Partner retirement receipt not treated as transfer, so no capital gains arose on settlement of firm account.

A partner's retirement receipt was treated as a settlement of his account in the firm, not as consideration for a transfer. Because the partner merely received his share in the firm's assets and no transfer took place, no taxable income arose under the Income-tax Act, 1961. The extended definition of transfer in section 2(47) did not change this position, and recharacterising the receipt as goodwill or compensation did not attract capital gains. The receipt was held not taxable and the addition was deleted.

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Issues: Whether the amount received by a partner on retirement from a firm was liable to tax as a transfer giving rise to taxable income, including capital gains, under the Income-tax Act, 1961.

Analysis: The amount received on retirement was treated as a settlement of the partner's account in the firm. Since the partner merely received his share in the firm's assets and no transfer was involved, no taxable income arose. The extended definition of transfer in section 2(47) did not alter this position. The characterization of the receipt as goodwill or compensation did not change its legal nature, and the capital gains argument was not attracted.

Conclusion: The receipt of Rs. 18,000 was not taxable and the addition was deleted, in favour of the assessee.

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