By TIOL News Service

MUMBAI, MAR 13, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether the tenure of a retiring partner in a partnership firm decides the applicability of the provisions of Sec 45(4) to the sum received by the assessee. NO IS THE VERDICT.

Facts of the case:

The Assessee is an individual. During the relevant year, she joined a partnership firm M/s. D. S. Corporation as a partner making a capital contribution of Rs.52.50 lakhs. Thereafter the assets of the firm were revalued. In the meanwhile, the assessee also retired from the firm and at the time of her retirement she received a sum of Rs.30.87 crores from the said firm. During the course of assessment, the AO passed an order u/s 143(3) r/w/s 153A and brought to tax the amount of Rs.30.87 crores being the amount received by the assessee on her retirement from the said partnership firm M/s. D. S. Corporation.

On appeal, the Tribunal noted the fact that in view of Section 45(4), the amounts received by a partner on his retirement from a partnership firm was not liable to capital gain in the hands of the partner. However, it was the partnership firm which was liable to pay the tax.

High Court held:

++ it is seen that the order of the Tribunal placed reliance upon the decision of this Court in Prashant Joshi's case and Riyaz Sheikh's case, to hold that amount received by a partner on his retirement and the partnership firm is not subjected to tax in the retiring partner's hands in view of Section 45(4) of the Act. The liability, if any, to pay the tax is on the partnership firm in view of Section 45(4). Besides, the duration of a person being a partner in the firm does not decide the applicability of Section 45(4), as it is not so provided therein. In view of the fact that the question as proposed stands concluded by the decision of this Court, the question does not give rise to any substantial question of law.

(See 2019-TIOL-567-HC-MUM-IT)