Case Law Details
M/s. D.S. Corporation Vs ITO (ITAT Mumbai)
Conclusion: Retiring partners did not acquire any right in the revalued property and what they got on retirement was only money equivalent to enhanced portion of the assets re-valued which did not constitute capital asset under section 2(14) and payment of the said money by assessee-firm to retiring partners could not give rise to capital gain under section 45(4) read with section 2(14).
Held:
Assessee-partnership firm was carrying on the business of real estate development and construction. The said partnership firm was reconstituted from time to time. Meanwhile, firm purchased a property which was revalued at enhanced value. The resultant revaluation surplus was credited to the capital accounts of the partners in their profit sharing ratio. Two of the partners retired from firm and were paid the amounts standing to the credit of their capital accounts in the partnership firm including the amount credited on account of revaluation surplus. The question that arse for consideration was whether the money equivalent to enhanced portion of the assets revalued constituted capital asset and whether there was any transfer of such capital asset on dissolution of firm or otherwise within the meaning of section 45(4) read with section 2(14). It was held the partnership firm was continued to exist even after the retirement of partners. There was only a reconstitution of partnership firm on their retirement without there being any dissolution and the land properly acquired by the partnership firm continued to be owned by the said firm even after reconstitution without any extinguishment of rights in favour of the retiring partners. The retiring partners did not acquire any right in the said property and what they got on retirement was only the money equivalent to their share of revaluation surplus (enhanced portion of the asset revalued] which was credited to their capital accounts. There was thus no transfer of capital asset by way of distribution of capital asset either on dissolution or otherwise within the meaning of section 45(4) read with section 2(14).
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
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