Panjawani1, the Karnataka High Court (HC) has held that the reduction of share in partnership after the reconstitution of the firm does not amount to the extinguishment of rights of the old partners over the assets of the firm, so as to give rise to taxable capital gain in the hands of old partners. any amount as capital gain in relation to the sale of the firm’s business. The Tax Officer (TO) computed capital gains on sale of the firm’s business, and held that gain proportionate to the taxpayer’s share in the firm was taxable in the taxpayer’s hands as capital gain on transfer of interest in the firm’s assets.

Sep 19, 2014 · 1. reconstitution of a partnership firm reconstitution of a partnership firm means a change in the nature of relationship amongst members, effected through a fresh agreement under which the existing business continues. 2. modes of reconstitution change in the profit sharing ration of the existing partners. admission of a partner.