Section 45(4) of Income Tax Act, 1961— capital gain— In the instant case, issue is that whether on a reconstitution of a Partnership Firm, the asset transferred to the outgoing partner or amount paid to him attracts capital gains tax liability in the hands of the assessee/Partnership Firm or not in terms of Section 45(4) of the act

Held that—
Therefore, when the asset of the partnership is transferred to a retiring partner, the partnership which is assessable to tax cases to have a right or its right in the property stands extinguished in favour of the partner to whom it is transferred. If so read, it will further the object and purpose and intent of the amendment of Section 45. Once that be the case, the transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of capital gains and business profits which are chargeable to tax u/s. 45(4). The present appeal of the assessee is also allowed in terms of judgment of this Court in the case of National Co. (supra) and the questions of law framed above are answered in favour of the assessee and against the Revenue.[M/S. VIKAS ACADEMY VERSUS THE INCOME TAX OFFICER, WARD – II (4) , MADURAI.] [2019] 17 ITCD Online (42) [MADRAS HIGH COURT]