Law: Income Tax Act, 1961

Section: 2(47)47(ii)

Income-tax----Capital gains---Exemption---Relinquishment of rights over capital assets amount to transfer---Firm--Firm formed to do businesses of exhibition of films---Due to disputes among partners, suit instituted for rendition of accounts and dissolution of partnership by some partners---During pendency of suit, compromise effected and deed of compromise filed in Court--¬Pursuant to compromise decree all partners authorising a co-partner to sell partnership property by auction---In auction, property purchased by one of the partners of dissolved firm and relinquishment deed on behalf of firm executed in favour of purchaser---Firm stood dissolved by virtue of compromise decree---Transaction was an outright sale for gains to realise sale proceeds of property---There was no distribution of capital asset in specie on dissolution ---Assessee-firm not entitled to exemption from tax on capital gains arising on sale---Indian Income Tax Act, 1961, Ss.2(47) & 47(ii). Under section 2(47) of the Income Tax Act, 1961, relinquishment of rights over a capital asset shall be treated as a "transfer". As per the above provision, a sale, exchange or "relinquishment" of a capital asset shall be regarded as a "transfer". Thus, the gains arising from the transfer---may be in the form of a sale or exchange or relinquishment---of a capital asset effected in the previous year are chargeable to income-tax under the head "Capital gains" under the provisions of section 45 of the Act. A firm was formed to do business of exhibition of films. Due to disputes among the partners, a suit for rendition of accounts and dissolution of the partnership was instituted by some of the partners. During the pendency of the suit a compromise was effected among the partners and a compromise decree was passed by the Court in terms of the said compromise recorded by the Court. Pursuant to the compromise decree a general power of attorney was executed by all the partners in favour of a co-partner authorising him to sell the partnership property by auction. In the auction held, the property was purchased by one of the partners and a deed of relinquishment on behalf of the firm was executed in favour of…

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