P.M. Jagtap, A.M. - This appeal by the assessee is directed against the order of learned CIT(A)-I, Pune dated 5th Sept., 2000, and the only issue arising out of the same relating to the taxability of amount received by the assessee on retirement from the firm of M/s. Mehta & Kakade Associates as long-term capital gains, is raised in the following grounds raised therein:

1.The learned CIT(A) erred in confirming addition of Rs. 34,43,700 added in the assessment as long-term capital gain, without appreciating facts and circumstances of the case as also the correct legal position. The addition being unjustified both in law and on facts, may kindly be deleted.

2.The learned CIT(A) erred in relying on the decision of Bombay High Court in N.A. Mody’s case, which according to the assessee, in fact was in favour of the assessee on the facts of the assessee’s case.

3.The learned CIT(A) erred in not considering the decision of Supreme Court and High Courts cited in support of appellant’s claim.

2. In this case, the assessee filed his return of income for the year under consideration on 30th Aug., 1995, declaring a total income at Rs. 26,813. Along with the said return, a letter was filed by the assessee stating therein that he has retired from the firm of M/s. Mehta & Kakade Associates by a deed of retirement dated 1st Oct., 1994, and that he has received an amount of Rs. 34,43,700 on his retirement from the said firm. Since no capital gain was offered by the assessee in respect of the said amount in his return of income, a notice under section 148 was issued by the Assessing Officer on 18th Sept., 1997, which was duly served on the assessee on 22nd Sept., 1997. During the course of reassessment proceedings under section 147 r/w section 143(3), it was contended on behalf of the assessee that his retirement from the firm did not result in the transfer of any asset and, therefore, the amount of Rs. 34,43,700 received by him on retirement was not liable to capital gains tax. It was also contended that in view of the provisions of section 45(4), such liability to capital gains tax, if any, arises in the case of a firm and not in the case of a partner. In support of these contentions, reliance was placed by the assessee on the following decisions:

(i)CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj.)

(ii)Sunil Sidharthbhai v. CIT [1985] 156 ITR 509 (SC)¹

(iii)N.A. Mody v. CIT [1986] 162 ITR 420 (Bom.)²

(iv)CIT v. P.H. Patel [1988] 171 ITR 128 (AP)³

(v)CIT v. B.V. Shah [1992] 196 ITR 379 (Guj.)

(vi)CIT v. A.N. Nimkar [1997] 142 CTR (Guj.) 115

3. The Assessing Officer did not find merits in the contentions raised on behalf of the assessee and proceeded to hold that the amount of Rs. 34,43,700 received by the assessee on retirement from the firm of M/s. Mehta & Kakade Associates was liable to capital gains tax for the following reasons given in para Nos. 5 to 9 of his impugned order:

"On bare reading of the provision of section 45(4) it prima facie appears that said section is not applicable, if on retirement no capital asset of the firm is distributed to the retiring partners and only money value of retiring partner’s share in the assets of the firm is given to him. The sub-section (4) to section 45 fastens liability for capital gain tax on the firm and not on any partner when the firm does not stand dissolved and capital assets are continued to be retained by it as before on retirement of a partner. It, therefore, cannot be said that the capital gain has arisen to the firm on distribution of capital assets of the firm. The definition of ‘transfer’ in relation to capital gain enlarged its scope by Taxation Laws Amendment Act, 1984, w.e.f., 1st April, 1985. The definition of ‘Transfer’ under section 2(47) encompasses the capital gain arising on account of sum received by a partner on retirement.

6. The principles laid down by the Supreme Court in the case of Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 and followed by the other High Courts