Reduction of share in the firm of existing partners, on admission of new partners, not taxable as capital gains

The Karnataka HC has held that the reduction in the share of partners after the reconstitution of partnership firms does not amount to a taxable transfer. Further, it reaffirmed that, tax planning within the frame work of law is permitted.The principles laid down in this decision can also be applied to the limited liability partnerships, in similar circumstances. The HC concurred with the view of the lower revenue authorities that, none of the provisions of the Act specifically envisages a situation where capital gains would be chargeable on account of reduction in the share of partnership in ...