SABYASACHI MUKHARJI, J.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, we are concerned with the assessment year 1970-71, and the following question has been referred to this court: "whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 45 and Section 47 (ii) of the Income-tax Act, 1961, the Tribunal was right in holding that no element of transfer of a capital asset was involved in the receipt of money by the assessee from the firm as a retiring partner and that no-capital gains tax was chargeable on the profit, if any, arising to the retiring partner from the receipt of such money ? "

( 2 ) IN order to appreciate the question it is necessary to refer to certain facts. The assessee and two of his brothers along with others were partners of a firm styled as M/s. G. S. Atwal and Co. The assessee had 13% share, one of his brothers had 13% share and another brother of the assessee had 9% share in the said firm. It was under the deed of retirement and reconstitution dated 3rd of April, 1969, that the assessee and his two brothers retired from the firm with effect from 1st of October, 1968, and those three outgoing partners had been jointly paid Rs. 5 lakhs by the reconstituted firm towards their shares in the net assets of the firm. As the question would involve the rights of the parties depending upon the said retirement and reconstitution it would be necessary to refer to the terms of the said two deeds. As mentioned hereinbefore there are two deeds executed on the 3rd of April, 1969. In the first deed, after setting out the names of the partners, it was recited as follows :" Whereas the parties have been carrying on various businesses of which two are the registered partnership firms and the other two are limited companies. They are as follows :--G. S. Atwal and Co. (Asansol ). G. S. Atwal and Co. (Engineers) P. Ltd. G. S. Atwal and Co. (Gua ). Surjit and Surinder Investment (P.) Ltd. AND WHEREAS differences having arisen between the parties hereto and through the intervention of mutual friends, it has been agreed that the parties represented by G. S. Atwal group would take over the business hitherto carried on in co-partnership in the name of G. S. Atwal and Co. and the private limited company known as G. S. Atwal and Co. (Engineers) P. Ltd. and in consideration of that S. S. Atwal group would, take over the partnership firm of G. S. Atwal and Co. (Gua) and Surjit and Surinder Investment P. Ltd. , one group retiring from the other so as to name the two businesses exclusive to each of the groups. "

( 3 ) THEREAFTER, Clause (1) provides as follows:" That the parties have gone into the overall accounts as amongst themselves and as a result of such accounts being taken and adjustments made on an estimated basis it has been agreed by and between the parties that the total amount due and payable by the G. S. Atwal group to S. S. Atwal group after the allocation of the business to the two different groups as hereinbefore mentioned is Rs. 18,00,000 (Rupees eighteen lakhs ). "

( 4 ) THE other clauses are not very relevant for our present purpose. There are other clauses in the deed of retirement and reconstitution executed on the 3rd of April, 1969, which contain the terms, inter alia, as follows :" It is recorded that the retiring partners have retired from the business of the said firm heretofore carried on under the name and style of G. S. Atwal and Co. (Asansol) under the said deed of registered partnership as from the 1st of October, 1968, and the said business have as on and from that date been carried on by the continuing partners being the G. S. Atwal group on their own account. . . . . . . In further pursuance of the agreement between the parties and in consideration of the premises and for more effectively enabling the continuing partners, their executors administrators and assigns to receive and recover and obtain the benefit of the business and other p

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