COMMISSIONER OF INCOME TAX Vs. R BALASUBRAMANIAN

JUDGEMENT

(1.) MR. Sridhar, learned counsel undertakes to file vakalat for the respondent.

(2.) AT the instance of the Department the Tribunal referred the following three questions for the opinion of this Court under s. 256(1) of the IT Act, 1961. "(1) Whether, on the facts and in the circumstances of the case, the 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 s. 2(47) of the IT Act, 1961, the 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 Tribunal's finding that the capital gains of Rs. 2, 75, 961 is exempt under s. 47(ii) of the IT Act, 1961, is sustainable in law "" * 2. The assessee along with 18 members was a partner in the firm Rajagopalan Paper & Board Mills. Prior to 1st December, 1974, there were only four partners in the said firm and on 1st December, 1974, 15 new partners were admitted. By means of a dissolution deed dt. 31st January, 1975, the assessee retired from the partnership. According to the terms and conditions mentioned in the dissolution deed, the assessee got a sum of Rs. 2, 50, 000 by way of consideration for his agreeing to release and relinquish his right, title and interest in the assets of the partnership. He was also allotted 1/4th share in the value of the assets and liabilities which amounted to Rs. 25, 961.Before the ITO, the assessee contended that the two receipts of Rs. 2-1/2 lakhs and Rs. 25, 961 were exempt under s. 47(ii) of the IT Act on the ground that the sum received by the assessee was on account of distribution of assets on dissolution of the partnership firm and by virtue of the provisions of s. 47(ii) of the IT Act, the value of assets distributed would not come for the purpose of capital gains. This case put forward by the assessee was accepted by the Tribunal since the same view was taken in the case of other two partners, namely Shri V. Krishnamurthi and Shri V. Rajagopalan in ITA Nos. 629 and 630/Mad/1979 on the ground that since there was total dissolution of the firm which occasions distribution of assets and consequently, the payment was exempt under s. 47 of the IT Act. Similar question came up for consideration before this Court in Tax Case Nos. 285 and 286 of 1982 and by the judgment dt. 8th October, 1996 [reported as CIT vs. Shri V. Krishnamurthy & Anr. 1998 (145) CTR(Mad) 91], this Court held that in as much as there was total dissolution of the firm, the assets distributed thereon would be exempt under s. 47(ii) of the IT Act. In view of the said decision, we answer the question referred to us in the affirmative and against the Department. No costs.