V.P. MOHAN KUMAR , J.

The assessee is a partnership firm carrying on business in the manufacture of mill boards. For the assessment year 1989-90 the firm filed the return declaring a loss of RS 5,33,120/-. The Assessing officer while finalising the assessment added RS 7,68,559/- by invoking the provision of section 45(4). It was alleged that during the previous year ending on 31.3.1989 there was a change in the constitution of the firm with the retirement of five partners after receiving the credit balance in their accounts. There was also a revaluation of the assets and it is the enhanced value of the assets that was credited equally in their accounts. The Assessing officers took the view that on the retirement of five partners taking the enhanced value for the assets there amounted to a transfer of capital assets as envisaged in section 45(4) and the profit arising from the transfer was liable to tax as the income of the assessee-firm. He accordingly treated that sum i.e. Rs. 7,63,559/- to be representing the difference in the value of the asset and credited it in the account as the income of the assessee. In the appeal by the assessee, the first appellate authority held that the provisions of section 45(4) were not applicable in this case, as there was neither dissolution of the firm nor distribution of capital assets when the partners retired from the firm.

2. The revenue, aggrieved by the order of the CIT (appeals) deleting the amount added as income under section 45(4),filed appeal before the Tribunal. The tribunal confirmed the order of the appellate authority. Thereupon the present appeal under section 260 A of the Income tax Act, hereinafter referred to as the ACT has been filed by the revenue raising substantive questions of law. The affluent has formulated the following questions to be answered by this court, namely:

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and facts in holding that the provisions of section 45(4) has no application to the facts of the case and that the addition could not be sustained under that section?

2. Whether, on the facts and in the circumstances of the case , the Tribunal is right in law and fact in holding that the dictum laid down in Mc. Dowell has no application to the facts of the case?

3. Whether, on the facts and in the circumstances of the case, is not the transaction under consideration a device contemplated in the case of Mc. Dowell and should not the Tribunal have considered the issue in the light Mc. Dowell?

3. The assessee in question is a partnership firm. It had originally five partners and it was constituted under a deed executed on 14.9.1983. subsequently, there was a change in the constitution of the partnership as evidenced by a new partnership deed executed on 13.1.1989. Two more partners were admitted at that time. At the time of admission of new partners there was a revaluation made in respect of the assets of the firm. As per clause 6 of the partnership deed it was agreed that the difference representing enhancement by revolution of the assets would be credited to the accounts of the original partners and the two new partners would have no share in it. The relevant clause in the partnership deed dated 13.1.1989 reads as under:

"On reconstitution the assets of the firm, viz., land, building, machinery and furniture have been revalued on mutual agreement of the partners hereto. The difference in the revalued amounts shall belong to partners 1 to 5 inclusive and the respective amounts shall be credited to their account equally."

The fixed assets of the firm had been thus revalued and that revolution was credited equally in the accounts of the original five partners. The firm continued with seven partners for a short time and thereafter on 31st January 1989 the original five partners retired and the business was continued by the partnership consisting of the surviving two partners. A deed of retirement was execut