N. Kumar, J.

A Division Bench of this Court felt that there is a conflict between the proposition of law laid down in the case of Commissioner of Income Tax Vs. Mangalore Ganesh Beedi Works reported in (2004) 265 ITR 658 and in the case of Commissioner of Income Tax And Another Vs. Gurunath Talkies reported in (2010) 328 ITR 59. In order to resolve the said conflict, this matter was referred to the Full Bench by order dated 31.07.2012. On such reference, Hon'ble Chief Justice has passed an order on 27.08.2013 directing the matter to be listed before this Bench.

SUBSTANTIAL QUESTION OF LAW

2. The substantial questions of law referred for our consideration are as under:

"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 under Section 45(4) of the I.T. Act?

or

Whether the retiring partner would be liable to pay for the capital gains?"

FACTUAL MATRIX

3. Before we proceed to answer the said substantial questions of law, it is necessary to have a look at the factual background.

4. M/s. Dynamic Enterprises-the respondent herein