TaxTMI 
TaxTMI 
2008 (8) TMI 907
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....firm. The remaining six partners continued the assessee's business. Accordingly, the partnership was reconstituted vide a deed dated 23-9-2003. It has been stated that Smt. Parama Devi due to her old age had been regularly expressing her desire to be relieved of her partnership on the condition that one property of the assessee-firm is to be given to her in lieu of the amount payable to her on her retirement from the partnership. She also apprehended that disputes may arise in the family in relation to different properties which, in turn, may jeopardize the family peace and also the security of the family. She, therefore, desired that with a view to protecting the honour of the family and preserving its harmony, it was necessary that during her lifetime, she made suitable arrangements in respect of her property/assets/interest in partnership, etc., so that the amity and goodwill is ensured among the family members. When Smt. Parama Devi expressed her desire about the retirement from the firm, the other partners thought that her retirement at this juncture might affect the financial interests of the assessee-firm's business, because her retirement would cause withdrawal of her capit....
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....ble Kerala High Court decision in the case of CIT v. Kunnamkulam Mill Board [2002] 257 ITR 5441 for the proposition that section 45(4) are not attracted in the case of retirement. Accordingly, learned Commissioner of Income-tax (Appeals) directed for deletion of the addition made under section 45(4) on account of long-term capital gains. Against this order, the revenue is in appeal before us. 6. We have heard both the counsels and perused the relevant records. Learned counsel for the assessee argued that section 45(4) cannot apply in this case where the case is only of retirement of one partner. The learned counsel further contended that in this case, the 'transfer' occurred on account of family arrangement and in such a case, no 'transfer' so as to attract capital gain can be envisaged. In this regard, he relied upon decision of the Tribunal in Kay Arr Enterprises' case (supra) and submitted that the same was confirmed by the Hon'ble jurisdictional High Court in the case of CIT v. Kay Arr Enterprises [2008] 299 ITR 348 (Mad.). The learned counsel further contended that section 45(4) would not apply also because there is no consideration for the 'transfer' except for amicable fa....
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....to the retiring partners would amount to the transfer of capital assets in the nature of capital gains and business profits which were chargeable to tax under section 45(4). ITAT, Chennai Bench in the case of G.K. Enterprises' case (supra) had held that section 45(4) would have no application in the case of retirement of a partner. 10. Hon'ble Kerala High Court in Kunnamkulam's case (supra) above was dealing with a case where there was a change in the constitution of the firm with the retirement of five partners after receiving the credit balance in their accounts, that there had been a revaluation of the assets and it was the enhanced value of the assets that was credited equally in their accounts. The Assessing Officer was of the opinion that five partners taking enhanced value for the assets on retirement amounted to a transfer of capital asset under section 45(4). The CIT and the Tribunal were of the opinion that section 45(4) was not applicable in this case and this view was confirmed by the Hon'ble Kerala High Court. The Hon'ble High Court on p. 547 has held as under:- "Likewise, if a partner retires he does not transfer any right in the immovable property in favo....
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....al gain would not be exigible. The detailed facts in this regard are already mentioned in para 3 above of this order. The submission of the assessee in this regard is briefly stated as under :- "A family arrangement cannot be considered as a transfer for the purpose of capital gains. A family settlement may be an arrangement or even an understanding between the members which resolves the family disputes and the rival claims of the members of family provided the settlement is bona fide and fair in the allotment of the properties amongst the family members. It is the settled proposition of law that settlement of bona fide dispute, the purpose of which is to bring about harmony or maintaining peace and tranquility amongst the members of family is a valid and sufficient consideration for a family settlement so arrived at by the members of the family. The family settlement need not be necessarily in writing nor registration thereof is necessary. There can be oral family settlement also. Memorandum of settlement does not require registration. No transfer is involved in a family arrangement wherein each party takes a share in the property by virtue of the independent title which ....