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TMI Blog2016 (5) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership firm was continued and the assessee was continued as partner in the same firm and land remained the assets of the firm. Merely because the partners have withdrawn money from the firm does not constitute consideration for proportionate reduction in their share in firm. There was neither a transfer of assets of the firm to the partner nor the assets ceased to be owned by the firm. CIT(A) has dealt with the issue threadbare and after applying to provision of law laid down by various High Courts recorded a finding that there was no transfer of assets on extinguishment of right of the assessee partner merely on introduction of new partner in the firm. Accordingly amount withdrawn by the assessee partner was not liable to tax as capital gain. We do not find any infirmity in the order of CIT(A) for deleting the addition so made - Decided in favour of assessee - ITA No.5426/Mum/2012, ITA No.5427/Mum/2012 - - - Dated:- 23-3-2016 - SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM For The Revenue by : Shri Deepkant Prasad For The Assessee : Shri Rajiv Khandelwal, Shri Neelkanth Khandelwal ORDER PER R.C.SHARMA (A.M): These are appeals filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n property in favor of new partners. The land continues to be with firm. As per Partnership Act, the rights of partners can be extended and/or restricted. The partnership continues and the erstwhile partners continue to have an interest in the partnership assets. Merely because, they have withdrawn money from the firm, it does not constitute consideration for proportionate reduction in their share in the firm. there was neither a transfer of right in firm nor land. The asset continued to be owned by the firm. Absence or presence of certain accounting entries would not change the substance of the transaction, particularly if a compound entry is passed instead of two separate ones No goodwill was accounted or paid so anyway no consideration arose for that. Withdrawal of partner's capital even if amount stands increased due to revaluation, is not income. there is no provision in the Act for levying capital gains on consideration even if received for reduction of share in profits of the firm. Appellant's statement on oath has to be examined with correct legal position and not judged by plain language used by appellant. Explanatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or levying capital gains on consideration received for reduction of share in the firm. Further that contention of the tax department that the transaction is a colourable device had no substance. Taxation is not a matter of contract - and the same can be levied only under the authority of law (Article 265 of the constitution). Since there is no estoppels against law, even if the assesee has admitted to pay tax on any receipt which is not taxable in accordance with law, such admission cannot be held against him. It is more so because the assessing officer is duty bound to tax the correct and true income in accordance with law and there cannot be tax liability by contract. There is no allegation that in the statement recorded during the course of search in respect of this transaction assessee made any averment of facts which he retracted latter. Comprehension of income tax by a common citizen is a mere fiction, more so, during the strenuous environment of search and seizure proceeding. Further the appellant was not allowed any assistance of a legal expert /consultant during the course of search or before recording of statement on the matters which are essentially q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(47). Further any partner having more control or being managing partner is well within Partnership Act and is not relevant to decide the taxability under the Income Tax Act 1961. 5.1 Recently, in the case of CIT vs P.N.Panjawani (2012) 21 Taxmann.com 458 (Karnataka), High Court of Karnataka, dtd 12.3.2012 held as under: Consideration received by existing partners for reduction of their share in the firm on admission of new partners not taxable as capital gains. Where 4 new partners were admitted to the firm and they introduced ₹ 3.50 crores as their capital contribution and the same was withdrawn as drawings equally ( ₹ 1,16,666.67 each) by the three existing partners whose shares were reduced as a result of admission of new partners, the amount so received by existing partners as consideration for reduction of their shares was not taxable in the hands of the existing partners. There is no provision in the Act for levying capital gains on such consideration received for reduction of share in the firm. It is not correct to say that the existing partners relinquished any share in the landed property of the firm in favour of new partners since- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5%. The assessee (along with other two partners i.e. Smt. K Amin and Shri D Amin), on reconstitution, chose to withdraw the amount lying to his credit. The assessee continued as partner and had not retired from firm. As per MOU between parties a goodwill account was to be created. However, after partnership deed no goodwill was credited or paid was not done. As per the partnership deed the rights and duties of partners have been decided interse. The AO treated the revaluation of asset and introduction of new partners as estinguishment of assessee s shares in the asst of the firm by treating the same as transfer within the meaning of Section 2(47) and tax the difference as capital gain in the hands of each of the partners. We found that even after introduction of the new partners and revaluation of the asset the partnership firm was continued and the assessee was continued as partner in the same firm and land remained the assets of the firm. Merely because the partners have withdrawn money from the firm does not constitute consideration for proportionate reduction in their share in firm. There was neither a transfer of assets of the firm to the partner nor the assets ceased to be ow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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