Partnership firm existence confirmed, retirement amount not taxable as capital gain. Tribunal dismisses Revenue appeals.

The Tribunal upheld the CIT(A)'s decision, ruling that the partnership firm existed, and the amount received by the assessee for retirement was not taxable as capital gain. The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision based on legal precedents.

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Issues Involved:
1. Deletion of addition made by the Assessing Officer (A.O.) amounting to Rs. 2,33,58,240/- on account of Long Term Capital Gain.
2. Validity of the existence of the partnership firm and its dissolution.
3. Taxability of the payment received by the assessee on retirement from the partnership firm.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Long Term Capital Gain:
The Revenue appealed against the deletion of an addition of Rs. 2,33,58,240/- made by the A.O. on account of Long Term Capital Gain. The A.O. argued that the payment of Rs. 2.95 Crores received by the assessee on settlement of arbitration proceedings should be taxed as 'Capital Gain'. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the amount received was a capital receipt not taxable in the hands of the assessee. The CIT(A) referred to various case laws, including CIT vs. A. N. Naik 265 ITR 346 and Chalasani Venkateswara Rao vs. ITO [2012] 349 ITR 423 (AP), to support this conclusion.

2. Validity of the Existence of the Partnership Firm and Its Dissolution:
The A.O. contended that the partnership firm, M/s. Vinky Developers, was not in existence as it was not registered, carried on no activity, and filed no return of income. However, the CIT(A) found that there was a valid partnership deed between the assessee and Mrs. Vandana Suresh Punwani, which was acknowledged in arbitration proceedings and by the Hon'ble Bombay High Court. The CIT(A) observed that the firm had a profit-sharing ratio of 50:50 and that the agreement for the development right was in the name of the firm, not the individual partners. Therefore, the CIT(A) concluded that the partnership firm was valid and its dissolution led to the distribution of assets, invoking section 45(4) of the Act.

3. Taxability of the Payment Received by the Assessee on Retirement from the Partnership Firm:
The CIT(A) held that the Rs. 2.95 Crores received by the assessee was for retirement from the partnership firm, not for relinquishment of rights in the property at Bandra. The CIT(A) noted that the firm, not the individual partners, had the development rights. The CIT(A) opined that the provisions of section 45(4) applied, making the amount a capital receipt not taxable in the hands of the assessee. The CIT(A) relied on the Hon'ble Bombay High Court decision in CIT vs. Riyaz A. Sheikh [2014] 41 taxmann.com 455 (Bom) and the Supreme Court decision in CIT vs. R. Lingmallu Raghukar (124 taxman 127 (SC)), which held that amounts received on retirement from a partnership firm are not taxable as long-term capital gains.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the partnership firm existed and that the amount received by the assessee was on account of retirement from the firm, not taxable as capital gain. The Tribunal dismissed the Revenue's appeals for both assessment years, confirming that the CIT(A)'s decision was correct and based on valid legal precedents. The order was pronounced in the open court on 27.08.2018.

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