Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1968-69 - Whether where assessee relinquished her interest in partnership firm and with such relinquishment her source of income had entirely extinguished, sum received by her as consideration for relinquishment of her partnership interest could not be held to be revenue receipt - Held, yes Section 45 read with section 2(47) of the Income-tax Act, 1961 - Capital gains - Chargeable as - Assessment year 1968-69 - Whether in a transaction of retirement of a partner from a firm, there is no element of transfer and therefore, amount received by a partner on retirement is not assessable as capital gains - Held, yes FACTS The assessee partner, retired from the partnership firm with effect from 1-10-1967. The remaining two partners continued the business. As per the deed of retirement the assessee was paid her share of the capital and her share of profits up to the date of retirement and also a sum of Rs. 20,000 as consideration for relinquishment of her interest in the partnership, firm. In her return, she showed receipt of Rs. 20,000 as capital gains. The ITO held that the said sum was a revenue receipt. He brought it to tax as such. On appeal the AAC held that it was a capital receipt because it represented her share of the goodwill of the partnership firm. On cross appeals, the Tribunal held the said sum was not taxable either as revenue receipt or as capital gains. On reference : HELD There was no material to sustain the submission that the assessee entered into the partnership as part of her trading activity. With the relinquishment of her partnership interest, her source of income had entirely extinguished. The receipt of Rs. 20,000, therefore, could not be held to be revenue receipt. As regards liability to capital gains, the central and vital feature of capital gains is that a capital asset should suffer a transfer. The interest of a partner in the partnership is not interest in any specific item of partnership property. The interest of a partner is a right to obtain his share of profit from time to time during the subsistence of the partnership, and, on the…

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