Retiring partner's settlement not a transfer u/s 2(47); no capital gains taxable on retirement receipts

SC dismissed the revenue's appeal, upholding HC's view that amounts received by an assessee on retirement from partnership firms, representing the retiring partner's share in net partnership assets after deduction of liabilities and prior charges, do not constitute a "transfer" within the meaning of section 2(47) of the Income-tax Act. Consequently, no capital gains arise on such retirement receipts. SC reaffirmed that retirement accompanied by settlement of the partner's share does not involve transfer of any interest in partnership assets to continuing partners, and the assessment to capital gains was unsustainable.

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Issues involved: Interpretation of the term "transfer" u/s 2(47) of the Income-tax Act in the context of excess amount received by the assessee on retirement from partnership firms.

Summary:

The Supreme Court addressed the appeal by the Revenue challenging the Andhra Pradesh High Court's judgment regarding the assessability of the excess amount received by the assessee on retirement from two partnership firms as capital gains. The High Court's decision was based on the interpretation of the term "transfer" u/s 2(47) of the Income-tax Act. It was noted that according to the Gujarat High Court's judgment in CIT v. Mohanbhai Pamabhai, the retirement of a partner from a partnership does not constitute a transfer of interest in the partnership assets. This interpretation was upheld by the Supreme Court in Addl. CIT v. Mohanbhai Pamabhai. Consequently, the Supreme Court found no merit in the Revenue's appeal and dismissed it, with no order as to costs.

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