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M/sAnik industries ltd.reduced the share from 30 to 25% and the other partners increased their share as mentioned in the written submissions of the appellant. The rights of the existing partners M/s Anik Industries i.e. the appellant company were reduced and the rights were created in favour of the other existing partners of the firm. The other partners have paid Rs. 4 crore to the appellant for relinquishing its rights in the partnership of its share being reduced from 30% to 25%. AO brought to tax Rs. 4 crore as capital gain u/s 45(1) of the Act holding that the sum of Rs. 4 crore was received by the appellant company on account of relinquishment of its right in the shares to the extent of 5% An amount paid to a partner upon retirement, after taking accounts and upon deduction of liabilities, does not involve an element of transfer within the meaning of Section 2(47). This decision has subsequently been followed by Hon’ble Court inCIT V/s Riyaj A.Sheikh (41 455 26/02/2013).we hold that the compensation received by the assessee from existing partners for reduction in profit sharing ratio would not tantamount to Capital Gains chargeable to tax u/s 45(1). Therefore, by deleting the impugned addition, we allow the appeal.

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Sec. 45 of Income Tax Act, 1961— Capital gain —ANIK INDUSTRIES LTD. vs. Deputy CIT. [2020] 23 ITCD Online 123 (ITAT-MUMBAI)