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January 2014

Capital gain: Partnership firm: Transfer: Distribution of asset on dissolution etc.: S/s. 2(47) and 45(4): Retiring partner taking only money towards value of its share: No transfer of capital asset: Section 45(4) not applicable:

By K. B. Bhujle, Advocate
Reading Time 1 mins
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CIT vs. Dynamic Enterprises; 359 ITR 83 (Karn)(FB):

The following question was referred to the Full Bench of the Karnataka High Court for consideration:

“When a retiring partner takes only the money towards the value of his share, whether the firm should be made liable to pay capital gains even when there is no distribution of capital asset/ assets among the partners u/s. 45(4) of the Income-tax Act, 1961? or Whether the retiring partner would be liable to pay for the capital gains?” The Full Bench of the High Court answered the questions as under:

“When a retiring partner takes only money towards the value of his share and when there is no distribution of capital asset/assets among the partners there is no transfer of a capital asset and consequently no profit or gain is payable u/s. 45(4) of the Income-tax Act.”

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