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TMI Blog1979 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... o its business commitments and involvements, the three partners decided to retire. Under para. 4, of the retirement deed, the partners were allowed to withdraw their capital and their proportionate share of audited profits for nine months up to the 30th June, 1969. In addition the three retiring partners were given certain amounts, as the value of their share of the goodwill of the firm. Madan Lal Bhargava was given an amount of Rs. 11,250. The ITO brought this amount to tax as a capital gain treating it as compensation received on retirement from the firm. He was obviously relying on s. 28(2) of the Act for including this amount. The assessee appealed. The AAC relying on the case, CIT v. Gangadhar Baijnath [1972] 86 ITR 19 (SC), treated the amount as a taxable business receipt. He was of the view that the amount had been received in lieu of profits which the assessee had got on retirement from the firm. On further appeal to the Tribunal, the Tribunal found that the agreement dated 1st July, 1969, on the basis of which the payment was received, did not indicate that the amount paid to the assessee for his share in the goodwill was compensation for surrendering his profits. Relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in s. 2(4A) of the Indian I.T. Act, 1922, and is now defined in s. 2(14) in the present Act. The definition of the word ' capital asset ' in the present Act so far as it is relevant for this case is in pari materia with the definition contained in the old Act. The Gujarat High Court, however, went on to hold that when a partner retires all that he receives is his share of the partnership asset, and as no consideration is received as a result of the extinguishment of his interest in the partnership asset. The amount received would not be chargeable under s. 44. In the case of Addl. CIT v. Smt. Mahinder pal Bhasin [1979] 117 ITR 26 (All), it has been held that the goodwill of a firm is a capital asset, but the provisions of s. 45 are not attracted in case a partner retires, as what he receives is his share of the partnership assets and not compensation for goodwill. Mr. Gulati contends on behalf of the department that these decisions require reconsideration. The reasons set forth are these. It is urged that s. 2(47) defines transfer in very wide terms, and where a partner retires from a firm there is an extinguishment of his rights, and the asset which he receives in considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered this provision and observed as under : " This contention, in our opinion, is not well founded. It appears to us that the cases of the distribution of capital assets on dissolution of a firm or other association of persons or liquidation of a company were mentioned in the third proviso under the earlier Act, as a matter of clarification to allay fears even though the language of sub-section (1) of section 12B was not intended to apply to such cases. Provisos, as mentioned on page 221 of Craies on Statute Law, sixth edition, are often inserted to allay fears. A proviso is inserted to guard against the particular case of which a particular person is apprehensive, although the enactment was never intended to apply to his case or to any other similar case at all." It is, however, suggested that the transfer as now defined in s. 2(47) includes not only sale, exchange or relinquishment but also extinguishment of any right and, thus, the scope of section 45 is wider than section 12B. This argument omits from consideration the fact that s. 12B applies not only to cases of sale, exchange and relinquishment but also to cases of transfer. The word " transfer " was not defined in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in Smt. Mahinderpal Bhasin [1979] 117 ITR 26 and that of the Gujarat High Court in Mohanbhai Pamabhai [1973] 91 ITR 393 already referred to. Sri R.K. Gulati appearing for the department, however, urged that the view taken in these cases is not correct, and the correct law has been laid down by the Kerala High Court in the case of Abdul Rahim, Travancore Confectionery Works v. CIT [1977] 110 ITR 595 (Ker) [FB]. The decision of the Kerala High Court is, however, distinguishable, for, in that case, what had happened was that a partner had brought in his own property for the purpose of business of the firm, with the result that he could not claim or exercise any exclusive right in that property. It was, as such, a case of influx of fresh assets, and on the assets being brought in the common funds of the firm, the exclusive rights of the partner had come to an end. It was in these circumstances that the Kerala High Court held, and with due respect, we think rightly that the interest of the partner in the assets brought by him in the firm had been extinguished. The present case is of a reverse type. Here the partner has retired, and has taken away his share of assets. Thus, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset, was not a capital asset, the transfer of which would be chargeable to capital gains under s. 45 of the Act. Referring, however, to the terms of the retirement deed it was held that it was a transfer as defined by s. 2(47) and liable to tax under s. 45 of the Act. In the present case, the assessee took away his capital as shown in the books, and also his share in the audited profits for the period ending 30th June, 1969. Apart from this, he was given his share in the goodwill, which was valued at Rs. 11,250. The deed of retirement did not give him a lump amount without any reference to the accounts of the firm. This fact distinguishes the case from that of Tribuvandas [1978] 115 ITR 95 (Bom). The other decision of the Bombay High Court, namely, Aslot's case [1978] 115 ITR 255, turned on the interpretation of the retirement deed, and the view that the assignment of the interest of the retiring partner amounted to a transfer was based on the principle laid down in the case of Tribuvandas [1978] 115 1TR 95 (Bom). We are of the view that none of these cases can apply to the facts of the present case as all that the assessee received on his retirement from the firm in respect of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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