Retirement of a partner from a firm does not amount to transfer of a capital asset.

Satish Chandra, J.

1. MESSRS. Gulab Singh Anand and Sons was a partnership firm constituted under a deed dated October 1, 1.962. It consisted of three partners, one of whom was Smt. Mahinderpal Bhasin, the assessee, in the present case. The firm carried on business of supplying various commodities to the Defence Services. The accounting period of the firm ended on September 30 each year, Smt. Mahinderpal Bhasin, one of the partners, retired from the firm with effect from October 1, 1967. The remaining two partners continued the business. A deed of retirement was executed on October 1, 1967, under which the assessee was paid her share of the capital and her share of profits up to the date of retirement and also a sum of Rs. 20,000 as consideration, for relinquishment of her interest in the partnership firm.

2. ON October 3, 1968, Smt. Mahinderpal Bhasin filed a return for the assessment year 1968-69. In it she showed receipt of Rs. 20,000 as capital gains. The ITO held that the sum of Rs. 20,000 received by her as consideration for relinquishment of her interest in the partnership, in law, was a revenue receipt. He brought it to tax as such.

The assessee appealed. The AAC held that the sum of Rs. 20,000 was in truth a capital receipt because it represented her share of the goodwill of the partnership firm. Goodwill was a capital asset and so the amount received for relinquishing it was a capital receipt. Against this decision, both the assessee as well as the ITO filed appeals before the Tribunal. The ITO's contention was that the receipt was a revenue receipt and taxable as such while the assessee contended that the sum of Rs. 20,000 did neither represent revenue receipt nor was it taxable as capital gains.

3. THE Tribunal distinguished the decision of this court in Gangadhar Baij-nath v. CIT [1966] 60 ITR 626 (All) and repelled the contention that the sum of Rs. 20,000 represented revenue receipt. The Tribunal held that the assessee received Rs. 20,000 for relinquishment of her interest in the partnership firm and not as share of goodwill. In the alternative, it held that even assuming that she received Rs. 20,000 as consideration for parting with her share in the goodwill of the firm yet since the goodwill did not cost anything to her when she initially entered into partnership, the amount received by her cannot be treated as capital gains. For this position, reliance was placed on a decision of the Delhi High Court in Jagdev Singh Mumick v. CIT [1971] 81 ITR 500 and of the Madras High Court in CIT v. Rathnam Nadar [1969] 71 ITR 433 and of the Calcutta High Court in CIT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566. It held that the sum of Rs. 20,000 was not taxable either as revenue receipt or as capital gains.

4. AT the instance of the department, the Tribunal has referred the following questions of law for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of of Rs. 20,000 received by the assessee could not be taxed as revenue receipt ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 20,000 was not liable to tax even as capital gains ?"

On the first question, learned counsel for the department relied upon a decision of this court in Gangadhar Baijnath v. CIT [1966] 60 ITR 626 (All), which was affirmed by the Supreme Court in CIT v. Gangadhar Baijnath [1972] 86 ITR 19. This case is not at all helpful to the department. In that case, the assessee-firm carried on business of financing and entering into partnerships and retiring therefrom. Entering or retiring from a partnership was a normal trading activity in that case. In the present case, there is no material to sustain the submission that the assessee entered into this partnership as part of her trading activity. With the relinquishment of her partnership interest, her source of income Had entirely extinguished. No helpfu