Law:

Section:

Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as - Assessment year 1976-77 - Assessee and one 'R' had formed a partnership- firm to run business of a cinema - On account of mutual distrust between partners, a situation arose when business of firm could not be carried on smoothly and therefore, both partners decided to dissolve firm - "R" offered certain amount to assessee to take over assets of firm which was accepted by assessee - Accordingly, a sale deed and dissolution deed was executed by partners - Whether, on facts, it was a case of dissolution of partnership-firm and it did not result in any transfer of assets as understood in common law - Held, yes - Whether, therefore, no capital gains accrued to assessee in respect of aforesaid transaction - Held, yes FACTS The assessee and one 'R' had formed a partnership-firm to run the business of a cinema building. Subsequently, disputes arose between the partners and the partnership was decided to be dissolved. The partner "R" made an offer to the assessee offering to purchase the share of the assessee in half of the immovable as well as movable properties of the firm. The assessee gave up his all rights in the movable properties and also agreed to let his half share in the cinema building to be utilized by 'R' for running the cinema. Accordingly, a dissolution deed and a sale deed was executed between the assessee and 'R'. The Assessing Officer held that since it was a case of transfer of assets, amount received by the assessee was assessable to capital gain tax. However, the Tribunal found that the assessee owned half share of the cinema building and got rent for it from 'R', which was offered for assessment as income from property year after year. The Tribunal accordingly, opined that it was a case of dissolution and one partner took over the assets of the other and offered to the other the price of his share and no transfer of assets took place and, therefore, liability to capital gains did not arise. On reference : HELD From the finding recorded by the Tribunal it was seen that on account of mutual distrust between the partners a situation arose when the business of the firm could not…

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