TaxTMI 
TaxTMI 
2016 (4) TMI 502
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....M/s Venus Builders. The said partnership firm consists of two partners viz., the assessee and M/s M.D. Choksi Const. Co. P Ltd. It was formed on 19-10- 1998 and the firm was registered under the Indian Partnership Act on 01- 10-2003. The partnership firm was formed with an objective of developing a property, which was brought in by M/s M.D. Choksi Const. Co. P Ltd into the books of Partnership firm as its capital. As per the partnership deed, the assessee took up the responsibility to clear certain encumbrances attached to the property that was proposed to be developed. Subsequently disputes developed between the partners and when the matter went to Hon'ble High Court of Bombay, it appointed an arbitrator named Shri J.V. Chinai to arbitrate and settle the dispute between the partners. As per the decision of the arbitrator, the partnership firm was dissolved and the assessee received a sum of Rs. 2.50 crores in full and final settlement of all his rights in the firm. 4. The issue contested before us is about the taxability of the amount of Rs. 2.50 crores referred above. It is pertinent to note that the assessee declared the same as capital gains in its return of income and propose....
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.... on account of incomplete data furnished by the assessee in this context. This alone would merit adequate ground for rejecting the plea of the assessee. Then the assessing officer placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of Manoranjan Pictures Corpn Pvt Ltd (1997)(228 ITR 202)(Delhi), wherein it was held that where a retiring partner in a partnership firm realises his interest and such interest in essence relates to the extinguishment of a right to receive the income from business of partnership firm, it has to be treated as revenue receipt. Accordingly, the AO held that the amount of Rs. 2.50 crores received by the assessee represents money received for services rendered by the assessee to M/s M.D. Choksi Const. Co. Pvt Ltd and accordingly assessed the amount of Rs. 2.50 crores as revenue receipt. 6. In effect, the assessing officer did not accept the claim of existence of a partnership firm and hence he proceeded to examine about the nature of receipt and finally concluded that the same represents revenue receipt and in this regard, he placed reliance on the decision rendered by Hon'ble Delhi High Court, referred supra. 7. The Ld CIT(A) ....
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....in the hands of the firm." 8. Thus, we notice that the Ld CIT(A), upon appreciation of the evidences and facts prevailing in the instant case, has given a clear finding that there existed a "Partnership firm" and the assessee has received the impugned amount of Rs. 2.50 crores on dissolution of the said partnership firm. We have earlier noticed that the assessing officer has proceeded the to assess the amount of Rs. 2.50 crores as revenue receipt only by rejecting the claim of existence of partnership firm. However, the finding of the Ld CIT(A) that there existed a Partnership firm and the assessee has received the impugned amount of Rs. 2.50 crores on dissolution of the Partnership firm, has not been challenged by the revenue, meaning thereby, the said finding of Ld CIT(A) has attained finality. This is clear from the Grounds raised by the revenue, which read as under:- "(1) (i) The Ld CIT(A), on the facts and in the circumstances of the case, erred in law in deleting the addition made of Rs. 2,50,00,000/- received by the assessee from the firm, on retirement treating it as capital receipt on dissolution of the firm. (ii) The Ld CIT(A), on the facts and in the circumstances o....
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....n the Act. 11. We are of the view that the Ld CIT(A) has rightly referred to the provisions of sec. 45(4) of the Act, which provides for manner of taxation in case of dissolution of a partnership firm or other association of persons. The said section reads as under:- "45(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be full value of the consideration received or accruing as a result of the transfer." It can be noticed the liability to pay tax arising on distribution of assets on the dissolution of a partnership firm or association of persons or body of individuals is fastened upon firm or association or body and not upon the partners or members. It can further be noticed that, even if the assessing officer treats the partn....
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....ser than the actual expenditure incurred by him. 15. The assessing officer took the view that the assessee does not have any document to explain the nature of compensation paid by M/s Samarth Erectors & Developers. He further observed that the assessee has failed to furnish copy of accounts submitted by him to M/s Samarth Erectors & Developers. Accordingly the AO held that the expenditure of Rs. 1,37,52,449/- claimed by the assessee against the receipt of Rs. 1,30,00,000/- is not acceptable, in the absence of primary evidence for connecting the expenditure to income. Accordingly, he assessed the sum of Rs. 1,30,00,000/- referred on gross basis. 16. The Ld CIT(A) noticed that the accounts of the assessee pertaining to earlier years, which were also subjected to scrutiny by the AO, disclosed the details of expenses. Further, the assessee has also furnished the details of expenses before the AO and also confirmation obtained from M/s Samarth Erectors & Developers to the AO. Accordingly the Ld CIT(A) held that the expenditure of Rs. 1,37,52,449/- claimed by the assessee should be allowed. 17. We heard the rival contentions on this issue and perused the record. In our view, the appro....