COMMISSIONER OF INCOME TAX Vs. PALANIAPPA GOUNDER N

JUDGEMENT

(1.) IN this reference by the Tribunal, Madras, under S. 256(1) of the IT Act, the question of law propounded for our decision is as follows :

(2.) THE assessee was one among four equal partners in a partnership firm called "V.K.N. Palaniappa & Co." In the year 1960, the assessee retired from the firm with the consent of the other partners. Under the terms of the assessee's retirement from the firm, which were settled after discussion, the partnership assets and liabilities were to be valued as on 30th June,1960, and one - fourth share of the net value of the assets referable to the assessee's share should be paid over to him. Working on this basis the total assets of the firm were valued in the sum of Rs. 4,65,250. The total liabilities stood at Rs. 2,76,437. The net value of the assets was arrived at in the sum of Rs. 1,88,813. one -fourth part of the value of the firm's net assets referable to the assessee's share came to Rs. 47,203.25. This amount of Rs. 47,203, among others, was received by the assessee on retirement, from the remaining partners of the firm, in the account year ended 31st March, 1961.

(3.) IN this reference made by the Tribunal at the instance of the CIT, his learned counsel submitted that the amount of Rs. 47,203 had to be properly brought to charge as capital gains. Learned counsel did not, however, contend that this receipt arose from a sale, transfer or exchange of a capital asset. The point urged was that the assessee's retirement from his firm necessarily involved a relinquishment by him of his interest in the partnership and the amount received by him on the settlement of accounts was the consideration received by him for such relinquishment.