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June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 34Electroplast Engineers [2019] 104 taxmann.com
444/263 Taxman 120 (Bom.)]. Where retiring
partners does not acquire any right in prop-
erty there is no transfer of capital asset and
section 45 is not attracted. [refer - CIT v.
Karnataka Agro Chemicals [2014] 49 taxmann.
com 324/226 Taxman 202 (Kar.) (Mag.)]Probable legislative amendments
- In order to levy capital gains tax (in the
hands of the retiring partner) on payment
of money to him (either by the firm, or by
other existing, or incoming partners) for re-
linquishing his undefined share in goodwill,
or in any other capital asset of the firm,
section 2(14) will have to be amended so to
hold unidentified share in the assets of the
firm, as property held by the partner. An
Explanation can be added to section 2(14)(a)
so as to include unspecified share in the
assets of the firm as property held by the
partner. Once payment of amount to the
retiring partner is in lieu of transfer of an
asset held by the partner (after amendment),
capital gains can be charged in the hands of
the partner. However, section 45(4) cannot
be invoked in such circumstances, as there
is no distribution of assets from the firm to
the partner.Conclusion
- Section 45(4) can be invoked only when
the assets of the firm are transferred from
the firm to the partners. Capital gains on
payment of money to the retiring partner
for relinquishing his rights in the assets of
the firm can be charged in his hands only
when section 2(14) provides that unspecified
share in the assets of the firm will be asset
held by the partner.
lll
TAX ON GOODWILL RECEIVED BY RETIRING PARTNER SHOULD BE CLARIFIED