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TMI Blog2001 (12) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-firm consisted of 4 partners viz., Shri G. Adiseshagiri Rao,` Smt. G. Nagaratnamma, Sri G. Janardhana Reddy and Shri Venkatrama Reddy. This was constituted on 1st July, 1987, and it applied for registration for 1989-90 asst. yr. on 21st Aug., 1987, before the ITO Central Circle-IX, Chennai. It was further stated in the said letter that there was a change in the constitution of the assessee-firm on 29th Feb., 1988, when the partners Sri G. Adiseshagiri Rao and Smt. G. Nagaratnamma were retired and the continuing partners, Sri G. Janardhana Reddy and Sri Venkatrama Reddy were the remaining partners of the assessee-firm. Two of the new partners were admitted by the partnership deed of the assessee dt. 1st March, 1988, and the reconstituted firm filed Form No. 11A before the ITO, Central Circle-IX, Madras, on 3rd June, 1988. In the aforesaid letter filed by the assessee it was stated that s. 45(4) was inapplicable as the assessee-firm was not dissolved but it was reconstituted and it continued to carry on its business. Further, it was stated in that letter that the new partners brought in their share of capital and the two partners, who retired on 29th Feb., 1988, were paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t result in transfer. The learned counsel for the assessee also pointed out that the specific clauses providing for continuation of the business by the remaining partners of the assessee-firm vide deed of retirement dt. 1st March, 1988, are cls. 2, 3 and 4. There is no iota of evidence for the AO to come to a conclusion that on the retirement of the two partners, the firm got dissolved. It was further argued that the AO has failed to consider clause No. 13 in the partnership deed dt. 31st July, 1987. In the aforesaid clause it was stated that death or insolvency or retirement of any partner shall not dissolve the firm. The intention of the remaining partners and the retiring partners was for continuance of the business. Both the retiring partners and the remaining partners expressly specified such an intention in the deed of retirement. It was further stated by the assessee's counsel that the AO without looking into these relevant, cogent and convincing materials considered the extraneous and irrelevant factors. Submitting as above, he argued that the order of the CIT(A) has to be upheld. 5. We have considered the rival submissions. Insofar as, the facts relating to retirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buted capital of Rs. one lakh) and the capital account of each partner was credited with a sum of Rs. 1.5 lakhs towards appreciation in the value of assets. Thereafter, there was a change in the constitution of the firm w.e.f. 1st July, 1986 (relevant for the asst. yr. 1988-89 previous year being the year ended 30th June, 1987) when S/Shri G. Hanumantha Rao and G. Ramesh Babu retired and in their places M/s Padmalaya Studios (P) Ltd. had entered the partnership with 50 per cent share. On 30th June, 1987, i.e., on the last date of the accounting year of this assessment year, the assets were further appreciated and the accounts of these partners were credited with sums of Rs. 4,75 lakhs to the accounts of G. Audiseshagiri Rao and G. Nagarathnamma who were having 25 per cent share and with Rs. 9.5 lakhs to the account of Padmalaya Studios (P) Ltd. who was having 50 per cent share, and the asset value is shown at Rs. 40,00,586. Again, these are only book entries. There was a change in the constitution of the firm w.e.f. 1st July, 1987, i.e., the first day of the accounting year relevant for the assessment year 1989-90. through deed dt. 31st July, 1987, when M/s Padmalaya Studios (P) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Gujarat High Court was that whether the retirement of the assessee as a partner from the firm amounted to dissolution of the firm and, therefore, the capital gains, if any, was exigible to tax in view of the provisions of s. 47(ii) of the IT Act, 1961. Of course, the provisions of s. 47(ii) were omitted by the Finance Act, 1987, w.e.f. 1st April, 1988. Considering the facts on identical issue, the Gujarat High Court opined that in such a case the retirement of a partner from the firm does not amount to dissolution when the firm is carrying on the business by the remaining partners. The decision of the Gujarat High Court was affirmed by the Full Bench decision of the apex Court in Addl. CIT vs. Mohanbhai Pamabhai (1987) 165 ITR 166 (SC). Though the order is very short for better appreciation of the case the same is extracted below: "Having regard to the view taken by this Court in Sunil Siddharthbhai vs. CIT and Karthikeya V. Sarabhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC), these appeals must be dismissed." 8. In the present case, the transactions are genuine. The partnership is also genuine. From the history of this case, it is seen that the partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The case relied on by the Revenue in the case of Mrs. Arathi Shenoy Ors. vs. Jt. CIT (2000) 69 TTJ (Bang) 779 : (2000) 75 ITD 100 (Bang) is not at all applicable to the facts of the present case. There were litigations amongst the partners and when the matter went up before the High Court, it directed to fix the asset price and hand over the asset of the firm for running the business who makes the highest bid. There was a sale of business in the aforesaid transaction but in this case, in view of the evidence brought by the assessee-firm, it is clear that there was no sale. There was no dissolution. There was only retirement of partners. Even after the retirement of the partners according to the deeds executed between the parties, the business of the firm was to continue and the retired partners shall have no rights in the business of the assessee. We, therefore, find much force in the stand taken by the assessee. The CIT(A) had meticulously considered all the aspects of this case in his order. The Revenue, at the time of proceedings before us, had not brought any convincing material to assail the order of the CIT(A). On a careful consideration of the entire facts, submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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