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TMI Blog2001 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Appellate Tribunal, Delhi Bench "D", Delhi (hereinafter referred to as the "Tribunal"), for its opinion in relation to the following questions: "1. Whether on a proper construction of the deed of dissolution it could be held that it was a case of retirement of the partner and not of the dissolution of the firm? 2. Whether, on the facts and in the circumstances of the case and in law the excess of Rs.3,62,631 received by the partner on the dissolution of the firm could be subject to assessment as income under the head 'Capital gain'?" The brief relevant facts are as under: The assessee was one of the partners in Jyoti Prasad Jagan Nath. The other two partners were Mr. Mukut Behari and Mrs. Mathri Devi. The said firm was claimed to have been dissolved by a deed dated May 19, 1975, when the assessee went out of the partnership business while the other two partners took over the continuing business. The assessee got Rs.6,47,176 against his entitlement of Rs.2,84,545 on account of his capital and share of profit for the year ended May 19, 1974, i.e., the assessment year 1975-76. The assessee claimed that the excess sum of Rs.3,62,631 was not assessable to capital gains, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of retirement, the assets received by a partner from a partnership firm cannot be treated to be a capital gain. Learned counsel further submitted that in view of the fact that the deed of partnership was executed with effect from May 6, 1975 in terms whereof, the assessee had been taken in as a full-fledged partner; having regard to the provisions contained in section 43 of the Indian Partnership Act, 1932, it must be held that he had a right to dissolve the said partnership. Learned counsel contended that, in any event, as the continuing partners entered into another partnership as regards a new business, the learned Tribunal must be held to have arrived at a wrong finding. In support of the said contention, reliance has been placed on CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95 (Bom); Eskayef Ltd. v. ITO [1986] 160 ITR 164 (Karn) and Tribhuvandas G. Patel v. CIT [1999] 236 ITR 515 (SC). Mr. R.C. Pandey, the learned counsel appearing on behalf of the Revenue, on the other hand, submitted that it is not a case where the Assessing Officer has not allowed the claim as regards the assets derived from the partnership firm. Learned counsel contended that the assets rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be postponed. Therefore, what was the exclusive interest of a partner in his personal asset is, upon its introduction into the partnership firm as his share to the partnership capital, transformed into an interest shared with the other partners in that asset. Qua that asset, there is a shared interest. During the subsistence of the partnership, the value of the interest of each partner qua that asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets. And in regard to the latter, the value will be represented by his share, in the net assets on the dissolution of the firm or upon the partner's retirement." Thus, the aforesaid questions were answered in the following terms: "In the result, the questions which arise in these appeals are answered as follows: 1. There was a transfer of the shares when the assessee made them over to the partnership firm as his capital contribution. 2. When the assessee transferred his shares to the partnership firm, he received no consideration within the meaning of section 48 of the Income-tax Act, 1961, nor did any profit or gain accrue to him for the purpose of section 45 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with in Chapter VI-sections 39 to 55. Section 48 deals with the mode of settlement of accounts between partners upon dissolution and the rules of settlement of accounts between the partners mentioned therein are subject to agreement by the partners, in other words, in the absence of any agreement made in that behalf, the rules mentioned in the section would apply. It would be interesting to mention that the Indian Partnership Act nowhere contemplates or deals with the concept of any partial dissolution or a dissolution qua an individual partner. The concept indicated in section 39 appearing in Chapter VI is a total dissolution between all the partners of the firm. Further, under section 32, which occurs in Chapter V, retirement of a partner may take any form as may be agreed upon between the partners and can occur in three situations contemplated by clauses (a), (b) and (c) of sub-section (1) of section 32. It may be that upon retirement of a partner his share in the net partnership assets after deduction of liabilities and prior charges may be determined on taking accounts on the footing of notional sale of partnership assets and be paid to him but the determination and payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case, the sum of Rs.50,000 received by the assessee as his share of the value of the goodwill or any part thereof was liable to tax as capital gain? 3. Whether, on the facts and in the circumstances of the case, the sum of Rs.4,77,941 or any part thereof was liable to tax as capital gain by reason of section 47(ii) of the Act?" The court noticed the fact of the matter and held: "The assessee was a partner with two others in a partnership firm, Kumar Engg. Works. On December 5, 1960, the assessee served a notice of his intention to dissolve. the firm with effect from December 31, 1960. Since the other partners refused to agree with the said demand, the assessee filed a suit being Suit No. 72 of 1961 in the Bombay High Court for a declaration that the firm was dissolved with effect from December 31, 1960, and for accounts and other ancillary reliefs. Ultimately, the dispute was settled between the parties under a deed dated January 19, 1962. Under this deed of settlement the asses see was deemed to have retired from the firm with effect from August 31, 1961, and the remaining partners were authorised to continue to carry on the business of the firm. The assessee was paid a su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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