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Issues:
1. Whether the amount received by the assessee partner on dissolution of the firm is assessable under the head "capital gains"? 2. Whether the provisions regarding capital gains tax apply to the amounts received by the partners on dissolution of the firm? Analysis: 1. The judgment involved five appeals heard together with the consent of the parties. One of the appeals (ITA No. 3985/B/84) was not pressed by the assessee and was liable to be dismissed. The main issue in ITA No. 1646/Bom/85 was whether the amount received by the assessee partner on the dissolution of the firm, which was credited to his capital account, was assessable under the head "capital gains." The assets were revalued at the time of dissolution, and the excess amount was distributed among the partners as per their profit ratio. The Income Tax Officer (ITO) assessed the amount as capital gains, which was confirmed by the CIT(A), leading to the appeal before the tribunal. 2. The tribunal referred to Section 47(ii) of the Income Tax Act, which exempts the transfer of capital assets on the dissolution of a firm from the provisions of capital gains tax under Section 45. Citing the Supreme Court decision in CIT vs. Bankeylal Vaidya, the tribunal held that the distribution of assets on the dissolution of a firm does not constitute a transfer attracting capital gains tax. The tribunal disagreed with the CIT(A)'s interpretation of the term "transfer" under the 1961 Act, emphasizing that the transaction represented a distribution of assets and not a transfer for capital gains tax purposes. 3. The tribunal distinguished the case from CIT vs. Kartikeya V. Sarabhai & Ors., highlighting that the issue at hand pertained to the distribution of assets on dissolution, not the introduction of a capital asset by a partner. Additionally, the tribunal rejected the CIT(A)'s characterization of the deed of dissolution as a "deed of retirement," emphasizing that it was a case of firm dissolution, attracting Section 47(ii) provisions. The tribunal further clarified that even if the scenario was viewed as retirement of partners, the amounts received did not constitute consideration for the transfer of interest in partnership assets, as established in previous court decisions. 4. The judgment also addressed three other appeals (ITA Nos. 2038, 2962 & 2226/Bom/85) involving different partners who received amounts on the dissolution of the firm. Following the same reasoning as in the previous appeal, the tribunal held that these amounts did not attract capital gains tax provisions. Consequently, ITA No. 3985/Bom/84 was dismissed, while the other four appeals were allowed based on the analysis provided.
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