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TMI Blog1985 (9) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... . Lalita Devi daughter-in-law of Shri Ram Kishan Tekriwal. The assessee was to receive a sum of Rs. 75,000 on this sale. Besides, his debit balance with the above firm was also wiped off. 3. The above arrangement was put through two different documents executed on the same date, i.e., 28-3-1982. One was deed of dissolution and the other was sale deed. We will refer to these documents again in our this order. In its books of account, the assessee debited two sums of Rs. 56,182 and Rs. 75,000 being the debit balance from Vijai Picture Palace and receipt of the sale proceeds from the two ladies to the accounts of Vijai Picture Palace. The aggregate of the two sums being Rs. 1,31,182 was transferred by the assessee to its profit and loss account. 4. It was claimed before the ITO that the above amount was not liable to tax on the ground that it was casual income. It was submitted before him that the above amount represented the value of surrender of his rights in the firm and was entirely represented by goodwill that the firm had. The ITO rejected this contention. He observed that the goodwill was an intangible asset, whereas the machinery, building and stock-in-trade, etc., which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the goodwill, which was not taxable. 4. The assessee had received the above amount on distribution of the assets of the firm and the amount was not taxable in terms of section 47(ii) of the Income-tax Act, 1961. 5. That in any case, the assessee had received the above amount on account of sale of source of income, which was not taxable." The AAC, therefore, deleted both the above additions of Rs. 61,282 and Rs. 18,324. 7. The department is now in appeal before us. The learned departmental representative supporting the order of the ITO submitted before us that the amounts received by the assessee represented the sale proceeds of various tangible assets as distinguished from the value of the goodwill and, therefore, the provisions of sections 41(2) and 45 were attracted to the case. He referred to the decisions of the Punjab and Haryana High Court in Sukhbir Parshad v. CIT [1983] 144 ITR 437 and of the Supreme Court in CIT v. Gangadhar Baijnath [1972] 86 ITR 19. 8. The learned counsel for the assessee, on the other hand, submitted that since the amounts had been received by the assessee as a partner on the dissolution of the firm of Vijai Picture Palace, it did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inasmuch as the assessee had sold the assets or its interest in the firm before it was dissolved. 10. We will now refer to the deed of dissolution and in particular the following paragraph from its preamble: "Whereas both the aforesaid parties were partners in a registered partnership firm known as Vijai Picture Palace Mohalla Purdilpur, Cinema Road, Gorakhpur and whereas the said firm was dissolved at the will of the partners and the partners mutually dissolved the firm and understood the entire accounts of the business of the firm whatever liability of any kind including the Government dues, taxes, licence fees, private debts in the documents of Vijai Picture Palace, etc., due from the firm or to the firm, all those will be paid and, received by party No. 1. The second party will have nothing to do with any kind of the same. The second party has sold his entire share in the assets of the firm in favour of Smt. Chameli Devi wife of Shri Ram Kishan Tekriwal resident of Mohalla Raiganj, Gorakhpur and Smt. Lalita Devi wife of Indra Kumar Tekriwal and daughter-in-law of Shri Ram Kishan Tekriwal aforesaid." It was submitted by the learned counsel for the assessee that before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was first the dissolution of the firm. It was followed by the receipt of the assets by the assessee falling to its share through its karta, which was then followed by the sale of those assets to the family members of Shri Ram Kishan Tekriwal, the other partner. This completed the arrangement by which the cinema went to the family of Shri Ram Kishan Tekriwal, the assessee taking net cash of Rs. 75,000 on its side. 12. Once we have settled the above question of fact based on the interpretation of the above documents, we have to see what are the further legal or factual consequences. The first consequence is that the assessee was not required to reimburse the firm for its debit balance of Rs. 56,182. According to the learned counsel for the assessee, the net debit balance or the amount payable by the assessee to the firm was only Rs. 30,770. This was arrived at after setting off the assessee's share of profit due from the firm. In our opinion, the figures do not matter. In principle, the position is that the assessee was not required to pay anything to the firm. In such a situation, it cannot be said that the amount of Rs. 56,182 or any lesser amount received by the assessee eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his share of the value of the asset in money. The assessee was accordingly paid Rs. 1,25,000. The question was whether the sum of Rs. 65,000 being part of the amount received by the assessee could be brought to tax as capital gains. It was held that the arrangement between the partners of the firm amounted to a distribution of the assets of the firm on dissolution. There was no sale or exchange of the assessee's share in the capital assets to the other partner, nor did he transfer his share in the capital assets. The sum of Rs. 65,000 could not be taxed as capital gains. Similar view was taken by the Allahabad High Court in Addl. CIT v. Smt. Mahinderpal Bhasin [1979] 117 ITR 26. It was held that when a partner retires what he receives is really his share in the partnership assets after deducting the liabilities. It is not consideration for transfer of his interest in the partnership to the continuing partners. In the transaction of retirement of a partner, just as in the case of a dissolution of partnership, there is no element of transfer. The transaction is in law an adjustment of the rights of the partners and not relinquishment or even extinguishment of interest of the retiri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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