombay High Court and the Calcutta High Court regarding retirement of a partner and its tax implications.

Analysis:
1. The appeal was against the Commissioner (Appeals) order deleting the capital gains of Rs. 1,12,036 added by the ITO in the total income of the assessee for the assessment year 1980-81. The dispute arose from the excess amount received by the assessee upon retirement from the firm, which the ITO considered as capital gains. The Commissioner (Appeals) distinguished the case from the Bombay High Court's decision and relied on the Calcutta High Court's decision in CIT v. Bhupinder Singh Atwal [1981] 128 ITR 67. The Commissioner held that the amount received by the assessee was merely what was due to her at the time of retirement, and there was no relinquishment of her rights in the firm's assets.

2. The departmental representative relied on the Bombay High Court's decision in Tribhuvandas G. Patel's case, where it was held that the retirement of a partner amounts to a 'transfer' within the meaning of section 2(47) of the Income-tax Act, 1961. However, the Calcutta High Court's decision in Bhupinder Singh Atwal's case emphasized that the distribution of assets upon dissolution of a firm involves a mutual adjustment of rights between partners and does not constitute a transfer of assets. The High Court held that in the instant case, the retirement transaction did not amount to a transfer as the assessee received only what was due to her, and there was no relinquishment or extinguishment of her rights in the firm's assets.

3. The Calcutta High Court further clarified that the transaction was an adjustment of rights among partners and not a relinquishment or extinguishment of the retiring partner's interest. They referenced the decision in Addl. CIT v. Smt. Mahinderpal Bhasin [1979] 117 ITR 26 (All.) to support their conclusion that no capital gain was involved in the transaction. Ultimately, the Appellate Tribunal dismissed the revenue's appeal, agreeing with the Commissioner (Appeals) that no capital gains were triggered in this case.

In conclusion, the judgment highlights the distinction between retirement transactions involving partners and the tax implications of such transactions based on differing interpretations by the Bombay High Court and the Calcutta High Court. The decision underscores the importance of assessing whether a retirement transaction constitutes a 'transfer' within the meaning of the Income-tax Act to determine the applicability of capital gains tax.