Law:

Section:

Section 45, read with section 2(14) and 2(47), of the Income-tax Act, 1961 - Capital gains - Chargeability of - Assessment year 1974-75 - Whether consideration received by assessee-partner from other two partners of firm for transferring or relinquishing a part of interest in goodwill of firm in favour of other partners is liable to capital gains tax - Held, no FACTS As a result of various arrangements and changes made the share of profits of the assessee, a chartered accountant, which was 75 per cent to begin with and later reduced to 69 per cent ultimately got fixed at 50 per cent while the share of profits of the other two partners increased from 25 per cent to 30 per cent and from 6 per cent to 20 per cent, respectively. According to the assessee, it was agreed among the partners of the firm that he should be paid Rs. 25,000 by the other two partners in consideration of his giving up a portion of his share in the goodwill of the firm and the accounts of the other two partners should be debited with Rs. 5,000 and Rs. 20,000, respectively. In the course of assessment proceedings, the assessee, an individual took up the stand that as the amount of Rs. 25,000 was received by him from other partners in consideration of his giving up a portion of his share in the goodwill of the firm, there was no question of subjecting to tax any capital gains arising therefrom. The ITO took the view that the entire amount of Rs. 25,000 was liable to tax under section 45. On appeal by the assessee, the AAC as well as the Tribunal upheld the assessee's claim. On reference: HELD The assessee had brought about a re-distribution of the interest of the partners in the goodwill of the firm and it was not as if the assessee had dealt with any particular asset of the firm as his own or assigned his interest in any specific item, for the assessee still continued to hold an interest in the goodwill of the firm which was one of its assets, in spite of his parting with a portion of his interest in the goodwill, and the firm consisting of three partners continued as before to hold its goodwill as an asset. Thus, the assessee had relinquished or transferred a part of his interest in goodwill…

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