TaxTMI 
TaxTMI 
2016 (5) TMI 326
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....ed and amount was credited in the capital account of the partners in the ratio of their profit sharing. Assessee withdrew the amount from his capital account. The AO treated the revaluation of the assets as extinguishment of the assessee's right in the land and, therefore, the difference in revalued price was treated as capital gains in the hands of the partner by taking shelter of provisions of Section 2(47) of the I.T.Act. By the impugned order the CIT(A) deleted the addition after observing as under :- 5.3 I have considered the submissions of the appellant and the order of the A.O. 1. As the facts are not in dispute one has to evaluate the above facts in the light of the provisions of the Income Tax Act 1961 and established legal precedents on the subject. 2. The AO has held in para 5.6.4 of the order that the 'erstwhile partners of the firm have received an amount for relinquishment of rights in favor of new incoming partners which is transfer within the meaning of Sec 2 (47) of the IT Act. 3. I notice that AO has not correctly appreciated the following imperatives while drawing conclusion: That appellant continues to be partner ....
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....t consideration received by him as a result of the extinguishment of his interest in the partnership assets. Further, in a similar case where there was no retirement and also revaluation, the jurisdictional Tribunal in ITO v SmtParu D Dave ITO ITD 410 (Mum) (2008) in a similar case held that the revaluation of assets of partnership and the credit of revalued amount to the capital account of partners in their respective share ratio do not entail any transfer as defined under s. 2(47) of the IT Act. The introduction of new partners to a partnership firm owning immovable assets and consequent reduction in the share ratio of present partners do not entail any relinquishment of their rights in the partnership property. On introduction of new partners, there is realignment of share ratio inter se between the partners only to the extent of sharing the profits or losses, if any, of the partnership business. When any new partner is introduced into an existing partnership firm, the profit sharing ratios undergo a change, which does not amount to transfer as defined under s. 2(47) of the Act, as there is no change in the ownership of assets by the partnership firm. In a late....
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....ements (as that of the appellant) in the matter of law, certainly, cannot form the basis of taxation. Reliance is placed on the following decisions:- (1) Commissioner of Income Tax Vs Mr.P.Firm, Muar (56 ITR 67)(SC), CIT vs Manik ( 74 ITR 1 (SC). In this case the assessee had given an undertaking to file a return for a year other than the year under appeal before ITAT. The Supreme Court disapproved enforcing such an undertaking. The case of Tribhuvandas G Patel is no longer good law because the same was reversed by SC reported in 236 ITR 515. The facts of HR Aslot and NA Mody's case are similar to Tribhuvandas G Paters case, therefore, the same also impliedly overruled by Hon'ble SC. Further, CIT v A N Naik 265 ITR 346, word "Otherwise" in section 45(4) covers not only the cases of dissolution but also Associates cases of subsisting partners of a partnership transferring assets in favour of a' retiring partner. In this case new partners were inducted in morning and old partners retired on close of the business on that day. In para 27 of the order, it was (Bombay) held that on retirement of partner, the partner got his share, it was held that there was ....
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....hares. Further, the firm itself has not relinquished any share in property in favour of new partners. 5.2 Accordingly, the addition of Rs. 1,45,75,658/- made by AO on account of capital gain is deleted." 4. Against the above order of CIT(A), the revenue is in further appeals before us. 5. We have considered rival contentions, carefully gone through the orders of authorities below and found from the record that assessee was having 25% as profit sharing ratio in the firm M/s Vipul Shipyard. Two new partners were admitted consequently the firm was reconstituted on 20/08/2007. The firm's constitution is as under :- S.No. Name of partner Share of profit before reconstitution Share of profit after reconstitution 1. Shri Parshuram M Amin 25% 0.25% 2. Smt. Kusumben Amin 50% 0.50% 3. Shri Dinesh P Amin 25% 0.25% 4. ABG Shipyard Ltd. Nil 98% 5. ABG international Pvt. Ltd. Nil 1% The major asset in the firm was land. The land was revalued to Rs. 5,31,36,000/- and such revalued amount credited to the assessee partner proportionately along with the other partners. New partners ABG Shipya....