COMMISSIONER OF INCOME TAX Vs. V KRISHNAMURTHY

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following three questions, for the opinion of this court, under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act")"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the deletion of the sum of Rs. 2, 75, 961 assessed as capital gains in the assessee's case?.2. Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 2(47) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that there was no transfer when the assessee received certain amount over and above his capital for relinquishment of his right in the firm ?.3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's finding that the capital gains of Rs. 2, 75, 961 is exempt under section 47(ii) of the Income-tax Act, 1961, is sustainable in law ?"

(2.) THE two assessees, Sri V. Krishnamoorthy and V. Rajagopalan, were two of the 19 partners in the firm of Rajagopalan Paper and Board Mills. Prior to December 1, 1974, there were only four partners in the firm. On December 1, 1974, fifteen new partners were taken into the firm. On January 31, 1975, according to the assessees, there was dissolution of the entire firm whereby four partners including the two assessees herein, were directed to be paid a sum of Rs. 2, 50, 000 each and also the shares and certain tangible assets and liabilities and such shares came to Rs. 2, 75, 961.

(3.) THIS would not mean, according to learned counsel for the assessee, that there was retirement of the four partners and there was no dissolution of the erstwhile firm. Accordingly, learned counsel for the assessee submitted that the Tribunal was correct in holding that there was dissolution of the erstwhile firm and the share of profit and loss allotted to the partners would not amount to transfer under section 2(47) of the Act, warranting capital gains taxWe have heard both learned standing counsel appearing for the Department as well as learned counsel appearing for the assessees. The fact remains that there was a original partnership firm consisting of 19 partners.