B. ALIM & BUILDERS, MUMBAI V. ITO 12(3)(4), MUMBAI

ITA 8624/MUM/2010

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9682 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARZO GARADIASRAR
• Keywords: Capital asset; Cost of acquisition; Fair market value
• Section: 148

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./8624/MUM/2010, /ASSESSMENT YEAR: 2005-06 M/S. B. ALIM & BUILDERS 501, TULSIANI BLDG. FREE PRESS JOURNAL MARG, NARIMAN POINT MUMBAI-400 021. PAN:AAHFB 4534 H VS. INCOME TAX OFFICER-12(3)(4) MUMBAI. ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SMT. ARZO GARADIA-SR,AR /ASSESSEE BY: SHRI PRAKASH JOTWANI / DATE OF HEARING: 17/05/2017 / DATE OF PRONOUNCEMENT:31/07/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 09/11/2010 OF THE CIT(A )-23,MUMBAI,THE ASSESSEE HAS FILED PRESENT APPEAL.ASSESSEE-FIRM,A BUILDER,FILED ITS RE TURN OF INCOME ON 12/10/2007,DECLARING TOTAL INCOME AT RS. NIL.A NOTICE U/S. 148 WAS ISSUE D ON 23/1/2009, AS THE ASSESSING OFFICER (AO WAS OF THE OPINION THAT TAXABLE INCOME HAD ESCA PED ASSESSMENT.IN RESPONSE,THE ASSESSEE FILED RETURN ON 13/3/2009 DECLARING INCOME AT RS.NI L.THE AO COMPLETED THE ASSESSMENT, ON 18/12/2009,U/S.143(3) R.W.S. 147 OF THE ACT,DETERMI NING THE TOTAL INCOME OF THE ASSESSEE AT RS.3,28,12,443/-. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT ADDITION M ADE BY AO OF CAPITAL GAINS IN THE HANDS OF THE FIRM U/S.45(4) OF THE ACT.DURING THE ASSESSM ENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE WAS OWNER OF PROPERTY AT BANGALORE,THAT IT WAS PURCHASED IN THE YEAR 1994 FOR A CONSIDERATION OF RS.45 LAKHS, THAT IT HAD PAID STA MP DUTY OF RS.5.40 LAKHS, THAT THE BALANCE SHEET AS ON 31/3/2003 SHOWED THE VALUE OF PROPERTY AT RS.56.99 LAKHS,THAT IT DID NOT FILE ANY DETAIL TO SUBSTANTIATE ANY INCREASE IN VALUE,THAT I N AY,2004-05 THE ASSET WAS REVALUED AT RS.2.04 CRORES,THAT THE PARTNERSACCOUNT WERE CREDI TED TO THE EXTENT OF REVALUATION IN THE YEAR UNDER APPEAL,THAT THE FIRM ADMITTED KK MOTWANI (KKM ) AND DEEPAK MOTWANI (DM) FROM WHOM THE CONSIDERATION TO THE EXTENT OF REVALUED AM OUNT WAS RECEIVED IN THE FORM OF CAPITAL CONTRIBUTION,THAT IMMEDIATELY THE ENTIRE AMOUNT WAS WITHDRAWN BY OTHER PARTNERS EXCEPT KKM AND DM.THE AO OBSERVED THAT THE ENTIRE TRANSACT ION HAD BEEN GIVEN THE COLOUR OF BEING IN NATURE OF CHANGE IN CONSTITUTION OF PARTNE RS TO REFLECT THAT THERE WAS NO TRANSFER OF ASSETS,THAT VARIOUS DEEDS OF ADMITTANCE/RETIREMENT HAD BEEN DRAWN ON DIFFERENT DATES, THAT 8624/M/10(05-06) B.ALIM & BUILDERS 2 THERE WAS MUTUAL BENEFIT TO THE PARTNERS OF THE FIR M IN OBTAINING THE CONSIDERATION WITHOUT PAYMENT OF TAXES,THAT THE TRUE COLOUR WAS EVIDENT F ROM THE BROADER PERSPECTIVE THAT THE PROPERTY HAD BEEN SOLD TO KKM AND DM BY THE ASSESSE E,THAT THERE WAS A CLEAR TRANSFER OF PROPERTY THAT THE ASSESSEE WAS LIABLE FOR CAPITAL GAIN,ACCORDINGLY THE AO ISSUED A SHOW CAUSE NOTICE TO IT ASKING THE ASSESSEE AS TO WHY THE TRAN SACTION SHOULD NOT BE HELD AS TRANSFER OF PROPERTY AND THE GAINS THEREFROM SHOULD NOT BE TAXE D IN ITS HANDS.HE HELD THAT LATER ON THE PROPERTY WAS TRANSFERRED TO BUILDER FOR A CONSIDERA TION ON RS.4.26 CRORES THAT IT WAS THE FAIR MARKET VALUE OF PROPERTY AS ON THE DATE OF TRANSFER . FINALLY,HE HELD THAT ASSESSEE WAS LIABLE FOR CAPITAL GAIN TAX ON THE TRANSFER OF ASSETS.LTCG WAS WORKED OUT ON THE BASIS OF FMV OF THE ASSET ON THE DATE OF TRANSFER. THE COST OF ASSE T WAS TAKEN AT RS.50.40 LAKHS AND LONG TERM CAPITAL GAIN(LTCG)WAS WORKED OUT AT RS.3.25 CRORES APPLYING INDEXATION TO THE COST OF ACQUISITION. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS. AFTER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE,THE FAA HELD T HAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF HON'BLE KARNATAKA HIGH COURT DELIVERED IN THE CASE OF GURUNATH TALKIES (226 CTR 474). HE ALSO REFERRED TO THE CASE OF SUVARDHAN (287ITR404) AND HELD THAT THE AO HAD RIGHTLY TAXED THE CAPITAL GAINS ABOUT THE TRANSACTI ON. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESNTATIVE (AR) STATED THAT THE PROPERTY WAS IN POSSESSION OF THE ASSESSEE FOR MOR E THAN 10 YEARS,THAT IN 1995 IT HAD ENTERED INTO DEVELOPMENT AGREEMENT WITH MOTWANI BUILDERS, T HAT KKM AND DM WERE ADMITTED AS PARTNERS VIDE DEED OF RECONSTITUTION DT.30/6/2004,T HAT THE OLD PARTNERS RETIRED, THAT THE ASSETS OF THE FIRM WERE VALUED AT RS.2.46 CRORES IN AY.200 4-05,THAT THE REVALUED AMOUNT WAS CREDITED TO THE CAPITAL ACCOUNT OF THE PARTNERS,THA T THE CAPITAL CONTRIBUTION WERE MADE TO INCREASE THE GOODWILL OF THE FIRM,THAT THE ADMISSIO N OF PARTNERS IN FIRM WOULD NOT CREATE A LIABILITY OF CAPITAL GAIN EITHER IN THE HANDS OF OL D PARTNERS OR IN HANDS OF ASSESSEE FIRM. HE REFERRED TO THE CASES OF KUNNAMKULAM MILL BOARD (25 7ITR554),A. N. NAIK ASSOCIATES (265ITR346)AND DYNAMIC ENTERPRISES (ITA NO.1414 OF 2006 OF HONBLE KARNATAKA HIGH COURT ). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ONLY ISSUE TO BE DECIDED IS AS TO WHETHER ON RECONS TITUTION OF FIRM LTCG IS PAYABLE BY THE FIRM.HERE,WE WOULD LIKE TO DISCUSS THE PROVISIONS O F SECTION 45(4) OF THE ACT,AS SAME DEAL 8624/M/10(05-06) B.ALIM & BUILDERS 3 WITH THE ISSUE.IT IS SAID THAT SECTION 45 OF THE AC T IS A CHARGING SECTION. PRIOR TO THE FINANCE ACT, 1987,IN THE CASE OF A PARTNERSHIP,IT WAS HELD THAT THE ASSETS ARE OF THE PARTNERS AND NOT OF THE PARTNERSHIP AND THAT IF ON RETIREMENT A PARTNER RECEIVED HIS SHARE OF THE ASSETS, MAY BE IN THE FORM OF A SINGLE ASSET, THERE WAS NO TRANSFER A ND SIMILARLY ON DISSOLUTION OF THE PARTNERSHIP. CONVERSION OF AN ASSET HELD INDEPENDEN TLY AS AN ASSET OF THE FIRM IN WHICH THE INDIVIDUAL WAS A PARTNER WAS ALSO HELD NOT TO AMOUN T TO TRANSFER AND THEREFORE OUTSIDE THE SCOPE OF THE CAPITAL GAIN.THE RATIONALE WAS THAT TH E CONSIDERATION FOR THE TRANSFER OF THE PERSONAL ASSET WAS INDETERMINATE, BEING THE RIGHT W HICH AROSE OR ACCRUED TO THE PARTNER DURING THE SUBSISTENCE OF THE PARTNERSHIP TO GET HIS SHARE OF PROFIT FROM TIME TO TIME AND ON DISSOLUTION OF THE PARTNERSHIP TO GET THE VALUE OF HIS SHARE FROM THE NET PARTNERSHIP ASSETS. PARLIAMENT WITH THE AVOWED OBJECT OF BLOCKING THIS ESCAPE ROUTE FOR AVOIDING CAPITAL GAINS TAX BY THE FINANCE ACT, 1987 INTRODUCED SUB-SECTION (3) TO SECTION 45.THE EFFECT OF THIS WAS THAT THE PROFITS AND GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY A PARTNER TO A FIRM IS CHARGEABLE AS THE PARTNERS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE.THE ACT OF 1987 ALSO BROUGHT ON THE STATUTE BOOK A NEW SUB-SECTION (4) IN SECTION 45 OF THE ACT. THE EFFECT IS THAT THE PROFITS OR GAINS ARISING FRO M THE TRANSFER OF A CAPITAL ASSET BY A FIRM TO A PARTNER ON DISSOLUTION OR OTHERWISE WOULD BE CHARGE ABLE AS THE FIRMS INCOME IN THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. 5.1. IN OUR OPINION,WHAT IS POSTULATED UNDER SECTION 45( 4) OF THE ACT,IS THAT THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM WOULD BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM.OWNERSHIP OF PROPERTY DOES NOT CHANGE WITH THE CHANGE IN THE CON STITUTION OF THE FIRM.AS LONG AS THERE IS NO CHANGE IN OWNERSHIP OF THE FIRM AND ITS PROPERTIES, FOR THE SIMPLE REASON THAT THE PARTNERSHIP OF THE FIRM STOOD RECONSTITUTED,THERE IS NO TRANSFE R OF CAPITAL ASSETS. LIKEWISE, IF A PARTNER RETIRES HE DOES NOT TRANSFER ANY RIGHT IN THE IMMOV ABLE PROPERTY IN FAVOUR OF A SURVIVING PARTNER BECAUSE HE HAD NO SPECIFIC RIGHT WITH RESPE CT TO THE PROPERTIES OF THE FIRM.WHAT TRANSPIRES IS THAT THE RIGHT TO SHARE THE INCOME OF THE PROPERTIES STOOD TRANSFERRED IN FAVOUR OF THE SURVIVING PARTNERS,AND THERE IS NO TRANSFER OF OWNERSHIP OF THE PROPERTY IN SUCH CASES. WHEN A PARTNERSHIP IS RE-CONSTITUTED BY ADDING A NE W PARTNER, THERE IS NO TRANSFER OF ASSETS WITHIN THE MEANING OF SECTION 45(4). 5.2. WE FIND THAT IN THE MATTER OF DYNAMIC ENTERPRISES ( 359 ITR 83) THE HONBLE KARNATAKA HIGH COURT FULL BENCH HAS OVERRULED THE JUDGMENT OF GURUNATH TALKIES(SUPRA)AND HAS HELD AS UNDER: 8624/M/10(05-06) B.ALIM & BUILDERS 4 UNDER THE PROVISIONS OF THE PARTNERSHIP ACT, 1932, THE FIRM IS NOT RECOGNIZED AS A LEGAL ENTITY. A FIRM IS NOT A DISTINCT LEGAL ENTITY APART FROM THE PARTNERS CONSTITUTING IT. IN LAW THE FIRM AS SUCH HAS NO SEPARATE RIGHTS OF ITS OWN IN T HE PARTNERSHIP ASSETS. WHEN ONE TALKS OF THE FIRMS PROPERTY OR THE FIRMS ASSETS ALL THAT IS ME ANT IS PROPERTY OR ASSETS IN WHICH ALL PARTNERS HAVE A JOINT OR COMMON INTEREST. THE WHOLE CONCEPT OF PARTNERSHIP IS TO EMBARK UPON A JOINT VENTURE AND FOR THAT PURPOSE TO BRING IN AS CAPITAL MONEY OR EVEN PRO-PERTY INCLUDING IMMOVABLE PROPERTY. ONCE THAT IS DONE, WHATEVER IS BROUGHT IN WOULD CEASE TO BE THE EXCLUSIVE PROPERTY OF THE PERSON WHO BROUGHT IT IN. IT WOULD BE THE TRADING ASSET OF THE PARTNERSHIP IN WHICH ALL THE PARTNERS WOULD HAVE IN TEREST IN PROPORTION TO THEIR SHARE. THE PROPERTY OF THE FIRM INCLUDES ALL PROPERTY AND RIGH TS AND INTERESTS IN PROPERTY ORIGINALLY BROUGHT INTO THE STOCK OF THE FIRM, OR ACQUIRED, BY PURCHASE OR OTHERWISE, BY OR FOR THE FIRM, OR FOR THE PURPOSES AND IN THE COURSE OF THE BUSINE SS OF THE FIRM, AND INCLUDES ALSO THE GOODWILL OF THE BUSINESS. PROPERTY AND RIGHTS AND I NTEREST IN PROPERTY ACQUIRED WITH MONEY BELONGING TO THE FIRM ARE DEEMED TO HAVE BEEN ACQUI RED FOR THE FIRM. WHEN A PARTNER BRINGS IN HIS PERSONAL ASSET INTO A FIRM AS HIS CONTRIBUTI ON TO ITS CAPITAL, AN ASSET WHICH ORIGINALLY WAS SUBJECT TO THE ENTIRE OWNERSHIP OF THE PARTNER BECOMES NOW SUBJECT TO THE RIGHTS OF OTHER PARTNERS IN IT. WHEN HIS PERSONAL ASSET MERGES INTO THE CAPITAL OF THE FIRM A CORRESPONDING CREDIT ENTRY IS MADE IN THE PARTNERS CAPITAL ACCOU NT IN THE BOOKS OF THE FIRM BUT THAT ENTRY IS MADE MERELY FOR THE PURPOSE OF ADJUSTING THE RIGHTS OF THE PARTNERS INTER SE WHEN THE PARTNERSHIP IS DISSOLVED OR THE PARTNER RETIRES. HI S RIGHT DURING THE SUBSISTENCE OF THE PARTNERSHIP IS TO GET HIS SHARE OF PROFITS FROM TIM E TO TIME AS MAY BE AGREED UPON AMONG THE PARTNERS AND AFTER THE DISSOLUTION OF THE PARTNERSH IP OR WITH HIS RETIREMENT FROM THE PARTNERSHIP, OF THE VALUE OF HIS SHARE IN THE NET P ARTNERSHIP ASSETS AS ON THE DATE OF DISSOLUTION OR RETIREMENT AFTER A DEDUCTION OF LIAB ILITIES AND OTHER PRIOR CHARGES. DISSOLUTION OF A FIRM MUST, IN POINT OF TIME, BE ANTERIOR TO TH E ACTUAL DISTRIBUTION. DIVISION OR ALLOTMENT OF THE ASSETS THAT TAKES PLACE AFTER MAKING ACCOUNTS A ND DISCHARGING THE DEBTS AND LIABILITIES DUE BY THE FIRM. THE DISTRIBUTION, DIVISION, OR ALLOTME NT OF ASSETS OF THE ERSTWHILE PARTNERS, IS NOT DONE BY THE DISSOLVED FIRM. IT IS THE PARTNERS WHO OWN JOINTLY OR IN COMMON THE ASSETS OF THE PARTNERSHIP AND, THEREFORE, THE CONSEQUENCE OF THE DISTRIBUTION, DIVISION OR ALLOTMENT OF ASSETS TO THE PARTNERS WHICH FLOWS UPON DISSOLUTION AFTER DISCHARGE OF LIABILITIES IS NOTHING BUT A MUTUAL ADJUSTMENT OF RIGHTS BETWEEN PARTNERS AND TH ERE IS NO QUESTION OF ANY EXTINGUISHMENT OF THE FIRMS RIGHTS IN THE PARTNERSHIP. THE INCOME-TAX ACT, 1961, RECOGNIZES THE FIRM AS A DISTINCT ASSESSABLE LEGAL ENTITY APART FROM ITS PARTNERS. SUB-SECTIONS (3) AND (4) OF SECTION 4 5 WERE INTRODUCED BY THE FINANCE ACT, 1987, AND CAME INTO EFFECT FROM APRIL 1, 1988. IN SUB-SEC TION (3) WHAT IS SOUGHT TO BE TAXED IS THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAP ITAL ASSET BY A PERSON TO A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS. AFTE R SUCH TRANSFER, HE IS OR BECOMES A PARTNER OR MEMBER, BY WAY OF CAPITAL CONTRIBUTION OR OTHERW ISE. THEN THE CAPITAL CONTRIBUTION SHALL BE CHARGEABLE TO TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTION 48 , THE AMOUNT RE CORDED IN THE BOOKS OF ACCOUNT OF THE FIRM, ASSOCIATION OR BODY AS THE VALUE OF THE CAPITAL ASS ET SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET. WHEN A PARTNER BRINGS IN HIS PERSONAL ASSET INTO A FIRM AS HIS CONTRIBUTION TO ITS CAPI-TAL, AN ASSET WHICH WAS ORIGINALLY EXCLUSIVELY BELONGING TO HIM, BECOMES THE TRADING ASSET OF THE FIRM, IN WHICH ALL PARTNERS ACQUIRE INTEREST IN PROPORTION T O THEIR RESPECTIVE SHARE IN THE FIRM. HIS RIGHT DURING THE SUBSISTENCE OF THE PARTNERSHIP IS TO GET HIS SHARE OF PROFITS FROM TIME TO TIME AS AGREED UPON AMONG THE PARTNERS. ON DISSOLUTION O F THE FIRM OR ON RETIREMENT FROM THE FIRM TO GET THE VALUE OF HIS SHARE IN THE NET PARTNERSHI P ASSETS AS ON THE DATE OF DISSOLUTION OR RETIREMENT. THEREFORE, THIS IS A CASE OF A PARTNER BRINGING CAPITAL ASSETS TO A FIRM AS HIS CAPITAL CONTRIBUTION. IN ORDER TO ATTRACT SUB-SECTION ( 4 ) OF SECTION 45 , THE CONDITION PRECEDENT IS, (1) THERE SHOULD BE A DISTRIBUTION OF CAPITAL ASSETS OF A FIRM ; (2) SUCH DISTRIBUTION SHOULD RESULT IN TRANSFER OF A CAPITAL ASSET BY FIRM IN FAVOUR OF THE PARTNER ; (3) ON ACCOUNT OF THE TRANSFER THERE SHOULD BE A PROFIT OR GAIN DERIVED BY THE FIRM ; AND(4) SUCH DI STRIBUTION SHOULD BE ON DISSOLUTION OF THE FIRM OR OTHERWISE. IN ORDER TO ATTRACT SECTION 45(4 ) THE CAPITAL ASSET OF THE FIRM SHOULD BE 8624/M/10(05-06) B.ALIM & BUILDERS 5 TRANSFERRED IN FAVOUR OF A PARTNER, RESULTING IN TH E FIRM CEASING TO HAVE ANY INTEREST IN THE CAPITAL ASSET TRANSFERRED AND THE PARTNERS SHOULD A CQUIRE EXCLUSIVE INTEREST IN THE CAPITAL ASSET. IN OTHER WORDS, THE INTEREST THE FIRM HAS IN THE CAPITAL ASSET SHOULD BE EXTINGUISHED AND THE PARTNERS IN WHOSE FAVOUR THE TRANSFER IS MADE S HOULD ACQUIRE THAT INTEREST. THEN ALONE ARE THE PROFITS OR GAINS ARISING FROM SUCH TRANSFER LIA BLE TO TAX UNDER SECTION 45(4) . HELD, DISMISSING THE APPEAL, (I) THAT THE FIRM HAD PURCHASED THE PROPERTY UNDER A REGISTERED SALE DEED IN THE NAME OF THE FIRM. THE PROPERTY DID NOT STAND IN THE NAME OF ANY INDIVIDUAL PARTNER. NO INDIVIDUAL PARTNER BROUGHT THAT CAPITAL ASSET AS CAPITAL CONTRIBUTION INTO THE FIRM. FIVE PARTNERS BROUGHT IN CASH BY WAY OF CAPITAL WHE N THE FIRM WAS RECONSTITUTED ON APRIL 28, 1993. NEARLY A YEAR THEREAFTER ON APRIL 1, 1994, BY WAY OF RETIREMENT, THE ERSTWHILE THREE PARTNERS TOOK THEIR SHARE IN THE PARTNERSHIP ASSET AND WENT OUT OF THE PARTNERSHIP. AFTER THE RETIREMENT OF THE THREE PARTNERS, THE PARTNERSHIP C ONTINUED TO EXIST AND THE BUSINESS WAS CARRIED ON BY THE REMAINING FIVE PARTNERS. THERE WA S NO DISSOLUTION OF THE FIRM OR AT ANY RATE THERE WAS NO DISTRIBUTION OF CAPITAL ASSETS ON APRI L 1, 1994, WHEN THE THREE PARTNERS RETIRED FROM THE FIRM. WHAT WAS GIVEN TO THE RETIRING PARTN ERS WAS CASH REPRESENTING THE VALUE OF THEIR SHARE IN THE PARTNERSHIP. NO CAPITAL ASSET WA S TRANSFERRED ON THE DATE OF RETIREMENT UNDER THE DEED OF RETIREMENT DATED APRIL 1, 1994. I N THE ABSENCE OF DISTRIBUTION OF CAPITAL ASSETS AND IN THE ABSENCE OF TRANSFER OF ANY CAPITA L ASSET IN FAVOUR OF THE RETIRING PARTNERS, NO PROFIT OR GAIN AROSE IN THE HANDS OF THE FIRM. THER EFORE, THE QUESTION OF THE FIRM BEING ASSESSED UNDER SECTION 45(4) AND BEING CHARGED TO T AX FOR THE PROFITS OR GAINS WHICH DID NOT ACCRUE TO IT WOULD NOT ARISE. (II) THAT THE PROPERTY BELONGED TO THE FIRM. IT DID NOT BELONG TO THE PARTNERS. THE PARTNERS ONLY HAD A SHARE IN THE PARTNERSHIP ASSET. WHEN THE FIVE PARTNERS CAME INTO THE PARTNERSHIP AND BROUGHT CASH BY WAY OF CAPITAL CONTRIBUTION TO THE EXTENT OF THEIR CONTRIBUTION, THEY WERE ENTITLED TO A PROPORTIONATE SHARE IN THE INTEREST I N THE FIRM. WHEN THE RETIRING PARTNERS TOOK CASH AND RETIRED, THEY WERE NOT RELINQUISHING THEIR INTEREST IN THE IMMOVABLE PRO-PERTY. WHAT THEY RELINQUISHED WAS THEIR SHARE IN THE PARTNERSHI P. THEREFORE, THERE WAS NO TRANSFER OF A CAPITAL ASSET, AS SUCH, AND NO CAPITAL GAINS OR PRO FIT AROSE IN THE HANDS OF THE FIRM. THEREFORE, SECTION 45(4) HAD NO APPLICATION TO THE FACTS OF TH IS CASE. (III) THAT THE FIRM DID NOT TRANSFER ANY RIGHT IN T HE CAPITAL ASSET IN FAVOUR OF THE RETIRING PARTNER. THE FIRM DID NOT CEASE TO HOLD THE PROPERT Y AND CONSEQUENTLY, ITS RIGHT TO THE PROPERTY WAS NOT EXTINGUISHED. CONVERSELY, THE RETIRING PART NER DID NOT ACQUIRE ANY RIGHT IN THE PROPERTY AS NO PROPERTY WAS TRANSFERRED IN THEIR FA VOUR. (IV) THAT WHEN A RETIRING PARTNER TAKES ONLY MONEY TOWARDS THE VALUE OF HIS SHARE AND WHEN THERE IS NO DISTRIBUTION OF CAPITAL ASSET/ASSETS AM ONG THE PARTNERS THERE IS NO TRANSFER OF A CAPITAL ASSET AND, CONSEQUENTLY, NO TAX ON PROFITS OR GAINS WAS PAYABLE UNDER SECTION 45(4). SIMILAR VIEWS WERE EXPRESSED BY THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF A. N. NAIK ASSOCIATES(SUPRA).RESPECTFULLY FOLLOWING THE A BOVE MENTIONED TWO JUDGMENTS,WE REVERSE THE ORDER OF THE FAA AND DECIDE THE ISSUE I N FAVOUR OF THE ASSESSEE. AS A RESULT, APPEA L FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2017. 31 , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :31.07.2017. JV.SR.PS. 8624/M/10(05-06) B.ALIM & BUILDERS 6 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.