COMMSISIONER OF INCOME TAX V. MR DINESH D RANKA

ITA/1057/2008

AI Insights

The case involves an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal (ITAT), which had quashed the assessment order regarding the taxability of a sum received by the respondent, Sri Dinesh D Ranka, upon his retirement from a partnership. The respondent had been a partner in M/s Bangalore Housing Development and Investment, and upon his retirement, he received a substantial amount based on the revaluation of assets, which the Assessing Officer treated as business income. The ITAT found that the amount was not taxable as business income, leading to the Revenue's appeal. The High Court found that the Tribunal had not adequately addressed the factual matrix of the case and thus remanded the matter for a fresh decision.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 736275 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-04-2015
• Assessment Year: misc
• Other Referred Cases: Sunil Siddharthbai Vs Commissioner of Income Tax \\u2013 (1985) 156 ITR 509
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: K V ARAVIND
• Keywords: Business income; Income Tax; Partnership; Retirement benefits; Tax Evasion
• Section: 260A; 45

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BENGALURU Dated this the 13th day of April, 2015 Present THE HON’BLE MR JUSTICE VINEET SARAN & THE HON’BLE MRS JUSTICE S SUJATHA Income Tax Appeal 1057 / 2008 Between 1 Commissioner of Income Tax C R Building, Queens Road Bangalore 2 Assistant Commissioner of Income Tax Central Circle – 2(3) C R Building, Queens Road Bangalore Appellants (By Sri K V Aravind, Adv.) And Sri Dinesh D Ranka 3rd Floor, Ranka Chambers # 31, Cunningham Road Bangalore 52 Respondent (By Sri S Parthasarathi, Adv.) Appeal is filed under S.260A of the Income Tax Act, 1961 praying to set aside the order passed by the ITAT, Bangalore in ITA 1165/Bang/2007 dated 26.6.2008 and confirm the order of the Appellate Commissioner, etc. 2 Appeal coming on for Hearing this day, Vineet Saran J, delivered the following: JUDGMENT The brief facts of this case are that the assessee was inducted as a partner of the firm M/s Bangalore Housing Development and Investment with effect from 21.6.2001. In October, 2003, he retired from the partnership. The investment made by the assessee respondent was to the tune of Rs.7 crores and while retiring from the partnership, on the basis of revaluation of the assets, his retirement benefits came to Rs.23.5 crores. The Assessing Officer assessed the profit of Rs.16.5 crores as income from business / profit from business in real estate on the ground that the assessee had surrendered his right of 1 lakh square feet of built up area in favour of the remaining partners of the firm for which, according to the Assessing Officer, he was given profit of Rs.16.5 crores. The Assessing Officer had also come to the conclusion that “the firm did not carry on any business activity either to accumulate profit or loss or to earn any goodwill so that the persons relinquishing the rights could attribute the surplus to such activity”. It was further held that right from the inception of the firm it had not carried out any business activity except for giving the property to IBC Knowledge Park (P) Ltd. The specific finding of the assessing officer was to the effect that the 3 basic purpose was to let go the property after getting profits on investment but, the induction of a new partner and later retiring was only to avoid payment of tax. This order of the Assessing Officer dated 31.1.2006 was challenged by the assessee in appeal which was dismissed and by order of the Commissioner of Income Tax dated 27.9.2007, the sum assessable to tax was enhanced to Rs.23.5 crores, in stead of Rs.16.5 crores as held by the Assessing Officer. Aggrieved by the said order, the assessee challenged the same before the Tribunal, which has allowed the appeal and quashed the assessment order. Challenging the order of the Tribunal, this appeal has now been filed by the Revenue, which has been admitted on the following questions of law: Whether the Tribunal was correct in holding that a sum of Rs.16,50,000/- received by the assessee cannot be brought to tax under the head ‘Business Income’ as the same had been received on transfer of built up area as held by the Assessing Officer and confirmed by the Appellate Commissioner; Whether the Tribunal was correct in not examining the seized material and subsequent amendment to S.45 of the Act and recording a finding as to whether a 4 colorable exercise device had been adopted to evade tax by floating a partnership as held by the Assessing Officer and confirmed by the Appellate Commissioner and consequently recorded a perverse finding. We have heard Sri K V Aravind, learned counsel for the appellant as well as Sri S Parthasarathy, learned counsel for the respondent and perused the record. Learned counsel for the appellant has strenuously argued that though specific finding on facts had been given by the Assessing Officer as well as the Commissioner of Income Tax with regard to the induction of the assessee as a partner in the firm in the year 2001 and his retirement in the year 2003 were sham transactions only for the purpose of evasion of tax and that no business whatsoever had been carried on by the firm during this period, yet without upsetting such a finding of the authorities below, the Tribunal has, without discussing the facts of the case and recording any finding of its own, allowed the appeal in an arbitrary manner. It has further been submitted that the Tribunal has not considered that the profit derived by the assessee was on account of his relinquishing his share of 1 lakh square feet of built up area regarding which there was a specific finding of the authorities 5 below and has wrongly proceeded to consider the same as retirement benefit of the assessee from the partnership firm. Learned counsel for the appellant has relied on the decision of the Apex Court in the case of Sunil Siddharthbai Vs Commissioner of Income Tax – (1985) 156 ITR 509 in support of his submission that the authorities have to consider the question as to whether the transaction of creating a partnership is a genuine or a sham transaction or is it a device to convert the personal assets into money substantially for the benefit of the assessee by evading tax on capital gains. Learned counsel has contended that these questions were vital for deciding the issue in hand and were discussed at length by the Assessing Officer as well as the Commissioner for Income Tax but, have not even been referred to by the Tribunal while allowing the appeal of the assessee. Sri S Parthasarathy, learned counsel for the respondent assessee has submitted that the genuineness of the firm is not in dispute and the said Firm is still carrying on its business activities and is regularly assessed to income tax and as such, the induction of the assessee as a partner and his subsequent retirement from the partnership was in the normal course of business and the amount of Rs.16.5 crores could not be 6 treated as a profit but was only retirement benefit given to him while retiring from the partnership. He, however, could not justify the allowing of the appeal by the Tribunal without recording any finding in this regard. Having heard the learned counsel for the parties and considering the facts and circumstances of this case, what we find is that though the Tribunal has, in the first nine pages of its order, extracted the findings recorded by the Assessing Officer as well as by the Commissioner of Income Tax and in less than one page, come to the conclusion that the orders passed by the authorities were wrong and that the amount of Rs.16.5 crores should be treated as benefit of retirement from the Firm given to the assessee. We also find that none of the detailed finding recorded by the authorities below had been considered or dealt with by the Tribunal. As such, we are of the firm opinion that the order of the Tribunal is liable to be set aside primarily on the ground that it is a non- speaking order which does not deal with the facts of the case and the Tribunal being the last fact finding authority, ought to have looked into every factual aspect of the case and decide the matter after considering the same. 7 As such, we allow this appeal and set aside the order of the Tribunal dated 26.6.2008 and remand the matter to the Tribunal for fresh decision, in accordance with law. The questions which have been framed in this appeal are left open to be considered and decided later. No order as to costs. Sd/- Judge Sd/- Judge An "