TaxTMI 
TaxTMI 
2019 (7) TMI 169
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...., which in turn, arises out of an order passed by the Assessing Officer, dated 31.12.2010 under section 143(3)(ii) of the Income Tax Act, 1961 (in short 'the Act'). 3. The Grounds of appeal raised by the assessee for assessment year 2008-09 read as under: "1. On the facts and in the circumstance of the case and in law, the CIT(A) erred in holding that the amount of Rs. 19,58,337/- paid to the retired partners and the legal heirs of the deceased partners as per the provision of the partnership deed, as income of the Appellant. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the amount of Rs. 19,58,337/- is not a diversion of income by overriding title. 3. Without prejudice to the aforesaid grounds, the CIT(A) erred in holding that the amount of Rs. 19,58,337 is not allowable as an expenditure under section 37 of the Act as incurred for the business of the Appellant . 4. On the facts and in the circumstance of the case and in law the CIT (A) ought to have allowed the amount of Rs. 19,58,337/- as a loss. 5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in charging interest u/s.234A, 234....
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....al, CIT(A) affirmed the order of Assessing Officer. Aggrieved by the same, assessee is in further appeal before us. 5. Before us, the ld.Representative for the assessee submitted that three partners retired from the firm w.e.f. 31.03.2001, vide a Deed of Partnership dated 01.04.2001. The three partners were to be paid the following amounts in 48 equal monthly instalments: Mr. J. P. Thacker Rs. 40,00,000/- Mr. S. K. Wadia Rs. 30,00,000/- Mr. K.F. Mehta Rs. 30,00,000/- 5.1. The aforesaid payments were made under clause 4 read with clause 5(b) of the aforesaid Partnership Deed. Apart from above, as per clause 13 read with clause 14 of the Partnership Deed, legal heirs of Mr. S. D. Colabawala were also to be paid Rs. 20,00,000/- in 48 equal monthly instalments. During the year under consideration, last 12 instalments were paid in respect to the retirement / death of the aforesaid four partners amounting to Rs. 19,58,337/-. The instalments paid in the earlier years to the very same partners were allowed and accepted by the Assessing Officer to be not chargeable to tax in the hands of the assessee. Thus, the ld. Representative submitted that as the earlier instalments of the ....
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....The ld.Representative relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Kanga & Co. in ITA No. 2277 of 2013 wherein on identical facts the High Court dismissed the appeal of the Revenue stating that the Tribunal has correctly placed reliance on the decision of Mulla and Mulla and Craigie Blunt and Caroe 190 ITR 198 (supra). 10. The ld.Representative for the assessee further pointed to the contents of Partnership Deed of earlier year for which the Hon'ble High Court has decided the issue in favour of the assessee; the payment made to retiring partner and legal heirs of the deceased was covered by the Clause No. 16 of the Partnership Deed and the corresponding clause in the present Deed is Clause No. 14. It was further pointed out that even in earlier year's Partnership Deed there was scope for determination of amount which needs to be quantified in future whereas in the present Partnership Deed, the amount is already quantified in the Partnership Deed itself. Apart from this, there is no difference in the old Partnership Deed and new Partnership Deed. As such, ratio laid by the Hon'ble Bombay High in assessee's own case still holds good and the is....
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....been decided by the Hon'ble Bombay High Court and the clauses of the Partnership Deed in operation during the current year. It was pointed out by the ld. Counsel of the assessee that the relevant clause in the earlier agreement was clause No. 16. For sake of brevity, we reproduce the clause 16 of the earlier Partnership Deed which reads as under: "16. In the event of the retirement or death of any of them the parties hereto the retiring partner or the estate of the deceased partners, as the case may be, shall be entitled to the share of profits of the firm (in cases where the share is quantified, the quantified share) for all the work done by the Firm upto the date of his retirement or death, as the case may be, and all necessary apportionment shall be made for the purpose PROVIDED ALWAYS and it has been hereby expressly agreed between the parties hereto that notwithstanding any-thing otherwise contained in these presents. (a) it shall be lawful for the surviving or continuing agreement partners of the first to the eighth parts in agreement with the retiring partner or partners or the heirs, executors or administrators of any deceased partner or partners to quantify the share....
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.... right, title or interest in any receipts of the firm after the date of his death, retirement or insolvency or termination of the share even though such receipts may relates to work done prior to the date of death retirement, insolvency or determination of the share, as the case may be. On such death, retirement or insolvency of any Partner or determination of the share of any Partner, the Outgoing Partner shall be entitled to such amount as may be payable to such Partner as per the Books of Account of the firm upto the date of death, retirement, insolvency, or termination of share of such Partner, as the case may be, after taking into consideration the profits of the firm upto the date of his death, retirement, insolvency, or termination of share, as the case may be. Such profits shall be determined on proportionate time basis hereto of the First to the Ninth Parts or of the survivors of them. The amount so found shall be payable in one or more lumpsum or by periodical instalments as may be decided by the majority of the Parties hereto of the First to the Ninth Parts or the survivors of them, but so that the same shall be paid within a period of not more than three years from the ....
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....hereof. (c) Nothing contained in this Clause 14 of this Agreement shall be construed as obliging any Partner to retire as a Partner of the said Firm, it being clearly understood that this clause is intended only to provide an option to any such Partner to retire should he so think fit. (Underlined for emphasis by us) From a perusal of clause No.16 of the old agreement and clause nos. 13 and 14 of the new agreement, it is amply clear that in sum and substance the only difference is that in old agreement amounts payable to the retiring partners and legal heirs were not quantified and it only prescribed a method for quantification of amount, whereas in the new agreement the amount to be paid to the partners on retirement and otherwise is duly quantified. Apart from the aforesaid, we do not find difference in the terms and conditions prescribed in the two agreements. 12.3. The Hon'ble Bombay High Court, after carefully considering the terms of the old agreement, decided the issue in favour of the assessee in [1991] 190 ITR 0198, and the relevant extract of the said judgment is reproduced hereunder: "6. We have already referred to the Tribunal's findings in detail in th....
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....V.N.V. Devarajulu Chetty& Co. (supra). 8. In the present case also the assessee-firm was under a legal obligation in terms of the deed of partnership dated 1-9-1967 and the clauses in the two subsequent partnership deeds to pay outstanding fees for the work done up to and during the period when the deceased partners were partners. This was also an instance of the source of income being subject to an obligation. We are in agreement with the Calcutta High Court decision and hold that the amounts so paid by the assesseefirm to the heirs of the deceased partners cannot be assessed as the income of the firm. (Underlined for emphasis by us) 12.4. In our view, the terms of the Partnership Deed dated 01.04.2001 are also in line with the old agreement except that the amount to be paid to the retiring partners and legal heirs have been quantified in the new agreement. Thus, when the fact situation remains the same, we do not find any reason for not following the decision of the Hon'ble Bombay High Court in assessee's own case. The Assessing Officer has not followed the order of the Hon'ble High Court because as per him, there was amendment in the Act w.e.f. 01.04.1993 and thereafter,....