1. The appellant-revenue, by the present appeal, challenges the correctness of the order dated 3-2-1987, of the learned Appellate Assistant Commissioner, for assessment year 1983-084, inter alia, on the following ground :- - (1.)"The ld. AAC has erred both in law and on facts in holding that the sum of Rs. 40,000 received by the assessee from the firm over and above the capital as per books was not liable to capital gains tax."
(2.)By status, the assessee in this case is an individual and was a partner up to 31-12-1982 in the firm known by the name and style as M/s Rajindra Agro Industries, carrying on business of manufacturing, purchase and sale of various kinds of agricultural implements, auto parts, cycle parts, tractor parts, etc. The accounting period was the year ending 31-3-1983 and the accounts were maintained on mercantile basis. Return in this case was filed on 30-9-1983, declaring net income of Rs. 14,514. It was noted by the by the learned Income-tax Officer during assessment proceedings that the assessee had retired from the above firm, vide deed executed on 31-12-1982. Copies of arbitration award dated 28-12-1982 and arbitration agreement dated 21-12-1982, were placed on record. The ld. ITO understood, after perusal of those papers, that this was a case of retirement of a partner from the firm and not dissolution of the firm. From the dissolution deed, it was noted by the ld. ITO that party of third part, i. e., the assessee in this case, had retired from the firm, leaving the entire assets and liabilities including the goodwill of the firm, trade marks, stock-in-trade, excepting land and building under construction at plot No. B-34, Focal Point, Ludhiana, to the parties of first and second part. The parties of first and second part had taken over the business of the firm as a going concern and all the benefits attached thereto. In fact, the remaining partners constituted themselves into a new firm and continued the same business. The ld. ITO considered that in this case there was a mere reconstitution of the firm and there was no dissolution. The dissolution was said to be result of retirement of the partner from the firm. He considered that any amount received by the outgoing partner, i. e., the assessee, in excess of the amount standing to his credit on his joining, the same will constitute gains arising form a transacting amounting to transfer within the meaning of section 2(47) of the Income-tax Act. According to him, the assessee was liable to pay capital gains on the amount, he receive, over and above the value of his share in the firm. Thus, inclusion of Rs. 40,000 was made on account of capital gains, with the following observations :- "The assessee by mutual agreement is a retiring partner and agreed to receive a sum of Rs. 40,000 for going out and by may of consideration for transferring or releasing or assigning or relinquishing his interest in the partnership assets to the continuing partners. There has been no determination of payment of his share on the footing of notional sales of partnership assets and hence it is a transfer chargeable to capital gains. As per clause 3 of the Arbitration award, the assessee is entitled to receive plot and building at Focal Point and as per clause 4, the total cost of this at Rs. 3,09,094 is to be adjusted against the capital of the assessee and shortfall up to amount of Rs. 40,000 is to borne by the continuing partners. In other words, the assessee relinquishment his interest in the partnership concern and is entitled to receive his capital as per the books plus Rs. 40,000 and instead of receiving these amounts in cash, he is entitled to take the Focal Point plot, and building. This entitlement to lump sum of Rs. 40,000 for relinquishment of his share or right in the partnership and its assets in favour of the continuing partner, is liable to capital gains, as it is a transfer within the meaning of section 2(47) of the Act, Reliance is placed upon Bombay High Court judgment in CIT v. H. R. Aslot [1978] 115 ITR 255 and CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95."
Sh. Subhash Aggarwal, ld. A. R., argued the matter before the ld. AAC and brought on record detailed argument. He also placed reliance on the cases in CIT v. L. Raghu Kumar [1983] 141 ITR 674 (AP), CIT v. N. Palaniappa Gounder [1983] 143 ITR 343 (Mad.), Addl CIT v. Smt. Mahinderpal Bhasin [1979] 117 ITR 26 (All.) and CIT v. Bhupinder Singh Atwal [1981] 128 ITR 67 (Cal.). After examining the ratio in those cases, the ld. AAC came to the conclusion that the amount received by the assessee in this case was not liable to capital gains. He thus deleted the inclusion of Rs. 40,000 made by the ld. ITO.

(3.)THEREFORE, the present appeal, by the revenue, before us, The ld. Sr. D. R. Sh. D. Chatterjee placed heavy reliance on the assessment order and placed further reliance on the ratios in the following cases :- (a) A. S. Krishna Shetty & Sons v. Addl. CIT [1975] 100 ITR 587 (Kar.); (b) CIT v. Tribhuvandas G. Patel [1978] 115 ITR 95 (Bom.); and (c) CIT v. H. R. Aslot [1978] 115 ITR 255 (Bom.). According to the ld. Sr. D. R., there was a clear transfer of assets from the firm to the outgoing partner and that this being a case of mere reconstituted fir, the ld. ITO was justified to include the difference, on account of capital gains and the ld. AAC unjustifiably excluded the said sum. It was pointed out that the ld. AACs order was very brief and there was no proper discussion on the facts and issues.