Distribution of partnership assets on dissolution is not a taxable transfer when partners receive only their share in realised assets.

Distribution of partnership assets on dissolution, including by auction among the partners under a consent arrangement, was treated as a working out of partners' rights rather than a transfer inter vivos. The amount received by each partner represented his or her share in the realised assets, so it fell within the exception for distribution of capital assets on dissolution and did not attract capital gains tax. The addition was therefore deleted and the Revenue's appeals failed.

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Issues: Whether the amount received by a partner on dissolution of a firm, where the firm's assets were auctioned among the partners and the highest bidder took over the business and assets, was chargeable to capital gains tax or fell within the exemption for distribution of capital assets on dissolution.

Analysis: The arrangement was found to be a method of working out the rights of the partners on dissolution, approved by the consent decree and consistent with the recognised mode of distributing the assets of a dissolved firm. The amount received by each partner represented his or her share in the distributed assets, and not consideration for a transfer inter vivos. The Court also noted that the principles laid down in the decisions on dissolution and retirement of partners showed that no taxable transfer arises where the partner merely receives his share on realisation of partnership assets.

Conclusion: The receipt was covered by the exception for distribution of capital assets on dissolution and was not liable to capital gains tax; the addition was rightly deleted and the Revenue's appeals failed.

Ratio Decidendi: Distribution of partnership assets on dissolution, even by auction among partners under a consent arrangement, is not a transfer giving rise to capital gains, as the partner receives only his share in the realised assets.

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