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The assessed preferred an appeal there-against before the Commissioner of Income Tax (in short, the 'CIT(A)'). The CIT(A) while accepting the contention of the assessed held that the dissolved firm was governed by partnership deed dated 23.06.1965 which by para 9 stipulated that partnership was at will and by deed of dissolution dated 19.5.1975 it was decided that the partnership shall be deemed to have been dissolved w.e.f. the said date and by mutual agreement the assets of the firm were divided between the various partners and the book value of the assets allotted to the assessed was Rs. 3,97,176/- besides cash payment of Rs. 2,50,000/-. CIT(A), however did not decide the assessed's alternate contention that what he had received was in the nature of goodwill, but observed that the assessed had no right to participate in the goodwill on dissolution. Thereafter, the Revenue preferred an appeal before the Tribunal, which while reversing the order of the CIT(A) and restoring the order of the ITO held that there was no dissolution of the firm and the assessed had retired from the firm and, therefore, capital gain was attracted.

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was a transfer within the meaning of Clause (47) of Section 2 of the Income-tax Act, 1961 of the shares contributed by the assessed as capital to the partnership firm in which he was a partner?"

It was held:-

"... What the partner gets upon dissolution or upon retirement is the realization of a pre-existing right or interest. It is nothing strange in the law that right or interest should exist in praesenti but its realization or exercise should be postponed. Therefore, what was the exclusive interest of a partner in his personal asset is, upon its introduction into a partnership firm as his share to the partnership capital, transformed into an interest shared with the other partners in that asset. Qua that asset, there is a shared interest. During the subsistence of the partnership, the value of the interest of each partner qua that asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets. And in regard to the latter, the value will be represented by his share in the net assets on the dissolution of the firm or upon the partner's retirement."

8. It may stated that the Gujarat decision in Commissioner of Income Tax v. Mohanbhai Pamabhai reported in (1973) 91 ITR 393 is the only decision directly on the point at issue before us but the question is whether the position of a retiring partner could be equated with that of a partner upon the general dissolution for capital gains tax purposes? The equating of the done by the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa , was not for capital gains tax purposes but for considering the question whether the instrument executed on such occasion between the partners inter se required registration and could be admitted in evidence for want of registration. For capital gains tax purposes, the question assumes significance in view of the fact that under Section 47(ii) any distribution of assets upon dissolution of a firm has been expressly excepted from the purview of Section 45 while the case of a retirement of a partner from a firm is not so excepted and hence the question arises whether the retirement of a partner stands on the same footing as that upon a dissolution of the firm. In our view, a clear distinction exists between the two concepts, inasmuch as the consequences flowing from each are entirely different. In the case of retirement of a partner form the firm it is only that partner who goes out of the firm and the remaining partners continue to carry on the business of the partnership as a firm, while in the latter case the firm as such no more exists and the dissolution is between all the partners of the firm. In the Indian Partnership Act, the two concepts are separately dealt with. Section 31 to 38 which occur in Chapter V deal with the incoming and outgoing partners and some of the consequences of retirement of a partner are dealt with in Sub-sections (2) and (3) of Section 32 while some others are dealt with in Sections 36 and 37. Under Section 37, the outgoing partner or the estate of the deceased partner, in the absence of a contract to the contrary, would be entitled at the opinion of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the property of the firm or to interest at 6 per cent per annum on the amount of his shares in the property of the firm. The subject of dissolution of a firm and the consequences are dealt with in Chapter VI - Sections 39 to 55. Section 48 deals with the mode of settlement of accounts between partners upon dissolution and the rules of settlement of accounts between the partners mentioned therein are subject to agreement by the partners, in other words, in the absence of any agreement made in that behalf, the rules mentioned in the Section would apply. It would be interesting to mention that the Partnership Act nowhere contemplates or deals with the concept of any partial dissolution or a dissolution qua an individual partner, the concept indicated in Section 39 appearing in Chapter VI is a total dissolution between all the partners of the firm. Further, under Section 32, which occurs in Chapter V, retirement of a partner may take any form as may be agreed upon between the partners and can occur in three situations contemplated by Clauses (a), (b) and (c) of Sub-section (1) of Section

11. In view of the aforementioned authoritative pronouncement, there cannot be any doubt whatsoever that whether it is held to be a case of dissolution of the partnership as a retirement, having regard to the provisions contained in Section 47(ii) of the Act, as it stood prior to 1988, the assessed was entitled only to the assets, he derived from the partnership firm and not the excess amount. Thus, the aforementioned question are answered (SIC).

12. This reference is disposed of accordingly.