Case Law Details
Anik Industries Ltd. Vs DCIT (ITAT Mumbai)
During assessment proceedings, it transpired that the assessee was a partner of 30% in a partnership firm namely M/s Mahakosh Property Developers (in short ‘firm’). During the year, the assessee received a sum of Rs.400 Lacs on account of surrender of 5% share of profit from 30% to 25% and reduced the said income from its computation of income by submitting that the firm was reconstituted and right was created in favor of existing partners.
The assessee, relied upon the decision of Hon’ble Madras High Court in A.K.Sharfuddin V/s CIT (1960 39 ITR 333) for the proposition that compensation received by a partner from another partner for relinquishing rights in the partnership firm would be capital receipt and there would be no transfer of asset within the meaning of Sec.45(4) of the Act. Reliance was placed on other decisions also to submit that the provision of S.28(iv) and S.41(2) shall have no application to such receipts.
Before Ld.CIT(A), the assessee reiterated that the rights of the existing partner was reduced in the firm and the right was created in favor of the existing partner of the firm but the ownership of the property did not change even with the change in the constitution of the firm. The assessee relied upon plethora of decision to submit that in terms of Sec. 45(4), profits on distribution of capital asset on the dissolution of the firm would be taxable in the hands of the firm only.
Held by ITAT
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