1. At the instance of the revenue, the following question has been referred to this court under section 66(1) of the Indian Income-tax Act, 1922 :
'Whether, on the facts and in the circumstances of the case, any capital gains arose to the assessee when he received an amount of Rs. 4,67,529 in terms of the award of the arbitrator ?'
2. The assessee, H. R. Aslot, was a partner in a partnership firm known as Automobile and Agricultural Industries Corporation which was constituted under the partnership deed dated January 31, 1953. Apart from the assessee there were 7 other partners out of whom N. K. Naik was one. One of the terms of the partnership deed was that if any dispute arose between the partners or their representatives, whether during or after the termination of the partnership and whether in relation to the interpretation of the partnership deed or to any act or omission of any party to the dispute or to any act which ought to be done by the parties in dispute or any of them or in relation to any other matters whatsoever touching the partnership affairs, that dispute shall be referred to arbitration in accordance with the provisions of the Indian Arbitration Act. Each partner was to appoint an arbitrator for the arbitration. There was some dispute among the partners in the year 1959 and the disputes were referred to the arbitration of one Manilal P. Kapadia, a solicitor. The terms of reference of arbitration to Kapadia included all matters relating to the dissolution of the partnership and the winding up of the affairs of the firm and the accounts of the division and distribution of the assets of the partnership and moneys amongst the partners in accordance with their respective shares either in specie or in such other manner as the arbitrator may determine. The arbitrator was also empowered to determine the date from which the partnership was to be treated as dissolved. The assessee, Aslot, had 5 annas share in the partnership firm and the other partner, N. K. Naik, had one anna share. The arbitrator made his award was that the assessee, Aslot, and N. K. Naik were to stand retired from the firm from January 31, 1960, and as from that date the business was to be carried on in the original firm name or in any other name by the remaining partners. The continuing partners were to pay to the retiring partners a sum of Rs. 5,60,000 in satisfaction of their respective shares and interest in their partnership and the capital effects and goodwill thereof. The retiring partners were to have for themselves the office premises of the partnership firm situated at Mody Chambers, French Bridge, Bombay. There was a distribution of a part of the business, and the business of supply of goods mentioned in Schedule A to the award was to belong to the retiring partners and the continuing partners were not carry on that business for four years starting from January 29, 1960, in so far as dealings with the State Transport Corporation were concerned. In respect of business other than that with the State Transport Corporation, it was to belong to the continuing partners and the retiring partners were not to carry it on for a period of four years. Since some argument has turned on the actual wording of the award, it is necessary to reproduce some relevant parts thereof. Clauses 2 and 3 of the award which are the material parts read as follows :
'2. I award and declare that it has been agreed between the parties that the partnership of Automobile and Agricultural Industries Corporation carried on by the parties to, and under the deed of partnership dated January 31, 1953, stands dissolved by mutual consent so far as concerns the said Harendra Ratilal Aslot and Nanubhai Khandubhai Naik (hereinafter referred to as the retiring partners) to retires from the said firm as from January 1, 1960, and that the said business shall as from that date be carried on in the said name or any other name by the remaining partners, Ishwarlal Lallubhai Shah, Vasantkumar Chanpaklal Vakil, Dilipkumar Vakil, Ranjitlal Ishwarlal Vakil, Chanpaklal Vakil (hereinafter referred to as the continuing partners).
3. The continuing partner shall pay the retiring partners jointly on the dates and by the installments hereinafter mentioned the sum of Rs. 5,50,00 as in full satisfactions of their respective shares and interest in the said partnership and the capital effects other than the personal chattels and capable of passing by delivery and goodwill and thereof save and except as hereinafter provided and so that all accounts between the retiring partners and the continuing partners in respect of the said partnership shall be deemed to have been duly adjusted and squared up and that upon payment of the said amounts and the delivery of the office premises and the due observance and performance of the covenants on the part of the continuing partners as hereinafter contained in clause 6 hereof neither party shall have any claim against the other in respect of the said partnership its accounts dealings assets or otherwise howsoever.'
3. In clause 10 of the award it was provided as follows :
'Each of the parties hereto shall respectively sign, execute and do such further documents, deeds, acts and things as the other parties shall reasonably required for completely effectuating this award and that if any dispute or difference shall arise between the parties hereto or any of them of an incidental and in relation thereto in anywise the parties agree to abide by an execute and do such further documents, deeds, acts and things as may be determined by me as has been agreed to be done by them....' In accordance with this clause in the award, an agreement dated March 9, 1961, came to be executed by the assessee and the other retiring partner, N. K. Naik, in favour of the continuing partners. The assessee, Aslot, was described in the said document as the first retiring partner and N. K. Naik was described as the second retiring partner. A part of the preamble of the said agreement reads as follows :
'WHEREAS as accounts of the said partnership had been made up to the said December 31, 1959, to the mutual satisfaction of the parties and all the assets of the said partnership capable of passing by, already being delivered unto the continuing partners except the said land, hereditaments and premises situate at Poisar and more particularly describe in the Schedule 'B' hereunder returned together with all structures standing thereon including the factory building as also the tenancy rights in respect of the said godown Lalbaug, Parel, Bombay, standing in the name of the partnership and which the said land, hereditaments and premises and the tenancy rights are of the present market value of and for the purpose of stamp duty have been agreed to be taken as between the parties of stamp hereto as of the value of Rs. 4,00,000 of which the share of the first retiring partner has been agreed to be taken at the sum of Rs. 1,25,000 and the share of the said second retiring partner has been agreed to be taken at the sum of Rs. 25,000.'
4. After a long preamble the clause on which heavy reliance has been placed on behalf of the revenue relating to the assignment and release of the retiring partners in favour of the continuing partners is worded as follows :
'In further pursuance of the said agreement and in consideration of the payment by the continuing partners of the sum of Rs. 1,25,000 to the first retiring partner (the receipt whereof the first retiring partner hereby acknowledges) and of the sum of Rs. 25,000 to the second retiring partner (receipt whereof the second retiring partner hereby acknowledges) and of the covenants, declarations and agreements on the part of the continuing partners hereinafter contained, the first and the second retiring partners do and each of them doth as the beneficial owners hereby ASSIGN AND RELEASE who the continuing partners all these their respective shares and all other, if any, their respective shares and interests of and in the said business of the partnership hereby dissolved and the assets thereof including the outstanding thereof and the goodwill thereof save as herein provided and including also in the said land, hereditaments and premises situate at Poisar and more particularly described in the Schedule 'B' hereunder written and the said tenancy rights in respect of the said godown situate at Lalbaug, Parel (in the property belonging to Bombay Silk Mills Ltd. and bearing C.S. No. 50 of Parel Sewree Division and F-Ward Nos. 1043 St. Nos. 34-34A) but excluding the chattels and things and other personal effects capable of passing by delivery to HOLD the same unto and to the continuing partners absolutely in proportion to their respective shares and interest in the said business.'
5. In pursuance of the award the assessee, Aslot, had received an amount of Rs. 4,67,529. The amount standing to the credit of the assessee in the books of the firm on October 31, 1959, was determined at Rs. 2,33,535. The difference between the amount received by Aslot and the amount standing to the credit in the partnership account amounting to Rs. 2,33, 994 was treated as income of the assessee by the Income-tax Officer in the assessment year 1960-61, the corresponding previous year being the calendar year 1959.
6. In the appeal filed by the assessee, the Appellate Assistant Commissioner took the view that the amount received over and above the share capital of the assessee was on account of his share of the goodwill received in consideration of his relinquishing his rights to share the profits in future and, therefore, the amount of Rs. 2,33,994 was clearly taxable as capital gains. When the Appellate Assistant Commissioner that the value of the goodwill as on January 1, 1954, should be determined and it should be deducted from Rs. 2,33,994.
7. This contention was accepted by the Appellate Assistant Commissioner who observed in his order : 'The Income-tax Officer will value the appellant's share of the goodwill as on January 1, 1954, and deduct the same from Rs. 2,33,994 to arrived at the capital gains.'
8. The assessee appealed against the order of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal took the view that there could not be said to be a sale by the retiring partners to the continuing partners and the transaction between the parties was a part and parcel of the scheme of dissolution of the firm and distribution of its assets. The Tribunal took the view that the partners were appropriating to themselves portions of the properties of the firm in order to dissolve the firm. The Tribunal also took the view that it was not possible to spell out any exchange or transfer of any specific assets nor did the retiring partners surrender any assets which belonged to them separately. Having thus taken the view that there could be neither exchange nor transfer nor relinquishment and that the firm was dissolved and reconstituted, no part of the amount received by the assessee was held liable to be taxed as capital gains. The Tribunal had relied on a decision of the Allahabad High Court in Bankey Lal Vaidya v. Commissioner of Income-tax : 55ITR400(All) . The Tribunal having held that what took place as a result of the award of the arbitrator and the agreement dated March 31, 1961, executed by the assessee of partnership and reconstitution of the firm, the question reproduced above has been referred at the instance of the revenue.
9. Joshi appearing on behalf of the revenue has argued that there is a known distinction between retirement of a partner from a partnership and the dissolution of a firm and that what had happened in the instant case was that the assessee had merely retired from the partnership firm and the other partners continued the business of the partnership firm which was treated as a reconstituted firm. It was contended that when the firm was said to be reconstituted, that reconstitution of a firm but that that was the legal result of the retirement of certain partners from the partnership firm. Joshi argued that the decision of the Supreme Court in Commissioner of Income-tax v. Bankey Lal Vaidya : 79ITR594(SC) , which affirmed the decision of the Allahabad High Court in Bankey Lal Vaidya v. Commissioner of Income-tax : 55ITR400(All) , was not applicable to the case of a retirement of a partner and the ratio of the decision in Bankey Lal Vaidya's case : 79ITR594(SC) is attracted only in a case where there is a dissolution of the partnership as such and the assets of the partnership are distributed among all the partners. It may be pointed out that in Bankey Lal Vaidya's case : 79ITR594(SC) , the Supreme Court has taken the view that in the course of dissolution of a partnership, the assets of a firm may be valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying the money value equivalent thereof and this was a recognised method of making up the accounts of a dissolved firm. In the view of the Supreme Court, the receipt of the money by a partner in such a case is nothing but a receipt of his share in the distributed assets of his firm and that there is no sale or exchange of the share of any partner. In other words, according to Joshi, the ratio of the decision in Bankey Lal Vaidya's case : 79ITR594(SC) is one of restricted application and unless it is shown that there was dissolution of partnership as understood under the Partnership Act, that ratio will not be attracted. According to Joshi, the question as to whether in a case where a retiring partner executes a document assigning his share and interest in the partnership in favour of the continuing partners, such assignment gives rise to a liability to capital gains tax is now concluded by a Division Bench decision of this court in Income-tax Reference No. 188 of 1973 [Since reported as Commissioner of Income-tax v. Tribhuvandas G. Patel : 115ITR95(Bom) decided on September 8, 1977.
10. Dastur appearing on behalf of the assessee has contended, firstly, that what has happened in the instant case is not retirement of partner but that the instant case is also one of dissolution of partnership. According the learned counsel, the agreement dated March 9, 1961, in terms refers to the dissolution of the firm and on the basis of that agreement, if the Tribunal has come to the conclusion that there was dissolution of the partnership firm, there was no error in the order of the Tribunal. Apart from the reliance placed by Dastur on the word 'dissolution' used at certain places in the agreement dated March 9, 1961, it is pointed out that an interference of dissolution of the partnership firm was possible because the business which was being carried on by the continuing partners of the reconstituted firm was different from the business which was carried on originally by the original firm. It was urged that a part of the business was permitted to be carried on by the retiring partners and, to the extent, the business now carried on by the retiring partners of the reconstituted firm must be said to be different from the business which was carried on by the original partnership. Alternatively, it was contended that the agreement dated March 9, 1961, is not an assignment as was contemplated by the Division Bench in Patel's case : 115ITR95(Bom) . It was vehemently contended that the rights of the continuing partners to carry on the business of the reconstituted firm flowed not from the agreement dated March 9, 1961, but that so far as both the continuing partners and the assessee were concerned, their rights were crystallised by the award of the arbitrator and whatever moneys have been received by the assessee have been received in pursuance of the right given to him by the award of the arbitrator.
11. Now, the first question which falls for consideration in the instant case is whether what was brought about by the award read with the agreement dated March 9, 1961, was a dissolution of the partnership or that it brought about a mere retirement of the two partners permitting the remaining partners to continue the business of the reconstituted partnership firm.
12. While considering the question as to whether the transactions relied upon the instant case resulted in a dissolution of the partnership or retirement, it is necessary to point out that the two concepts, viz., retirement of a partner and dissolution of partnership, are separately dealt with by the provisions of the Indian Partnership Act. The subject of dissolution of a firm is dealt with under the Partnership Act in Chapter VI while the subject of retirement of a partner, which a part of the Chapter dealing with 'Incoming and Outgoing Partners' is dealt with in Chapter V. Under section 39, the dissolution of the firm between all the partners of the firm is called dissolution of the firm and effect of this dissolution is the breaking up or extinction of the relationship which existed between the partners of the firm. Separate provision has been made as to the manner among in which dissolution of a firm can be brought about, such as by agreement amongst the partners as provided for in section 40, a compulsory dissolution as provided in section 41 and dissolution of on the happening of certain contingencies as provided in section 42. They can be dissolution by an order of the court as provided in section 44. A dissolution has necessarily to be followed by settlements of account between partners as provided in section 32 and the consequences thereof are to be found in section 32(2) and an outgoing partner to carry on completing business as also in section 37 which deals with the rights of an outgoing partner in certain cases to share subsequent profits.
13. What will, therefore, have to be ascertained would be whether the award and the agreement in this case contemplated that kind of breaking up or extinction of relationship which existed between the partners as is contemplated by dissolution of partnership followed by a settlement of accounts or whether only one or two partners have gone out of the partnership firm who can be described as outgoing partner, the other partners to carry on the same business as before. It cannot be, therefore, disputed that the real legal effect of the award of the arbitrator read along with the agreement dated March 9, 1961, will not be controlled by how the transactions have been described by the arbitrator or by the parties and, therefore, merely because at some places in the award the arbitrator has used the word 'dissolution', the use of that word will not be conclusive. We have already reproduce earlier clause 2 of the award. It is, no doubt, true that the arbitrator has stated that the firm 'stands dissolved by mutual consent'. But these words have to be read in the context in which they are used because those words are followed by the words 'so far as concerns the said Harendra Rathilal Aslot and Manubhai Khandubhai Naik (hereinafter referred to as 'retiring partners') who retires from the said firm from January 1, 1960'. Therefore, though the words 'dissolved by mutual consent' have been used, the arbitrator has taken care to make it clear that this dissolution only affects the two partners who are described thereafter as 'retiring partners'. The same clause further makes it clear that 'the said business shall as from that date be carried on in the said name or any other name by the retiring partners'. Thus, the remaining partners were to carry on the same business after the retirement of the two partners. The fact that there was no dissolution intended is also clear from the recitals in the award of the arbitrator in paragraph 3, where the remaining partners have been described as continuing partners and the two outgoing partners have been described as retiring partners who have paid by the continuing a sum of Rs. 5,50,000. In paragraph 9 of the award on which reliance has been placed, the arbitrator has observed that all debts and liabilities of the said partnership 'up to the date of dissolution' shall be paid and discharged by the continuing partners. The use of the word 'dissolution' here cannot be construed independent of the recitals in clause 2 because clause 2 is the substantive clause stating the relationship between the parties. Similarly, though the award states in paragraph 10 in the latter part that the out of pocket costs of deed of dissolution to be executed by the parties shall be borne and paid by the continuing partners, it will again not be conclusive with regard to the nature of the document which will have to be ascertained from the contents of the document itself. Therefore, though the document which was to come into being later and was to be executed by the outgoing partners has been described as a deed of dissolution, if in fact it was not a deed of dissolution, it would not be so made by being so described in the award of the arbitrator.
14. When we come to the agreement of March 9, 1961, in the preamble of that agreement references made to the award of the arbitrator and with the consent of the parties, the firm 'stands dissolved by mutual consent so far as concerns the first and the second retiring partners, who retired from the said firm as from January 1, 1960....' This again is not an independent recital inasmuch as it merely reproduces the operative clause from the award of the arbitrator.
15. The overall effect of the arbitrator's award and the agreement dated March 9, 1961, clearly appears to be that the two outgoing partners were to be paid Rs. 5,50,000, the office premises were to be given to them and subject to the negative covenants with regard to carrying on of certain kinds of business, the retiring partners were to continue a part of the business as before and that they were to execute the necessary documents required to assign and release in favour of the continuing partners their respective shares and all other interest in the business of the partnership firm. It must be noted that the award was made in terms of the agreement between the parties. Such outgoing of a partner from the partnership firm is clearly covered by section 32(1)(a) of the Partnership Act which provides that a partner may retired with the consent of all other partners. Therefore, in spite of the fact that the original disputes referred to the arbitrator related to the dissolution of the partnership firm, so far as the final award of the arbitrator was concerned, it was made by consent of all the partners by which two of the partners were allowed to retire leaving the other partners free to do the same business as before either in the same name or in any other name. Section 32(2) clearly indicates that the partners who are left behind as partners in the partnership firm form what is called a reconstituted firm and no dissolution as contemplated by the provisions of section 39 of the Partnership Act is necessary for the purposes of a reconstituted firm as contemplated by the provisions relating to the retirement of a partner.
16. It is, therefore, difficult to sustain the view of the Tribunal that what was brought by the award of the arbitrator and the agreement dated March 9, 1961, was a dissolution of the partnership. This reference must, therefore, be decided on the footing that there was no dissolution of the partnership but that the assessee and one another partner were allowed to retire from the firm. Once that position is established, it is difficult to see why the ratio of the decision in Patel's case (since reported as : 115ITR95(Bom) ) will not be attracted.
17. In Patel's case : 115ITR95(Bom) the Division Bench was called upon to deal with the question as to whether an amount received by one of the partners, who had retired from the firm, as his share in the remaining assets of the firm and who had executed a document in favour of the remaining partners could be treated differently for the purposes of capital gains tax than that of a partner of a dissolved firm. In that case, the document executed by the retiring partner provided (page 117) :
'....... the retiring partner as beneficial owner doth hereby assign and release unto the continuing partners and each of them all that his right, title and interest and undivided half share in the said partnership firm and all his share and interest on the said pieces of land, hereditaments and premises, structures and buildings standing thereon.... TO HOLD the same unto the continuing partners absolutely in equal shares as tenants-in-common......'
18. The question in that case, no doubt, arose in the context of the provisions of section 45 of the Income-tax act, 1961, read with clause (ii) of section 47 of the said Act. Section 45 deals with capital gains, but section 47 which deals with certain transactions which are not to be regarded as transfer, which worth by virtue of the definition in section 2(47) of the said Act, includes in relation to capital assets the sale, exchange or relinquishment of the asset or extinguishment of any rights therein or the compulsory acquisition thereof under any law, and provides that nothing contained in s. 45 shall apply to the transfers which are enumerated therein and clause (ii) of that section reads : 'any distribution of capital asset on the dissolution of the firm, body of individuals or other association of persons'. The argument before the Division Bench was that what was brought about in that case was mere dissolution of partnership and, therefore, no capital gains tax was attracted by virtue of clause (ii) of section 47 of the Income-tax Act, 1961. The Division Bench pointed out in that case the difference between the retirement of a partner and the dissolution of the firm and while pointing out this distinction observed as follows (page 115) :
'In our view, a clear distinction exists between the two concepts, inasmuch as the consequences flowing from each are entirely different. In the case of retirement of a partner from the firm it is only that partner who goes out of the firm and the remaining partners continue to carry on the business of the partnership as a firm, while in the latter case the firm as such no more exists and the dissolution is between all the partners of the firm.'
19. The Division Bench then went on to refer to the provisions of section 31 to 38 which deal with the incoming and outgoing partners and to the provisions of sections 39 to 55 which deal with the subject of dissolution of a firm and its consequences and then observed further as follows - See : 115ITR95(Bom) :
'It may be that upon retirement of a partner his share in the net partnership assets after deduction of liabilities and prior charges may be determined on taking accounts on the footing of notional sale of partnership assets and be paid to him but the determination and payment of his share may not invariably be done in that manner and it is quite conceivable that, without taking accounts on the footing of national sale, by mutual agreement, a retiring partner may receive an agreed lump sum for going out as and by way of consideration for transferring or releasing or assigning or relinquishing his interest in the partnership assets to the continuing partners and if the retirement takes this form and the deed in that behalf is executed, it will be difficult to say that there would be no element of 'transfer' involved in the transaction. In our view, it will depend upon the manner in which the retirement takes place.'
20. The Division Bench then referred to two passages from Lindley on Partnership, 13th edition, at pages 474 and 475, and the effect of those observations of Lindley with regard to the assignment of share, etc., by retiring partners was summarised by the Division Bench as follows (pages 116, 117) :
'A couple of things emerge clearly from the aforesaid passages. In the first place, a retiring partner while going out and while receiving what is due to him in respect of his share, may assign his interest by a deed or he may, instead of assigning his interest, take the amount due to him from the firm and give a receipt for the money and acknowledge that he has no more claim on his co-partners. The former type of transactions will be regarded as sale or release or assignment of his interest by a deed attracting stamp duty while the latter type of transaction would not. In other words, it is clear, the retirement of a partner can take either of two forms, and apart from the question of stamp duty, with which we are not concerned, the question whether the transaction would amount to an assignment or release of his interest in favour of the continuing partners or would depend upon what particular mode of retirement is employed and as indicated earlier, if, instead of quantifying his share by taking accounts on the footing of notional sale, parties agree to pay a lump sum in consideration of the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners, the transaction would amount to a transfer within the meaning of section 2(47) of the Income-tax Act.'
21. The ratio of the decision of the Division Bench, therefore, is that were in lieu of consideration received by the retiring partner, the retiring partner assigns or relinquishing his share or right in the partnership assets, the transaction would amount to a transfer within the meaning of section 2(47) of the Income-tax Act, 1961. Now, though this view was taken in respect of the provisions of section 45 of the Income-tax Act, 1961, in our view different principle would be applicable in ac case to which section 12B of the Indian Income-tax Act, 1922, is applicable. We are really not concerned in this case with the fact that a provision analogous to clause (ii) of section 47 of the Indian Income-tax Act, 1961, is not to be found as a part of the provisions of section 12B of the Indian Income-tax Act, 1922, at the relevant time. Once it is held that there is no distinction between a retirement of a partner and dissolution of a partnership firm, the absence of otherwise of the provision analogous to section 47(ii) would be of no significance because clause (ii) of section 47 expressly deals with a case of a dissolution of partnership. The material part of section 12B as it was in force at the material time provided as follows :
'The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital assets effected after the March 31, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place.'
22. The only effect of the decision in Bankey Lal Vaidya's case : 79ITR594(SC) is that in the case of a dissolution of partnership for the purposes of section 12B, there cannot be said to have taken place any sale, exchange, relinquishment or transfer. But on the decision of the Division Bench in Patel's case : 115ITR95(Bom) , if there is an assignment of their interest by the retiring partners in favour of the continuing partners, then it is clear it will be a transfer of the capital assets as contemplated by section 12B of the Indian Income-tax Act, 1922. What is, however, contended by Dastur on behalf of the assessee is that the assessee had acquired his right to get Rs. 5,50,000 not by virtue of the agreement of March 9, 1961 but on the award itself and that award, according to the learned counsel, did not bring about any transfer of any asset. It is not possible for us to accept that argument. We have reproduce the material portion of the award and though it is true that the award determined certain rights and provided that the retiring partners were to receive a sum of Rs. 5,50,000, the award also made a provision that the parties shall execute such documents as are necessary for completely effectuating this award. It is obvious that the document dated March 9, 1961, was executed by the assessee in pursuance of this obligation which was placed on him by the award. There is hardly any ambiguity in clause 3 of the agreement dated March 9, 1961. What was sought to be done by the retiring partners by executing this agreement is very clear and there is no ambiguity about the words used therein. Clause 3 refers to the consideration which the retiring partners have received, the consideration consisting of the amount of Rs. 1,25,000 and the provisions which is made at different places in the award in the form of covenants, declarations and agreements on the part of the continuing partners. It is for this consideration that the two outgoing partners have assigned and released in favour of the continuing partners their respective shares and interest of and in the business of the partnership and the assets thereof including outstanding and goodwill as also the land, hereditaments and premises situated as Poisar. The rights between the parties are now, therefore, governed by this agreement of March 9, 1961. It is, therefore, difficult to see why the case of the revenue should not be accepted that the retiring partners have assigned and released in favour of the continuing partners all their share and interest in the partnership property and assets by this document dated March 9, 1961. If this agreement thus is now the foundation of rights of the parties and it satisfies the test laid down by the Division Bench in Patel's case : 115ITR95(Bom) there will be clear liability in respect of capital gains attracted on the footing that the transaction was not one of dissolution of partnership but that it was a case of retiring partner in assigning in favour of the continuing partner his rights and interest in the partnership assets.
23. Dastur wanted to challenge the correctness of the decision in Patel's case : 115ITR95(Bom) on certain grounds. We have declined to herein with regard to the correctness of that decision since we are of the view that being the decision of a co-ordinate Bench, we must follow it.
24. Even though we have accepted the argument on behalf of the revenue that the basis of the decision of the Tribunal that the case was one of dissolution of partnership was not justified and that the case was one dealing with the retirement of a partner to which ratio of Patel's case : 115ITR95(Bom) is applicable, it is not possible for us to answer the question referred to us in the affirmative and in favour of the revenue. As already pointed out, the effect of the decision in Patel's case : 115ITR95(Bom) , which we have now followed, is that the liability to capital gains is attracted to the document of assignment or transfer being executed. That document was not executed in the assessment year 1960-61, it is, it was not executed prior to December 31, 1959. As already pointed out, it was executed on March 9, 1961. Therefore, in respect of the amount of Rs. 4,67,529 or any part thereof, in view of the fact that the document of assignment was not executed in the relevant assessment year, it will not be possible to disturb the final conclusion reached by the Tribunal that no liability in respect of capital gains tax arose in the assessment year 1960-61.
25. Joshi on behalf of the revenue wanted us to consider the question as to whether the liability to capital gains would be attracted in the year in which the document was executed. In our view, this would be outside the scope of the question referred which is only in respect of the year 1960-61. We have, therefore, declined to go into the question as to when and in respect of capital gains.
26. In the view which we have taken, the question referred to us in answered in the negative and against the revenue. Parties to bear their own costs.