COMMISSIONER OF INCOME TAX Vs. SHREYAS CHINUBHAI

JUDGEMENT

(1.) THE Tribunal, Ahmedabad has referred the following three questions for the opinion of this Court under S. 256(1) of the IT Act, 1961 :

(2.) THE relevant assessment year is 1975 76. The assessee was an owner of 202 sq. yds. of land at Kalupur, Ahmedabad. On 1st Dec., 1971, the assessee was admitted to the benefits of partnership, which was constituted under the deed dt. 4th Dec., 1971. The business of the firm was to purchase and sell immovable properties, to construct buildings on lands purchased and to sell the same. On 23rd Dec., 1994, a fresh partnership deed was drawn by which new five partners were taken in the firm. On 14th Feb., 1975 a deed of retirement was executed as per which the five new partners who were inducted under the partnership deed dt. 23rd Dec., 1974, took over the business of the firm as the going concern and the other partners went out of the firm. The stock in trade was determined and after adjusting the opening value thereof, the balance was credited to the accounts of the outgoing partners as a result of which the assessee got his share of Rs. 1,25,092. In this connection, the ITO held that the said amount was an income from adventure in the nature of trade and that induction of new partners was merely a device to transfer their assets to the new partners. It was held that the said amount credited to the assessee's account was liable to tax as business income being adventure in the nature of trade or in the alternative, it was taxable under s. 28(iv) of the said Act. The CIT(A), however, accepted the assessee's case and held that the impugned amount cannot be taxed as business income being adventure in the nature of trade, nor could it be taxed under S. 28(iv) of the Act. In the appeal filed by the Revenue before the Tribunal, it was held that in view of the decision of this Court in CIT vs. Alchemic Pvt. Ltd. (1981) 20 CTR (Guj) 83 : (1980) 130 ITR 168 (Guj) : TC 13R.1348, provisions of S. 28(iv) of the Act were not applicable. Relying upon the decision of this Court in CIT vs. Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj) : TC 20R.866, the Tribunal held that the said amount was not exigible to capital gains tax. It was also held that the amount was not taxable as business income as an adventure in the nature of trade. The appeal was, therefore, dismissed.

(3.) THE question whether such amount received by a partner on retirement from the firm would be liable to tax for capital gains under S. 45 of the Act, is also no longer res integra. In CIT vs. Anand Narhar Nimkar (HUF) (1997) 142 CTR (Guj) 115 : (1997) 224 ITR 221 (Guj), it was held by this Court that receipt of any sum by a partner on his retirement from the firm or on dissolution of the firm as value of his share in the assets of the firm, does not involve any transfer of capital asset resulting in accrual or receipt of income chargeable to tax as capital gain in the hands of the retiring partner. This Court had already settled this point in CIT vs. Mohanbhai Pamabhai (supra), in which it was held that when an assessee retires from a firm and receives an amount in respect of his share in the partnership, there is no transfer of interest of the assessee in the goodwill of the firm and no part of the amount so received by him would be assessable to capital gain tax under s. 45 of the Act. In view of this settled legal position, we are of the opinion that the Tribunal was right in concluding that the said amount was not liable to capital gain tax and question No. 2 is accordingly answered in the affirmative against the Revenue.