COMMISSIONER OF INCOME TAX Vs. ANITHA RAJAGOPAL RAO

JUDGEMENT

(1.) These two appeals are preferred by the revenue challenging the order passed by the Tribunal which held that the retiring partner gets the value of his share in the partnership assets less his liabilities at the time of his retirement. Assuming that the retiring partner received less than what was his due itself was something that he had transferred to the continuing partners within the meaning of Transfer of Property for purposes of Gift Tax Act, 1958 or that the gift liable to Gift Tax cannot be accepted. It is the case of mere adjustments of rights between retiring partner and the continuing partner in the assets of the partnership, there is no element of transfer of interest by the retiring partner to the continuing partner gift tax could not be levied. Aggrieved by the said orders, the revenue has preferred, these appeals. In the appeals filed by the revenue under the Income-tax Act, in respect of the very retiring partners this court in ITA No. 308/2007 and other 4 connected cases has held, when the partners retiring the consideration paid to them presenting leasehold will not fall within the definition of capital gains and therefore, no tax is payable. The said judgment of this court has become final.

(2.) In fact the Apex Court in the case of CGT v. T.M. Louiz, 2000 245 ITR 831has categorical held that, when a partner retire from the partnership the partnership continues, assets and goodwill of the firm continue to remain the assets and goodwill of the firm. All that retiring partner gets is the value of his share in the partnership assets less its liabilities. It cannot in such circumstances, be held assuming that the retiring partner received less than what was his due, that the difference was something that he had transferred to the continuing partners within the means of "Transfer of Property" for purposes of the Gift Tax Act, 1958 or that there was a gift liable to gift tax. The word "Settlement" in the definition of "transfer of property" in the Gift Tax Act takes colour from the context of the definition and its neighboring words and means a settlement upon the trust and not a settlement of accounts. Therefore, it was held the adjustment of rights between the retiring partner and the continuing partner in the assets of the partnership where there was an element of transfer, the interest by the retiring partners to the continuing partner is not excisable to gift tax. In view of the aforesaid judgment of the Apex Court, as well as the judgment of this court in the Income-tax Appeals relating to the very same assesses, we do not see any merit in these appeals. No substantial question of law involved.