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TMI Blog2024 (4) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... from the said firm, the appellant received a sum of Rs..8,22,17,952/- towards her share of capital gain of the firm. However, the respondent-Department held that the right of the appellant in the firm is a capital asset and extinguishment of the right in the said firm stands transferred, and therefore, the receipt against the capital asset is taxable under Section 45 of the Act. 5. Alleging that the appellant has received an amount of Rs..8,2217,952/- on 26.12.2007 towards share of good will and capital, an order of assessment was passed on 27.12.2010 by the respondent-Department under Section 143(3) of the Act raising a demand of Rs..2,39,33,680/- payable by the appellant on the aforesaid amount. 6. Aggrieved by the said order, the appellant preferred an appeal before the Commissioner of Income-Tax (Appeals)-IV, Hyderabad. Vide order dated 31.01.2012, the Commissioner of Appeals dismissed the appeal preferred by the appellant, which was again subjected to challenge before the Income Tax Appellate Tribunal vide I.T.A. No. 297/Hyd/2012. Vide order dated 25.05.2012, the appeal preferred by the appellant was partly allowed and the stay application filed by the appellant therein was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Commissioner of Income - Tax vs. Mansukh Dyeing and Printing Mills [2022] 449 I.T.R. 439 (S.C.) and Principal Commissioner of Income-Tax vs. R.F. Nangrani HUF [2023] 454 I.T.R. 426 (S.C.). 13. At this juncture, it would be relevant to take note of the decision of a Division Bench of this High Court in Chalasani Venkateswara Rao vs. Income-Tax Officer [2012] 349 I.T.R. 423, wherein this Court, under similar circumstances, held at paragraph Nos. 19 to 22 as under : "19. In CIT v. Bankey Lal Vaidya (1971) 79 ITR 594 (SC), the Supreme Court held that a partner in a firm (carrying on business of manufacturing and selling pharmaceutical products and literature relating thereto) whose assets (which included goodwill, machinery, furniture, medicines, library and copyright) were valued at Rs. 2,50,000, was paid towards his half share, on the dissolution of the firm, a sum of Rs..1,25,000 in lieu of his share, the arrangement between the partners of the firm amounted to a distribution of the assets of the firm on dissolution. It held that there was no sale or exchange of the respondent's share in the capital assets to the other partner. The Supreme Court of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of transfer of interest in the partnership asset by the retiring partner to the continuing partner was involved." 14. Similarly, the Division Bench, while dealing with Sections 47(2) and 45(4) of the Act, at paragraph No. 23, held as under, viz., : "23. In the light of the above decisions, which are binding on us, we hold that the Income-tax Appellate Tribunal was not correct in confirming the orders passed by the Commissioner of Income-tax (Appeals) and the respondent. When the appellant was paid Rs. 15 lakhs by Y. Kalyana Sundaram in full and final settlement towards his 50 per cent. share on the dissolution of the firm, there was no "transfer" as understood in law and, consequently, there cannot be tax on alleged capital gain. The appellant was correct in law in contending that the amount he received from Y. Kalyana Sundaram is towards the full and final settlement of his share and such adjustment of his right is not a "transfer" in the eye of law. It is a recognized method of making up the accounts of the dissolved firm and the receipt of money by him is nothing but a receipt of his share in the distributed asset of the firm. The appellant received the money value of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearings submitted that the goodwill created by the firm M/s. Montage Manufacturer through entries without incurring any cost and payment of share of the goodwill to the assessee, a retired partner, cannot be taxed for capital gains in the hands of the appellant. The appellant specifically relied on the case law of Chalasani Venkateswara Rao vs. I.T.O. wherein it was categorically held that in the fact and circumstances of the case capital gains cannot be taxed in the hands of the appellant. The appellant also submitted the provisions of Section 14 of the Indian Partnership Act, 1932 which reads "subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise by or for the firm or for the purpose and in the course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm. 5. I have gone through the submissions of the appellant and also the observa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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