AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 1406
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....52,73,777/- by the assessee at the time of her retirement from the partnership firm M/s. Deepak Foods was without consideration and accordingly, the said amount ought to have been taxed as income from other sources u/s 56(2)(vi). 4. The learned CIT(A) failed to appreciate that the amount received by the assessee was in consideration of her retirement from the partnership firm M/s. Deepak Foods and therefore, it was incorrect to hold that the amount of Rs. 21,52,73,777/- was received by the assessee without consideration and hence, there was no question of making any addition of the said amount u/s 56(2)(vi). 5. The learned CIT(A) ought to have appreciated that the partnership firm M/s, Deepak Foods had created goodwill in its balance sheet and the corresponding amount of the goodwill created was credited to the account of the assessee and other partner and therefore, the conclusion of the learned CIT(A) that the amount received by the assessee was without consideration is totally incorrect and the addition confirmed u/s 56(2)(vi) may kindly be deleted. 6. The learned CIT(A) erred in not following the decision of Hon'ble ITAT in the case of M/s. Shakun....
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....oth the partners furnished a note stating that the credit balance in capital account of the assessee includes share of Goodwill received from M/s. Deepak Foods on retirement from the firm. Assessment in the case of Smt. Shakuntala S. Sanghavi was completed. Subsequently, the assessment was set aside by the CIT-II, Nashik on 30-03-2013 by the revision proceedings u/s.263 of the Act; whereas in the case of the assessee, the proceedings u/s.148 of the Act were initiated by the AO for taxing the amount of Rs. 21,53,62,107/-. AO reopened the assessment of the assessee on the ground that amount of Rs. 21,52,73,777/- received by the assessee on her retirement as a partner from the partnership firm M/s. Deepak Foods is taxable as capital gains. 6. During the reassessment proceedings, the assessee made his submissions before the AO stating that reopening of the assessee is bad in law. Assessee relied on the Apex Court's judgment in the case of ACIT Vs. Mohanbhai Pamabhai and others 165 ITR 166 for the legal proposition that when a partner retires from the partnership firm and is paid an amount, such payment is towards settlement of his interest in the partnership firm and is not towards ....
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....section 56(2)(vi) of the Act. Accordingly, the CIT(A) held that the amount received by the assessee from M/s. Deepak Foods constitutes a gift taxable under the above said provisions of section 56 of the Act. Contents of Para 9 to 9.3 of the order of the CIT(A) are relevant. For the sake of completeness, relevant lines from Para 9.1 to 9.3 are reproduced hereunder : "9.1 . . . . . . . . .This being the case, the Hon'ble Tribunal also has not examined the applicability of section 56(2)(vi) of the Act as the CIT has not argued from the point of view of section 56(2)(vi). Therefore, with due respect, it can be said that this issue has not been considered by the Hon'ble Tribunal with reference to the new facts and to section 56(2)(vi) of the I.T. Act. 9.2 In my considered view, the said amounts received by the retired partners are without consideration and therefore, the provisions of section 56(2)(vi) of the Act are attracted. 9.3 To sum up, the amount of Rs. 21,52,73,777/- cannot be taxed as long term capital gains. However, the amount of Rs. 21,52,73,777/- [Rs.21,66,52,000/- - Rs. 13,78,223/- (capital account balance)] is to be taxed as income from other so....
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....ving at above decision, ITAT had relied upon another decision of ITAT, Pune in the case of Riyaz Shaikh [ITA No.352/PN/06]. The relevant portion of the Rajnish Bhandari is as under: "2. The issue raised by the Revenue in this appeal is as to whether the amount of Rs. 54,59,083/- received by the assessee on retirement from the partnership firm is liable to be taxed as long term capital gain arising on transfer of partnership rights. The facts, in brief, are that the assessee, a partner in various partnership firms , retired from the partnership firm M/s Raviraj Associates w.e.f. 31.3.2007, relevant to the assessment year 2007-08, vide deed of retirement of the same date. He was a partner to the extent of 37.5% of the shares and was paid Rs. 54,59,083/- over and above the balance in his capital account. The assessee claimed this amount as capital receipts not liable to tax. The Assessing Officer, however, taxed the said amount as long term capital gain. The Assessing Officer derived support from a decision of the Pune Bench of the Tribunal in the case of Shevantibhai C. Mehta v. ITO 83 TTJ 542 (Pune). The assessee took up the matter in appeal before the Commissioner of Incom....
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....in it was held that the income from house property earned by one who was not owner was held not assessable under the head income from other sources. The mere fact that rent received in the absence of ownership could not be brought to charge u/s.9 would not enable the revenue to bring it under the residuary head i.e. "income from other sources." 14. On perusal of the said para 6.5, we find the Tribunal relied heavily on the decision of Coordinate Bench of the Tribunal in the case of Rajnish Bhandari in ITA No.469/PN/11 and another decision of the Tribunal in the case of Riyaz Shaikh in ITA No.352/PN/2006. We find the decision of the Tribunal in the case of Riyaz Shaikh (supra) has been confirmed by the jurisdictional High Court wherein inter alia it is held that the amount received at the time of retirement is exempt from tax. Contents of relevant lines are extracted here as under : "6. We have carefully considered the rival contentions. We find that the Commissioner of Income-tax (Appeals) has decided the issue in favour of the assessee by following the order of our coordinate Bench in the case of Mr Riyaz A Shaikh (supra), wherein on identical issue, the Tribunal has h....
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....capital gains tax. In this view of the matter, we find it appropriate to allow the claim of the assessee and accordingly the order of the CIT(A) is set aside. The AO is directed to delete the impugned addition. Thus, in Ground Nos 2 & 3, assessee succeeds as above." Therefore, we do not find any error in the order of the Commissioner of Income-tax (Appeals) and accordingly, affirm his order. The revenue fails on this Ground of appeal." Nothing contrary was brought to our knowledge on behalf of revenue with regard to above legal preposition. The assessee further clarified that the decision of ITAT, Pune in the case of Riyaz Shaikh has been confirmed by Hon'ble Jurisdictional of Bombay High Court, inter alia held that the amount received at the time of retirement is exempt from tax. The relevant operative para of the said order is as under: "2. We find that by the impugned order, the Tribunal while holding that amounts received by a partner on his retirement from partnership firm are exempt from capital gains tax relied upon the decision of this Court in the matter of Prashant S. Joshi V/s. Income Tax Officer & Anr. reported in [2010] 324 ITR 154 (Bom).....
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....ire transaction was an arranged transaction. According to him, the amount received by the assessee as goodwill was not correct since the goodwill of M/s. Deepak Foods was much less. The copy of the balance sheet of Deepak Foods for F.Y. 2007-08 has been placed on pages 123 to 129 of the Paper Book filed by assessee reveals that the total revenue was Rs. 9.19 Crs. and the net profit was Rs. 85.49 lakhs. The concerned CIT in his order has considered the turnover and profit of M/s. Deepak Foods for the earlier years and has held that the goodwill should be computed as per the super profit method. According to the CIT, the goodwill as per the super profit method would be worked out at a much lower figure. In this regard, we find that the CIT has not appreciated the fact that Lesma Ltd. had acquired Rs. 1.33 Crs. share capital in M/s. Sanghavi Foods Pvt. Ltd. at a premium of Rs. 67.09 Crs and the Sanghavi Foods is a related concern. Now, for F.Y. 2007-08, the turnover of Sanghavi Foods was Rs. 6.02 crs and it had incurred a loss of Rs. 55 lacs. Thus, going by the logic of the CIT, there was no reason as to why Lesma Ltd. paid Rs. 67.04 Crs. for acquisition of shares of Sanghavi Foods wh....
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....sions of section 56 of the Act, i.e. under the head 'income from other sources' has also reached finality. 17. That leaves, another aspect of taxability of the said receipt under the specific provisions of section 56(2)(vi) of the Act which came up for the first time in this case, as raised by the CIT(A). Aggrieved with this specific issue which is centric to section 56(2)(vi) of the Act, assessee raised various grounds in the appeal (Ground Nos. 2 to 7 in the appeal of the assessee). We need to adjudicate this aspect. The ground-wise adjudication is given in the following paragraphs. 18. Ground No. 1 raised by the assessee relates to reopening of the assessment u/s.148 r.w.s. 147 of the Act. 19. Before us, Ld. Counsel for the assessee submitted that the same is not pressed in view of the covered nature of the issue on merits. On hearing both the parties on this legal issue and considering the concession given by the Ld. Counsel for the assessee, we dismiss the same as 'not pressed'. 20. Ground No.2 relates to the decision of the CIT(A) in holding that the amount received of Rs. 21,52,73,777/- on the retirement of the partner from the firm is taxable u/s.56(2)(vi) of th....
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....The A.O. taxed the amount received by the assessee of Rs. 16,13,514/- on her retirement as long term capital gains on the ground that the same could pertain to the actual good will of the firm. He taxed the balance amount of Rs. 21.36 Crs. as income from other sources in the hands of the assessee. 4. The assessee went in appeal to CIT(A) and submitted that on identical facts ITAT, Pune in the case of Mrs. Shakuntala Sanghavi (page 43 to 58 of Paper Book) has held that in view of Bombay H.C. decision in the case of Riyaz Shaikh and ITAT Pune decisions in the cases of Rajanish Bhandari and Riyaz Shaikh, the additional amount receivable by a partner on retirement from a firm is not to be taxed as capital gains. Further, in paras 6.8 to 6.10 of its order, ITAT, Pune has held that such a receipt cannot be taxed as income from other sources. 5. The CIT(A) held that in view of the ITAT order the additional amount received by the assessee on her retirement cannot be taxed as capital gains but he held that the amount can be taxed u/s 56(2)(vi) as income from other sources in her hands. This section is applicable in a case where an assessee receives a sum of money without a....
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....hands of the assessee can be taxed as income u/s 56(2)(vi). This section applies to a case wherein the assessee receives sum of money without consideration then such a receipt is taxable as an income. For example, a gift would constitute income. In our case, assessee on her retirement has surrendered her right as a partner in the firm. She surrendered her right, title, interest in the firm, M/s. Deepak Foods on her retirement and therefore, she got this compensation. Hence, it cannot be held that she received the compensation without any consideration. Accordingly, the CIT(A) has clearly erred in invoking this section and taxed the amount as income from other sources in the hands of the assessee. 9. As already clarified, the assessee submits that her case is fully covered by the ITAT decision in the case of Shakuntala Sanghavi and the amount received on her retirement from the firm cannot be taxed as income from other sources in her hands. Accordingly, the assessee's appeal may kindly be allowed." 23. From the above, it is the case of the assessee that the said amount was received by the assessee in response to surrender of her right as a partner in the firm. She su....