TaxTMI 
TaxTMI 
2015 (12) TMI 1750
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....d Accountant by profession. The return of income for the year under consideration was filed by him on 27.11.2003 declaring total income of Rs. 72,35,276/-. In the said return, the sum of Rs. 1,46,00,000/- was claimed to be exempt by the assessee from tax and the following note was appended to the return to support and substantiate the said claim:- "Income exempt from tax- capital receipts- during the year, I have received Rs. 1,46,00,000/- from EYLLP through accounting partners trust upon termination of my employment with Ernst & Young Pvt. Limited. Since the payment is received neither from my employer nor on behalf of my employer ( & since there was no obligation upon my employer to pay such amount to me), it is not taxable as profits in lieu of salary under the Income Tax Act, 1961. Further, Courts have held that consideration received for giving up employment right is a capital receipt. Hence, applying this principle, the amount received by me is not taxable". 4. During the course of assessment proceedings, it was also submitted by the assessee that the sum of Rs. 1,00,00,000/- (net of tax) was received from Ernst & Young LLP through Accounting Partners Trust-1 upon his cess....
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.... received by the assessee upon his cessation of employment and retirement from partnership firm. It may be noted that the said amount was not paid by his employer or his firm directly. It is not clear in absence of the deed of the trust or clarification of the trustee whether the money was paid to the assessee on cessation of employment or retirement from partnership firm. The said money termed as compensation was received on premature cessation or retirement either from employer or partnership. The salaried persons are being paid compensation upon voluntary retirement prior to the normal date of retirement. The said compensation is being taxed as salary income under the Act. The Act has not exempted the compensation of salary income. The present case is very similar. The assessee states that he has received compensation upon cessation of employment in lieu of the regular income by way of salary. Therefore, in my view, the compensation of Rs. 1,46,00,000/- received by the assessee upon his retirement is a salary income chargeable to tax. If the assessee was paid the said compensation on premature retirement from the firm, then the compensation would be the professional income charg....
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....essee on this issue after discussing all the relevant aspects of the matter in paragraphs no. 4.2 to 4.5 of his impugned order, which are extracted below:- "4.2. The Assessing Officer observed in the assessment order that the appellant who was due to retire in later years would have received pension in accordance with the partnership deed. He compared the appellant's case with that of a person who retires prematurely and receives payments on that account. The Ld. AR argued that Section 17 of the Income tax Act could not apply in the appellant's case. The appellant being partner of a firm of M/s. S. R. Batliboi & M/S S. R. Batliboi Associates there was no employer employee relationship between the appellant and the Firm. It was his position that the appellant could not be said to have received the payment under any consideration from his employer or former employer. He vehemently submitted that the provisions of Section 17(3) did not apply and the amount received cannot be considered as profit in lieu salary. It is correct that there was no employer employee relationship between the appellant and the Firms of which he was a partner. It is however a fact tha....
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....is contentions. These cases relate to receipts against loss of business assets or sources. Thus these judgments are distinguished vis-a-vis the appellant's case. His profession did not cease and the source of such income not extinguished but there was only a change in terms which cannot have the effect of negating the provisions of the I. T. Act 1963. In any case payment receivable from the firm under the appellation of "pension" is a contingent right. It was dependent on the appellant surviving till the date of retirement which was not a certainly and then parameter of how long he survived. To exchange such a situation for a handsome payment was not tantamount to dismantling an apparatus. When the payment was received from Ernest & Young pension was a distant and contingent issue. To borrow an analogy the concept of pension in the case of an employee is not applicable during continuation of his service and if any payment was made on lieu thereof it would become taxable as "profit in lieu of salary". Likewise in a professional set up a future contingent receipt is converted into present lump sum its character as income will not undergo any change and can have no impact on its t....
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....s rightly pointed out by the ld. D.R., the amount in question received by the assessee was never claimed by the assessee either during the course of assessment proceedings before the Assessing Officer or even in the statement of facts filed before the ld. CIT(Appeals) to be the amount received for giving up his right to receive pension and although this claim was made by the assessee for the first time before the ld. CIT(Appeals), the impugned order of the ld. CIT(Appeals) does not show that he has verified the same from the relevant documentary evidence, such as the relevant partnership deed giving the assessee his right to receive pension, agreement whereby the right to receive pension, if any, was given up by the assessee for the amount in question, etc. He has contended that this matter may, therefore, be sent back to the file of the Assessing Officer for verifying the claim of the assessee. Since this position pointed out by the ld. D.R. is clearly evident from the orders of the authorities below and the ld. Counsel for the assessee has also not disputed the same, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the As....
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.... by the partner is his own capital which was either contributed by him or was out of accumulation of profit subjected to tax. But when it is received on account of goodwill, it is not his capital contribution or out of income accumulation subjected to tax in firm's hands. As he receives any money in lieu of goodwill, the said money becomes his income as he gets it by virtue of his being a partner and in exercise of his profession. Moreover, any income has to be taxed either in the hands of the earner or receiver of income in beneficial capacity. Therefore, I do not agree with assessee's contention that his share in goodwill received on retirement is a capital receipt, rather it is casual receipt in the nature of income which was not taxed in the hands of firm. Moreover, this receipt is not liable to be taxed under any of the heads from A to E of section 14 of the Act. In view of the opening sentence of section 56 of the Act, such receipt of income is liable to be taxed as income from other sources. Accordingly, I treat the assessee's share of goodwill of Rs. 22,56,250/- as income from other sources and include the same in assessee's total income". 9. On appeal, the ld. C....
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....ts. In such case provisions of section 55(2)(a)(i) which provides that in cases where there is no purchase of goodwill cost of acquisition will be considered as "nil" as appellant has not purchased goodwill which is covered by sub-clause (i) of clause (a) of section 55(2) . In view of above no intervention is called for in A.O.'s action except that in place of income from other source it is to be taxed as long term capital gain as the amount is for goodwill received by the appellant from the Firm". 10. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue involved in Ground No. 2 of the assessee's appeal is squarely covered in favour of the assessee by the various judicial pronouncements including the decisions of the Coordinate Benches of this Tribunal. In one such decision rendered in the case of Shri Amitabh Singh (ITA No. 1996/DEL/2006), Hon'ble Delhi Bench of this Tribunal decided the similar issue in favour of the assessee in the identical facts and circumstances for the following reasons given in paragraph no. 5 of its ord....
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....hat what he takes is his share in the assets of the firm continues to apply with the exception that under sub- section (4), when a capital asset is distributed to the partner on dissolution of the firm or on his retirement at less than the fair market value, then, the firm becomes liable to pay capital gains tax. Such is not the case here, as we are dealing with the case of a partner. Therefore, we concur with the ld. CIT(Appeals) that nothing was taxable in the hands of the assessee". 12. The Coordinate Bench of the Tribunal at Kolkata also had a occasion to consider the similar issue in the case of Nawshir H. Mirza, wherein the case of the assessee for exemption on account of share of goodwill received on retirement was held to be capital receipt not chargeable to tax by the Tribunal for the following reasons given in its order dated 11.01.2008 passed in ITA No. 1252/KOL/2007:- "9. We have considered the facts of the case and rival contentions and are of the view that the order of the ld. CIT(A) needs to be upheld and does not call for any interference. In the instant case, it is not disputed that the said firms were having self generated goodwill which was valued by ....