Case Law Details
M/s. National Company Vs ACIT (Madras High Court)
Conclusion: Assets received by the retiring partners of a firm through family arrangement did not amount to ‘transfer’ for the purpose of imposing capital gain, and therefore, the reconstitution of firm would not attract Section 45(4).
Held: In the instant case, assessee originally a sole proprietorship concern got converted as a partnership firm in the year 1974 and admitted his son, two daughters and one son-in-law, into the partnership. Later on, assessee passed away and thereafter, the partnership firm was reconstituted, which further resulted in serious disputes among the partners. Accordingly, an Arbitrator was appointed to settle the disputes. At the time of retirement of the two partners, valuation of the assets & liabilities of the firm and allotment of assets among the retiring and continuing partners took place. Department held that the transfer of immovable properties by the partnership firm to the retiring partners would amount to ‘transfer’ and long-term capital gain was payable on such persons. It was held there was only a reconstitution of the partnership firm by retirement of two partners and admission of another partner. The partnership firm continued. It must also be further noted that assets of the firm originally belonged to the father of the retiring / continuing partners and there was only a division of the assets on retirement in accordance with their entitlement on the shares in the partnership. Thus, the provisions of Section 45(4) would not be attracted on the retirement of the two partners and consequential allotment of their share in the assets in the assessee Firm.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
The Assessee has filed T.C.A.No. 365 of 2009 under Section 260-A of the Act challenging the order of the Income Tax Appellate Tribunal dated 12.12.2008 whereby the Tribunal had allowed the Appeal of the Revenue which had been filed challenging the order of
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