The Said Appeal Of The Assessee Was Admitted By Theco-Ordinate Bench Of This Court On 29.07.2015 On The Followingsubstantial Questions Of Law Arising From The O v. Https://Hcservices.ecourts.gov.in/Hcservices

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 16.09.2019 CORAM : The Hon'ble Dr.Justice Vineet KothariANDThe Hon'ble Mr.Justice C.Saravanan Tax Case (Appeal) No.716 of 2015andM.P.No.1 of 2015 M/s. Vikas Academy,Vikas School Compound,Arapalayam Cross Road,Ponnagaram, Madurai... AppellantVs.The Income Tax Officer,Ward – II(4),Madurai. .. RespondentTax Case Appeal filed under Section 260A of the Income TaxAct, 1961, against the order passed by the Income Tax AppellateTribunalChennai'D'Bench,dated12.06.2015inITA.No.2323/MDS/2014, against the order passed by the Commissioner of Income Tax(Appeal)I, Madurai, made in ITA No.0053/2013-14, dated20/08/2014 and against the order passed by the Income TaxOfficer, Ward II(4), Range, Madurai-2 made in PAN/GIRNo. , dated 28/03/2013. For Appellant: Mr.R.Sivaraman Mr.P.Ramesh Kumar For Respondent : Mr.M.Swaminathan (Senior Standing Counsel) Ms.V.Pushpa (Junior Standing Counsel) [Judgment of the Court was pronounced by Dr. VINEET KOTHARI,J.] Heard Mr.R.Sivaraman & Mr.P.Ramesh Kumar, learned Counselsappearing for the appellant assessee and Mr.M.Swaminathan,learned Senior Standing Counsel assisted by Ms.V.Pushpa, learnedJunior Standing Counsel appearing for the respondent Income TaxDepartment. 2. The assessee has filed the present Appeal under Section260 A of the Income Tax Act, 1961, aggrieved by the order passedby the learned Income Tax Appellate Tribunal on 12.06.2015 forthe Assessment Year 2009-2010. 3. The said appeal of the assessee was admitted by theCo-ordinate Bench of this Court on 29.07.2015 on the followingsubstantial questions of law arising from the order of thelearned Tribunal:- i. Whether in the facts and circumstances ofthe case, the Income Tax Appellate Tribunal isright in holding that there was a transfer withinthe meaning of clause (4) of Section 45 of theIncome Tax Act, 1961?ii. Whether in the facts and circumstances ofthe case, the Tribunal is right in holding that inthe absence of an amendment of Section 2(47) of theAct, there is a transfer within the provisions ofclause 4 of Sections 45 of the Income Tax Act,1961? iii. Whether on the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wascorrect in law in sustaining the addition ofinterest under Section 234B of the Income Tax Act,1961 since a charge was not created by theAssessing Officer as part of the order? 4. Both the learned counsels fairly agreed that thecontroversy involved in the present case is covered by adecision of a co-ordinate Bench of this Court, in which, one ofus (Dr.Vineet Kothari,J.) was a party, decided on 08.04.2019 inT.C.A.Nos.365 and 366 of 2009 in “M/s. National Company Vs. TheAssistant Commissioner of Income Tax”. The Cognate Bench ofthis Court, in that matter of M/s. National Company, on theissue whether on a reconstitution of a Partnership Firm, theasset transferred to the outgoing partner or amount paid to himattracts capital gains tax liability in the hands of theassessee/Partnership Firm or not in terms of Section 45(4) of the Income Tax Act, The Division Bench of this Court held asunder :- 4. Both the learned counsels fairly agreed that thecontroversy involved in the present case is covered by adecision of a co-ordinate Bench of this Court, in which, one ofus (Dr.Vineet Kothari,J.) was a party, decided on 08.04.2019 inT.C.A.Nos.365 and 366 of 2009 in “M/s. National Company Vs. TheAssistant Commissioner of Income Tax”. The Cognate Bench ofthis Court, in that matter of M/s. National Company, on theissue whether on a reconstitution of a Partnership Firm, theasset transferred to the outgoing partner or amount paid to himattracts capital gains tax liability in the hands of theassessee/Partnership Firm or not in terms of Section 45(4) of the Income Tax Act, The Division Bench of this Court held asunder :- 20.It is also to be noted that on theretirement of a partner from the firm, there will beallotment of his interests in the firm. The interestof a partner in a partnership firm is a right toobtain share of profits from time to time during thesubsistence of the partnership and further, ondissolution of the partnership, or on his retirementfrom the partnership, to get the value of his sharein the net partnership assets which remain afterdeducting the debts and liabilities of thepartnership. This could be in the form of immovableassets or in the form of cash in lieu of theimmovable assets. Therefore, when a partner retiresfrom a partnership and his share in the netpartnership assets is determined and allotted to him,what he receives is his share in the partnership andnot any consideration for transfer of his interest inthe partnership to the continuing partners. Hisshare in the partnership is worked out by takingaccounts in the manner prescribed by the relevantprovisions of the partnership law and it is this,namely, his share in the partnership which hereceives in terms of money or as an asset. There isin this transaction no element of transfer ofinterest in the partnership assets by the retiringpartner to the continuing partners. 21.The transfer of a capital assets in orderto attract capital gains tax must be one as a resultof which consideration is received by the assessee oraccrues to the assessee. When a partner retires froma partnership he receives his share in thepartnership and this does not represent considerationreceived by him in lieu of relinquishment of hisinterest in the partnership asset.22.In Commissioner of Income Tax Vs. A.N.NaikAssociates and Others reported in 2004 265 ITR 346(Bom), the facts were that the respondents wereparties to a family settlement dated 30.01.1997.Pursuant to the family settlement, there was a deedof reconstitution of various partnerships. One ofthe questions of law which had been formulated forconsideration was whether the deed of reconstitutionof partnership by the Assessee firm was a device toavoid tax. A further examination of the facts inthat case reveal that it had been agreed between theparties that businesses of six firm would bedistributed in terms of the family settlement, as the parties desired that various matters concerning thebusiness and the assets thereto be divided separatelyand partitioned. In the settlement, the manner inwhich the assets were proposed to be divided were setout. It was also provided that all such documents,deeds, declarations, affidavits as are reasonablyrequired for effecting such transfer would beexecuted. The Assessment was based on the familysettlement and the subsequent deeds of retirement ofpartnership. It is thus seen that there was aconscious decision taken prior to reconstitution ofthe firms to transfer assets and the liabilities byway of a family settlement. It was also consciouslydecided to execute all necessary deeds and documentsto effect such transfer. A transfer of assets insuch circumstances, though held was not a device toavoid tax was still held to be 'transfer' within themeaning of Section 2(47) of the Act. 23.In the light of the above facts, it washeld in A.N.Naik Associates as follows:-“21. The expression “otherwise” in ouropinion, has not to be read ejusdem generiswith the expression, “dissolution of a firm orbody or association of persons”. Theexpression “otherwise” has to be read with thewords “transfer of capital assets” by way ofdistribution of capital assets. If so read,it becomes clear that even when a firm is inexistence and there is a transfer of capitalassets it comes within the expression,“otherwise” as the object of the amending Actwas to remove the loophole which existedwhereby capital gain tax was not chargeable.In our opinion, therefore, when the asset ofthe partnership is transferred to a retiringpartner the partnership which is assessable totax ceases to have a right or its right in theproperty stands extinguished in favour of thepartner to whom it is transferred. If so readit will further the object and the purpose andintent of the amendment of Section 45. Once,that be the case, we will have to hold thatthe transfer of assets of the partnership tothe retiring partners would amount to thetransfer of the capital assets in the natureof capital gains and business profits which ischargeable to tax under Section 45(4) of theIncome Tax Act. We will, therefore, have toanswer question No.3, by holding that the word“otherwise” takes into its sweep not only cases of dissolution but also cases ofsubsisting partners of a partnership,transferring assets in favour of a retiringpartner.” cases of dissolution but also cases ofsubsisting partners of a partnership,transferring assets in favour of a retiringpartner.” 24.The above judgement was also referred inT.C.A.No. 1458 of 2005 decided on 31.10.2012,Commissioner of Income Tax, Trichy Vs. M/s. Nathanand Company, Trichy, by a Co-ordinate Bench of thisCourt. In that case, the Assessee was a firmconstituted by six partners and running a printingpress at Trichy and another at Chennai. They enteredinto an agreement on 28.04.1989 whereby two partners,were permitted to carry on the business under thesame name at Chennai and four partners were permittedto carry on the business at Trichy in the same name.It is seen that in that case, there was definitely anelement of transfer of assets since two of thepartners gave up their interests in the business atTrichy and four of the partners gave up theirinterest in the business at Chennai. The facts arecertainly distinguishable to the facts of the presentcase. 25.However a directly contrary view to theview taken in A.N.NaiK Associates have been expressedin Prashant S. Joshi Vs. The Income Tax Officer andOthers reported in 2010 324 ITR 154 (Bom) wherein aDivision Bench of the Bombay High Court, againdealing with a fact situation in respect of apartnership firm dealing with development of realestate, when a partner retired and agreed to receivesum of Rs.50 lakhs, in addition to the balance lyingto his credit in the capital as reflected in thebooks of accounts as final settlement of his dues onaccount of retirement, held that the same was not atransfer and taxable under Section 45(4) of the Act.The reasoning of the Bombay High Court, is givenbelow for better appreciation:- “13. During the subsistence of apartnership, a partner does not possess aninterest in specie in any particular asset ofthe partnership. During the subsistence of apartnership, a partner has a right to obtain ashare in profits. On a dissolution of apartnership or upon retirement, a partner isentitled to a valuation of his share in thenet assets of the partnership which remainafter meeting the debts and liabilities. An amount paid to a partner upon retirement,after taking accounts and upon deduction ofliabilities does not involve an element oftransfer within the meaning of Section 2(47).Chief Justice P.N.Bhagwati (as the learnedJudge then was) speaking for a Division Benchof the Gujarat High Court in Commissioner ofIncome Tax, Gujarat V. Mohanbhai PamabhaiMANU/GJ/0015/1971 : (1973) 91 ITR 393 dealtwith the issue in the following observations: amount paid to a partner upon retirement,after taking accounts and upon deduction ofliabilities does not involve an element oftransfer within the meaning of Section 2(47).Chief Justice P.N.Bhagwati (as the learnedJudge then was) speaking for a Division Benchof the Gujarat High Court in Commissioner ofIncome Tax, Gujarat V. Mohanbhai PamabhaiMANU/GJ/0015/1971 : (1973) 91 ITR 393 dealtwith the issue in the following observations: ... when, therefore, a partner retiresfrom a partnership and the amount of his sharein the net partnership assets after deductionof liabilities and prior charges is determinedon taking accounts on the footing of notionalsale of the partnership assets and given tohim, what he receives is his share in thepartnership and not any consideration fortransfer of his interest in the partnership tothe continuing partners. His share in thepartnership is worked out by taking accountsin the manner prescribed by the relevantprovisions of the partnership law and it isthis and this only, namely, his share in thepartnership which he receives in terms ofmoney. There is in this transaction noelement of transfer of interest in thepartnership assets by the retiring partner tothe continuing partners: vide also the recentdecision of the Supreme Court in Commissionerof Income Tax v. Bankey Lal Vaidya. It istrue that Section 2(47) defines “transfer” inrelation to a capital asset and thisdefinition gives an artificially extendedmeaning to the term “transfer” by includingwithin its scope and ambit two kinds oftransactions which would not ordinarilyconstitute “transfer” in the acceptedconnotationofthatword,namely,relinquishment of the capital asset andextinguishment of any rights in it. But evenin this artificially extended sense, there isno transfer of interest in the partnershipassets involved when a partner retires fromthe partnership. The Gujarat High Court held that thereis, in such a situation, no transfer ofinterest in the assets of the partnership within the meaning of Section 2(47). When apartner retires from a partnership, what thepartner receives is his share in thepartnership which is working out by takingaccounts and this does not amount to aconsideration for the transfer of his interestto the continuing partners. The rationale forthis is explained as follows in the judgementof the Gujarat High Court: .... what the retiring partner isentitled to get is not merely a share in thepartnership assets; he has also to bear hisshare of the debts and liabilities and it isonly his share in the net partnership assetsafter satisfying the debts and liabilitiesthat he is entitled to get on retirement. Thedebts and liabilities have to be deducted fromthe value of the partnership assets and it isonly in the surplus that the retiring partneris entitled to claim a share. It is,therefore, not possible to predicate that aparticular amount is received by the retiringpartner in respect of his share in aparticular partnership asset or that aparticular amount represents considerationreceived by the retiring partner forextinguishment of his interest in a particularasset. .... what the retiring partner isentitled to get is not merely a share in thepartnership assets; he has also to bear hisshare of the debts and liabilities and it isonly his share in the net partnership assetsafter satisfying the debts and liabilitiesthat he is entitled to get on retirement. Thedebts and liabilities have to be deducted fromthe value of the partnership assets and it isonly in the surplus that the retiring partneris entitled to claim a share. It is,therefore, not possible to predicate that aparticular amount is received by the retiringpartner in respect of his share in aparticular partnership asset or that aparticular amount represents considerationreceived by the retiring partner forextinguishment of his interest in a particularasset. 14.The appeal against the judgement ofthe Gujarat High Court was dismissed by aBench of three learned Judges of the SupremeCourt in Addl. Commissioner of Income Tax,Gujarat v. Mohanbhai Pamabhai : 165 ITR 166.The Supreme Court relied upon its judgement inSunil Siddharthbhai v. Commissioner of IncomeTax MANU/SC/0164/1985 : (1985) 156 ITR 509(S.C.). The Supreme Court reiterated the sameprinciple by relying upon the judgement inAddanki Narayanappa and Anr. Vs. BhaskaraKrishnappa and Ors. MANU/SC/0281/1966: (1966)SC 1300. The Supreme Court held that what isenvisaged on the retirement of a partner ismerely his right to realise his interest andto receive its value. What is realised is theinterest which the partner enjoys in theassets during the subsistence of thepartnership by virtue of his status as a partner and in terms of the partnershipagreement. Consequently, what the partnergets upon dissolution or upon retirement isthe realisation of a pre-existing right orinterest. The Supreme Court held that therewas nothing strange in existing right orinterest. The Supreme Court held that therewas nothing strange in the law that a right orinterest should exist in praesenti but itsrealisation or exercise should be postponed.The Supreme Court inter alia cited withapproval the judgement of the Gujaraj HighCourt in Mohanbhai Pamabhai (supra) and heldthat there is no transfer upon the retirementof a partner upon the distribution of hisshare in the net assets of the firm. InCommissioner of Income Tax V. R.LingmalluRaghukumar MANU/SC/0810/2001: (2001) 247 ITR801, the Supreme Court held, while affirmingthe principle laid down in Mohanbhai Pamabhalthat when a partner retires from a partnershipand the amount of his share in the netpartnership assets after deduction ofliabilities and prior charges is determined ontaking accounts, there is no element oftransfer of interest in the partnership assetsb y the retired partner to the continuingpartners. 26.It is seen that Bombay High Court held inthe above case that when a partner retires and thereis transfer of his interests in the partnership assetsto him towards his share in the assets, the samecannot be brought to tax as capital gain by transferof capital asset. 27.In Sampath Iyengar's “Law of Income Tax”revised by S.Rajaratnam, 12[th] edition, it had beenobserved as follows:- “134. Or otherwise.- Thereshouldordinarily be no presumption of transfer indissolution except to the extent directedunder Section 45(4). Retirement is primafacie not covered by the sub-section. Butthe Departmental view is that the words “orotherwise”immediatelysucceeding“dissolution” under Section 45(4) would covereven retirement. “Or Otherwise” can onlymean “before or after dissolution” in 27.In Sampath Iyengar's “Law of Income Tax”revised by S.Rajaratnam, 12[th] edition, it had beenobserved as follows:- “134. Or otherwise.- Thereshouldordinarily be no presumption of transfer indissolution except to the extent directedunder Section 45(4). Retirement is primafacie not covered by the sub-section. Butthe Departmental view is that the words “orotherwise”immediatelysucceeding“dissolution” under Section 45(4) would covereven retirement. “Or Otherwise” can onlymean “before or after dissolution” in contradistinction to “on”. Further Section45(4) when understood in conjunction withSection 45(3) can refer to formations anddissolutions. Since change in constitutionis a concept recognised in Chapter XVI-C ofthe Act, there is no reason why the lawshould not have referred to change inconstitution along with dissolution, if thatwere the intent instead of the expression “orotherwise”. 28.It is seen that even the learned author hasexpressed the view with that Section 45(4) of the Actwould not apply on retirement of a partner from apartnership firm and when there is transfer ofassets. 29.It may also be appropriate to refer toCommissioner of Income Tax Vs. R.Lingmallu Raghukumarreported in 2001 247 ITR 801 SC. The entire Judgementis quoted below:- “1.This appeal by the Revenue isdirected against the Judgement of the AndhraPradesh High Court dated July 21, 1982, (see(1983) 141 ITR 674), in Referred Case No. 28of 1977, whereby the following question oflaw referred to the High Court was answeredagainst the Revenue and in favour of theassessee (page 676): “Whether, on the facts and in thecircumstances of the case, the excess amountof Rs.46,500 received by the assessee onretirement from the two partnership firms isassessable to capital gains?” 2.The High Court has held that therewas no transfer of any assets as contemplatedby the expression “transfer” as defined inSection 2(47) of the Income-tax Act. TheHigh Court had placed reliance on theJudgement of the Gujarat High Court in CITvs. Mohanbhai Pamabhai [1973] 91 ITR 393,wherein it has been held that where a partnerretires from a partnership and the amount ofhis share in the net partnership assets afterdeduction of liabilities and prior charges isdetermined on taking accounts in the mannerprescribed by the relevant provisions of thepartnership law there is no element oftransfer of interest in the partnership assets by the retired partner to thecontinuing partners. The said Judgement ofthe Gujarat High Court has been affirmed bythis Court in Addl. CIT V. Mohanbhai Pamabhai [1987] 165 ITR166. In view of the said Judgement we findno merit in this appeal and the same is,therefore, dismissed. No order as to costs.” 30.It is thus seen that the Hon'ble SupremeCourt had also held that on retirement, the settlementto a partner of his share in the assets of thepartnership after deduction of liabilities is notassessable to capital gains. 31.In CIT Vs. Surendra Kumar Gupta reported in[2004] 270 ITR 325, the assets of the firm were takenover by one of the two partners on dissolution of thefirm, on payment of an agreed amount to the otherpartner; it was held that the aforesaid transactiondid not result in any transfer of asset as understoodin common law. 32.In CIT Vs. Kunnamkulam Mill Board reportedin [2002] 257 ITR 544 (Ker), it was held that onretirement of the partner of the firm, there is notransfer of the assets of the firm in favour of thecontinuing partners within the meaning of Section 45(4) of the Act. 33.In the present case, very significantly,there was only a reconstitution of the partnershipfirm by retirement of two partners and admission ofanother partner. The partnership firm continued. Itmust also be further noted that the assets ofthe firm originally 32.In CIT Vs. Kunnamkulam Mill Board reportedin [2002] 257 ITR 544 (Ker), it was held that onretirement of the partner of the firm, there is notransfer of the assets of the firm in favour of thecontinuing partners within the meaning of Section 45(4) of the Act. 33.In the present case, very significantly,there was only a reconstitution of the partnershipfirm by retirement of two partners and admission ofanother partner. The partnership firm continued. Itmust also be further noted that the assets ofthe firm originally belonged to the father of the retiring / continuingpartners and there was only a division of the assetson retirement in accordance with their entitlement onthe shares in the partnership. As pointed outearlier, the National Company was originally a soleproprietorship concern started by N.MunuswamyMudaliar. It was in the business of construction andassets had been acquired even at that particular pointof time. The two daughters and two sons-in-laws ofN.Munuswamy Mudaliar were subsequently admitted aspartners and on division of the assets, it can also be arguably pointed out that one daughter and one son-in-law were allotted a share which they were otherwiselegally entitled to out of the holdings N.MunuswamyMudaliar. 34.In view of the peculiar facts of the case inhand, we hold that the provisions of Section 45(4)would not be attracted on the retirement of the twopartners and consequential allotment of their share inthe assets in the Assessee Firm. We therefore answerthe substantial question of law in favour of theAssessee and against the Revenue. 35.In the result, the Appeals of the Assesseeare allowed. No costs. 5. The facts found by the learned Tribunal in the presentcase, are also quoted below for reference :- “9. We have heard both the parties and carefullyperused the materials available on record. The caseof the assessee is very simple. During the yearunder consideration the assessee firm wasreconstituted wherein one of the partners Mrs.ArunanVisvewar had retired and therefore reconstitutedpartnership deed was drawn on 30.05.2008 whereby theassessee firm has transferred one of its immovableasset being land to the retiring partner Mrs.ArunaVisvewar valued at Rs.9,04,10,000/- as mentioned inthe partition deed entered between the firm and theoutgoing partner. The question that arisesbefore us is whether the transfer of landbelonging to the firm to the retiring partner isliable to be taxed under the head “capital gains” andif so in whose hands. It is pertinent to mentionhere that the transfer of the asset is by the firmwhich is a “legal entity” to the retiring partneranother distinct legal entity being an “individual”.Therefore, it is crystal clear that capital gain willarise in the hands of the transferor viz. theassessee firm and not the transferee viz. theretiring partner Mrs.Aruna Visvewar. Provisions ofSection 45(4) of the Act are reproduced herein belowfor reference:- Section-45(4):- The profits or gains arisingfrom the transfer of a capital asset by way ofdistribution of capital assets on the dissolution of a firm or other association ofpersons or body of individuals (not being acompany or a co-operative society) orotherwise, shall be chargeable to tax as theincome of the firm, association or body, ofthe previous year in which the said transfertakes place, and for the purpose of section48, the fair market value of the asset on thedate of such transfer shall be deemed to bethe full value of the considerationreceived or accruing as a result of thetransfer. Section-45(4):- The profits or gains arisingfrom the transfer of a capital asset by way ofdistribution of capital assets on the dissolution of a firm or other association ofpersons or body of individuals (not being acompany or a co-operative society) orotherwise, shall be chargeable to tax as theincome of the firm, association or body, ofthe previous year in which the said transfertakes place, and for the purpose of section48, the fair market value of the asset on thedate of such transfer shall be deemed to bethe full value of the considerationreceived or accruing as a result of thetransfer. The words “OR OTHERWISE” have been elaboratelyexplained in the following decisions:-i) ACIT V. D.D.International (Global) [2009]125 TTJ(Asr.) 112The word 'otherwise', used in Section 45(4) is notto be read ejusdem generis with dissolution of firmor AOP. The expression 'otherwise' has to be readwith the words 'transfer of capital asset' by wayof distribution of capital assets on thedissolution of a firm. The word 'otherwise' inSection 45(4) takes within its sweep not only casesof dissolution but also cases of subsistingpartners of a partnership transferring assets toretiring partners. (ii) New Gujarat Tin Printing Works V. ITO [2010] 8taxmann.com 24/[2011] 128 ITD 182(Ahd.)The word 'otherwise' as occurring in Section45(4) covers a situation, where the capital assetof the firm is distributed to its partnersotherwise than on dissolution of the firm. (iii) CIT Vs. A.N.Naik Associates [2004] 136 Taxman107/265 ITR 346(Bom.) The expression 'otherwise' has not to be readejusdem generis with the expression' dissolution ofa firm or body of individuals or association ofpersons. The expression 'otherwise' has to be readwith the words 'transfer of capital assets' by wayof distribution of capital assets. If so read, itbecomes clear that even when a firm is in existenceand there is a transfer of capital assets, it comeswithin expression 'otherwise' as the object of the https://hcservices.ecourts.gov.in/hcservices/ amending Act was to remove the loophole whichexisted whereby capital gain tax was notchargeable. Therefore, when the asset of thepartnership is transferred to a retiring partner,the partnership which is assessable to tax cases tohave a right or its right in the property standsextinguished in favour of the partner to whom it istransferred. If so read, it will further theobject and purpose and intent of the amendment ofSection 45. Once that be the case, the transfer ofassets of the partnership to the retiring partnerswould amount to the transfer of the capital assetsin the nature of capital gains and business profitswhich are chargeable to tax u/s. 45(4). Therefore,the word 'otherwise' takes into its sweep not onlycases of dissolution but also cases of subsistingpartners of a partnership, transferring assets infavour of a retiring partner. (iv) Burlingtons Exports V. ACIT [1993] 45 ITD 424(Bom. Trib.)The words 'or otherwise' are used as analternate to the words 'on dissolution' andtherefore, in both the situations, i.e. ondissolution or otherwise, the distribution of acapital asset is a must. From the above it is crystal clear that Section 45(4) of the Act mandates the assessee firm to beliable for capital gain tax arising out of thetransfer of its asset to the retiring partner evenin the circumstances when the partnership isreconstituted on retirement of partner. Further,the loan taken by the assessee firm for purpose ofthe asset which is transferred cannot be factoredbecause the loan does not alter the cost of theassets purchased or the value of the assettransferred to the transferee. Therefore, we donot have any hesitation to confirm the order of theLd. CIT (A) as well as the order of the Ld.Assessing Officer.10. In the result, the appeal of assessee isdismissed. From the above it is crystal clear that Section 45(4) of the Act mandates the assessee firm to beliable for capital gain tax arising out of thetransfer of its asset to the retiring partner evenin the circumstances when the partnership isreconstituted on retirement of partner. Further,the loan taken by the assessee firm for purpose ofthe asset which is transferred cannot be factoredbecause the loan does not alter the cost of theassets purchased or the value of the assettransferred to the transferee. Therefore, we donot have any hesitation to confirm the order of theLd. CIT (A) as well as the order of the Ld.Assessing Officer.10. In the result, the appeal of assessee isdismissed. 6. In view of the aforesaid agreement between the learnedcounsels, the present appeal of the assessee is also allowed interms of judgment of this Court in the case of National Co.(supra) and the questions of law framed above are answered infavour of the assessee and against the Revenue. No costs.Connected miscellaneous petition is closed. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrarsni/sdTo1. The Income Tax Officer, Ward – II(4), Range, Madurai.2. Income Tax Appellate Tribunal, 'D' Bench, Chennai. 3.The Commissioner of Income Tax (Appeal) I, Madurai.+1cc to Mr.M.Swaminathan, Advocate Sr.79942Tax Case (Appeal) No.716 of 2015 BS(CO) srg 18/10/2019