9911796707
TMI Blog1996 (10) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... t the capital gains of Rs. 2,75,961 is exempt under section 47(ii) of the Income-tax Act, 1961, is sustainable in law ?" The two assessees, Sri V. Krishnamoorthy and V. Rajagopalan, were two of the 19 partners in the firm of Rajagopalan Paper and Board Mills. Prior to December 1, 1974, there were only four partners in the firm. On December 1, 1974, fifteen new partners were taken into the firm. On January 31, 1975, according to the assessees, there was dissolution of the entire firm whereby four partners including the two assessees herein, were directed to be paid a sum of Rs. 2,50,000 each and also the shares and certain tangible assets and liabilities and such shares came to Rs. 2,75,961. The case of the assessees is that such sums came in the hands of each one of the assessees by way of dissolution of the partnership and hence under section 47(ii) of the Act, no capital gains is chargeable. On the other hand, the case of the Department is that there was only a retirement of the partners and the entire business continued with the remaining partners and the four partners only retired getting their share of interest. The Income-tax Officer relied on the decision of the Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75, and in implementation of their decision, a deed of dissolution, dated January 31, 1975, has been executed by all the partners of Sri Rajagopalan Paper and Board Mills, thereby terminating the partnership. Therefore, according to learned standing counsel, what took place according to the earlier dissolution was only retirement of the partners from the partnership firm and, therefore, there is continuation of the erstwhile firm. According to learned standing counsel, the Tribunal was not correct in holding that there was dissolution and on account of dissolution, each of the partners got his share in the partnership firm and hence, there is no transfer, attracting the provisions of section 2(47) of the Act. On the other hand, learned counsel appearing for the assessee, while supporting the order passed by the Tribunal, submitted that in the old partnership firm, there were 19 partners out of which four partners expressed their desire to retire from the partnership and on account of that all the partners agreed to dissolve the firm. In pursuance of such agreement, a deed of dissolution was drawn up and the erstwhile firm was dissolved. The remaining partners, apart from the four p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 47(ii) of the Act, no capital gain is chargeable. According to the Department, there was only retirement of the partners and the entire business continued with the remaining partners and the four partners only retired, getting their share of interest. Therefore, capital gains tax is leviable on the amounts received by the assessees. The decision in this case depends upon the interpretation of the terms of the deed of dissolution, dated January 31, 1975. The first four partners out of the 19 partners of the firm formed one group and partners 5 to 19 formed the other group. The four partners expressed their desire to retire from the partnership. In pursuance of that, all the partners agreed to dissolve the firm. In pursuance of such agreement, a deed of dissolution was drawn up signed by all the 19 partners, dated January 31, 1975. There is no reference whatsoever to the business of the dissolved firm being continued. This deed refers only to the allotment of the assets and liabilities among the original partners and the continuing partners. The fact of dissolution was intimated to the sales tax authorities, central excise superintendent, inspector of factories, bankers, depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissenting from the view taken by the Bombay High Court in CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95, held that "when a partner retires from a firm and receives an amount in respect of his share in the partnership, what he receives is his own share in the partnership, and it is that which is worked out and realised. Whatever he receives cannot be regarded as representing some kind of consideration received by him as the result of a transfer or assignment or extinguishment or relinquishment of his share in favour of the other partners. Whether the retiring partner receives a lump sum consideration or whether the amount is paid to him after a general taking of accounts and after an ascertainment of his share in the net assets of the partnership as on the date of his retirement, the result, in terms of the legal character of the payment as well as the consequences, thereof, is precisely the same." Similarly, the Andhra Pradesh High Court in CIT v. P. H. Patel [1988] 171 ITR 128, while dissenting from the view taken by the Bombay High Court in CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95, held : "that for the purpose of section 45 of the Act, no distinction could be drawn bet ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
