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TMI Blog1996 (11) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee as per arbitration award dated July 12, 1972, on retirement is not taxable as capital gain ?" The facts giving rise to this question as found by the Tribunal are that the assessee was a partner in the firm, Messrs. Elmex Industries, and as a result of some disputes between the partners, the assessee-Hindu undivided family ceased to be partner in all the group of firms including Messrs. Elmex Industries. On a reference being made to the arbitrator, according to the award, the assessee retired from the firm with effect from December 31, 1971, and has received an amount of Rs. 1,88,950 attributable to the value of his share in the firm on retirement, apart from other sums which are not the subject-matter of controversy befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the other partners to continue in the firm. P. N. Bhagwati, Chief Justice (as he then was), speaking for the court, observed as under : "The interest of a partner in a partnership is not interest in any specific item of the partnership property. It is a right to obtain his share of profits from time to time during the subsistence of the partnership and on dissolution of the partnership or on his retirement from the partnership to get the value of his share in the net partnership assets which remain after satisfying the debts and liabilities of the partnership. When, therefore, a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all partners have a joint or common interest. It cannot, therefore, be said that, upon dissolution, the firm's rights in the partnership assets are extinguished. It is the partners who own jointly or in common, the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47) of the Income-tax Act, 1961. There is no transfer of assets involved even in the sense of any extinguishment of the firm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hitherto enjoyed jointly. It is also settled that what a partner gets at the time of his retirement is not through transfer of an asset for a consideration. What really he gets at the end of the relationship with the firm is the value of the interest he already had in the firm which he was enjoying jointly and which grows or diminishes with the growth or fall in the prosperity of the partnershipfirm ; he does not get any new right at the time of dissolution or his retirement. In the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509, the apex court said as follows : "It has sometimes been said, and we think erroneously, that the right of a partner to a share in the assets of the partnership firm arises upon dissolution of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of the partner's interest on getting value of his share on retirement. Obviously, realisation of one's own interest in money value after evaluating the value of existing interest in the firm cannot in any terms be considered as transfer unless a legal fiction exists to that effect for that purpose and in the absence of any transfer, there cannot be any question of any capital gains arising for taxable purposes. Relying on the decision in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC), the Supreme Court in Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 affirmed the decision of this court in Mohanbhai Pamabhai's case referred to above [1973] 91 ITR 393. This court had also occasion to consider the issue whether o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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