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TMI Blog2011 (2) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied. The assessee firm was having four partners upto 31.1.2006. Five new partners were introduced on 1.2.2006 and the firm was reconstituted. Old four partners retired on 31.3.2006. Before 29.2.2006 plot owned by the firm was revalued at ₹ 36 lacs and the revaluation amount was transferred to the capital account of existing four partners in the capital sharing ratio i.e. 1/4th to each partner. The retiring partners when retired on 31.3.2006 carried away their capital which included revaluation amount of the plot in their capital account. 3. During the course of assessment proceedings, the Assessing Officer applied provisions of section 45(3) and 45(4) of the Income Tax Act in the light of judgment of Bombay High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners would amount to transfer within the meaning of section 2(47) and hence capital gain would be taxable. In the case of Smt. Paru D. Dave 110 ITD 410 (Mum) and Kerala High Court in the case of Kunnamkulam Mill Board 257 ITR 544. the facts were that some of the assets were revalued and the revalued surplus was transferred to the capital account of partners. When those partners retired they carried away that revaluation amount also as part of their interest in the firm while the firm continued with new partners and same assets. In the case of Paru D Dave, the findings given by Mumbai, ITAT are as under: The partnership firm is not a legal entity and property of the partnership vests in its partners in as much as all the partners have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners did not take away the plot, but only took away the revalued amount i.e. their interest in the firm. The plot continued to be the property of the firm even after 31.3.2006 when the firm was reconstituted with the new partners. As no asset is transferred to the retiring partners decision of A.N. Naik (quoted supra) would not be applicable. The partners only took away their interest in the [profit of the partnership firm. They have not taken away the property of the firm. In view of above, capital gain taxed by the A.O. on retirement of the partners is not taxable. No capital gain would also be taxable on revaluation of plot as the plot was property of the firm since its inception which is clear from the partnership deed dated 15.6.1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of section 2(47) and the gain arising therefrom was held liable to be taxed as capital gains u/s. 45. 10. Similarly, the Kerala High Court in the case of CIT Vs Kunnamkulam Mill Board 257 ITR 544 it has been held as follows: What is postulated u/s. 45(4) of the I.T. Act, 1961, is that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm would be chargeable to tax as the income of the firm. Ownership of property does not change with the change in the constitution of the firm. As long as there is no change in ownership of the firm and its properties, for the simple reason that the partnership of the firm stood reconstituted, there is no transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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