1983 (9) TMI 136 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the Commissioner's revisional order under section 263 of the Income-tax Act, 1961.
2. Determination of whether the assessee's retirement from the partnership amounted to a transfer under section 2(47) of the Income-tax Act, 1961.
3. Assessment of capital gains tax liability on the amount received by the assessee upon retirement from the partnership.

Issue-wise Detailed Analysis:

1. Validity of the Commissioner's Revisional Order under Section 263:
The appeal was filed against the revisional order passed by the Commissioner under section 263 of the Income-tax Act, 1961. The Commissioner's order dated 1-12-1982 alleged that the ITO's assessment order dated 10-12-1980 was erroneous and prejudicial to the interest of the revenue because it failed to bring to tax the capital gains arising from the assessee's retirement from the partnership. The Commissioner directed the ITO to redo the assessment after considering the facts, relevant provisions of the Act, and case laws.

2. Determination of Whether the Assessee's Retirement from the Partnership Amounted to a Transfer under Section 2(47):
The assessee retired from the partnership firm Whitefield Industrial Corporation on 20-2-1980 after receiving Rs. 2,00,000, which was the amount standing to his credit in his capital account. The Commissioner held that the assessee's retirement and the receipt of Rs. 2,00,000 amounted to a transfer of a capital asset under section 2(47) of the Act, following the Gujarat High Court decision in CIT v. Kartikey V. Sarabhai [1981] 131 ITR 42. However, the Tribunal relied on the Bombay High Court decision in CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95, which distinguished between a partner's retirement by assigning his interest and retirement by receiving the amount due without any deed of assignment. The Tribunal concluded that the latter does not amount to a transfer under section 2(47).

3. Assessment of Capital Gains Tax Liability:
The Commissioner argued that the difference between the amount invested by the assessee in the firm and the amount received upon retirement should be taxed as capital gains. The Tribunal, however, noted that the land was not brought in by the assessee as his capital but was purchased by the firm. The Tribunal also referred to the Andhra Pradesh High Court decision in CIT v. L. Raghu Kumar [1983] 141 ITR 674, which held that the amount received by a partner on retirement does not constitute a transfer under section 2(47) and is not liable to capital gains tax under section 45 of the Act.

Conclusion:
The Tribunal annulled the Commissioner's order under section 263, maintaining that the ITO's assessment dated 10-12-1980 was correct and not erroneous or prejudicial to the interests of the revenue. The appeal was thus allowed, and the assessment order of the ITO was upheld.