1984 (5) TMI 73 - AT - Income Tax

ITAT rules retirement goodwill not taxable as capital gains

The ITAT allowed the appeal, ruling in favor of the assessee, holding that the amount received towards goodwill upon retirement from the partnership firm ... Capital Gains, Capital Or Revenue Receipt, Set Off Issues:Taxability of amount received towards goodwill as capital gains or revenue receipt.Analysis:The appeal was filed by the assessee against the order of the AAC regarding the taxability of the amount received towards goodwill upon retirement from a partnership firm. The assessee contended that the amount should not be taxed as capital gains, citing the decision in the case of CIT v. B.C. Srinivasa Setty. However, the AAC disagreed, relying on the case of CIT v. Gangadhar Baijnath, and held the amount to be a revenue receipt assessable under the head 'Business'.The assessee argued before the ITAT that the case fell within the ratio of the decision in B.C. Srinivasa Setty and that the AAC erred in not following the said decision. The department's representative, on the other hand, supported the AAC's decision, emphasizing the distinction between firm dissolution and partner retirement and referring to relevant case laws.The ITAT analyzed the facts and circumstances of the case, distinguishing it from the case of Gangadhar Baijnath. It noted that the amount received towards goodwill was specifically mentioned in the deed of retirement and held that it constituted a capital receipt, as it related to the assessee's share in the goodwill of the firm, a capital asset under the Indian Partnership Act, 1932. The ITAT also relied on the decision in B.C. Srinivasa Setty, emphasizing that self-generated assets do not attract capital gains tax upon transfer.The ITAT further addressed the cases cited by the department's representative, highlighting that they did not support the revenue's position. It explained that these cases, such as P. Gheevarghese and Tribhuvandas G. Patel, actually favored the assessee's case by establishing that amounts received towards goodwill upon retirement were not taxable as capital gains. Consequently, the ITAT reversed the orders of the AAC and the ITO, directing the deletion of the amount of Rs. 10,000 from the assessee's total income.In conclusion, the ITAT allowed the appeal, ruling in favor of the assessee and holding that the amount received towards goodwill upon retirement from the partnership firm was a capital receipt and not taxable as capital gains.