DCIT, Circle-4, Pune V. Smt. Villoo Noshir Anklesaria, Pune

ITA 1168/PUN/2013

• Counselvise Citation: 116824514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAGHUNATHAN D AIYAR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1168/PN/2013 (A.Y: 2008-09) DCIT, CIRCLE-4, PUNE APPELLANT VS. SMT. VILLOO NOSHIR ANKLESARIA PLOT NO.10/3, SR NO.29, DHUNJIBOY & SANAS SOCIETY, NIBM ROAD, KONDHWA, PUNE 411048 PAN: AAZPA3341F RESPONDENT APPELLANT BY : SHRI RAJESH DAMOR RESPONDENT BY : S/SHRI B. B. MANE AND RAGHUNATHAN D. AIYAR DATE OF HEARING: 18.08.2014 DATE OF ORDER : 27.08.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-II, PUNE, DA TED 31.01.2013 FOR A.Y. 2008-09 ON THE FOLLOWING GROUND S. 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN DELETING THE ADDITION OF RS.1,57,50,000/- HOLDIN G THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE CONTIN UING PARTNERS OVER AND ABOVE THE CAPITAL ON RETIREMENT F ROM THE FIRM WAS NOT TAXABLE AS LONG TERM CAPITAL GAIN. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN FAILING TO CONSIDER THE HON'BLE DELHI HIGH COURT 'S DECISION IN THE CASE OF BISHAN LAI KANODIA VS CIT ( 2002) 257 ITR 449 (DEL.) RELIED IN THE ORDER U/S 143(3) O F THE I.T ACT, 1961 WHEREIN IT WAS HELD THAT WHERE PARTIES AG REE TO PAY A LUMPSUM IN CONSIDERATION OF THE RETIRING PART NER ASSIGNING OR RELINQUISHING HIS SHARE OR RIGHT IN TH E PARTNERSHIP AND ITS ASSETS IN FAVOUR OF THE CONTINU ING 2 ITA NO.1168 OF 13 SMT. VILLOO NOSHIR ANKLESARIA PARTNERS, THE TRANSACTION WOULD AMOUNT TO A TRANSFE R WITHIN THE MEANING OF SEC.2(47) OF THE ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUND OF APPEAL. 2. THE ASSESSEE IS AN INDIVIDUAL AND HAD EARNED INC OME FROM HOUSE PROPERTY, SHORT TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES, DURING THE YEAR UNDER CONSIDERATION. THE RETURN FOR A.Y. 2008-09 WAS FILED ON 30.03.2009 DECLARING TOTA L INCOME OF RS.58,39,990/- WHICH HAS BEEN ASSESSED BY THE ASSES SING OFFICER DETERMINING THE INCOME AT RS.2,15,89,990/- AFTER MA KING ADDITION OF RS.1,57,50,000/- AS LONG TERM CAPITAL G AIN. 2.1 THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF THE ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF THE REVENUE, INTER ALIA, SUBMITTED THAT T HE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT RECEIVED B Y THE ASSESSEE FROM THE CONTINUING PARTNERS OVER AND ABOVE THE CAP ITAL ON RETIREMENT FROM THE FIRM WAS NOT TAXABLE AS LONG TE RM CAPITAL GAIN. ON THE OTHER HAND, THE LEARNED AUTHORIZED RE PRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A). 2.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS AN INDIVIDUAL AND WAS A PARTNER IN THE FIRM NAMED AND STYLED AS 'PENOSH SER VICES' WHICH WAS A FAMILY WAS OWNED PARTNERSHIP TRANSPORTATION S ERVICES BUSINESS. SHE HAS FILED HER ORIGINAL RETURN OF INCO ME TAX FOR ASSESSMENT YEAR 2008-09 DECLARING TOTAL TAXABLE INC OME OF RS. 58,39,990/- AND SAID RETURN WAS PROCESSED U/S.143 ( 3) OF THE INCOME TAX ACT 1961. THE ASSESSING OFFICER HAS FOU ND THAT THE ASSESSEE ALONG WITH RELATIVES FROM HER LATE HUSBAND MR. NOSHIR ANKLESARIA'S SIDE, THAT BEING HIS BROTHER, HIS BROT HER'S WIFE AND 3 ITA NO.1168 OF 13 SMT. VILLOO NOSHIR ANKLESARIA HIS BROTHER'S DAUGHTER WERE PARTNERS IN THE FIRM PE NOSH SERVICES. IN AND AROUND 2006 SERIOUS DIFFERENCES AND DISPUTES AROSE AMONG THE PARTNERS OF THE SAID FIRM. THE SAID DISP UTE WAS REFERRED TO ARBITRATION, CONSISTING OF THREE ARBITR ATORS NAMELY JUSTICE SHRI ASHOK AGARWAL, JUSTICE SHRI B.N.SHRIKR ISHNA AND JUSTICE S. N. VARIAVA (ALL RETIRED). AT THE TIME TH E DISPUTES AROSE, THE ASSESSEE WAS NOT IN POSSESSION OF THE BOOKS OF ACCOUNTS OF THE PARTNERSHIP BUSINESS AND ALL BUSINESS ACTIVITIE S WERE LOOKED AFTER BY HER BROTHER IN LAW AND SHE HAD NO SAY OR C ONTROL IN THE BUSINESS ACTIVITIES. ACCORDING TO THE ASSESSEE, AN AD INTERIM CONSENT AWARD WAS PASSED ON 14.09.2007, INTER ALIA, DECIDED THE PARTNERS OF THE FIRM THAT BEING THE ASSESSEE ON ONE SIDE AND HER BROTHER IN LAW, HIS WIFE AND THEIR DAUGHTER ON THE OTHER SIDE WOULD HAVE TO UNDERGO A BIDDING PROCESS AMONG THEMS ELVES TO DECIDE THE AMOUNT TO BE PAID TO THE OUTGOING FAMILY 'S SHARE IN THE PARTNERSHIP FIRM. IN THIS CASE THE CONTINUING PART NERS WHO CONSISTED OF THE ASSESSEE'S BROTHER-IN-LAW AND HIS FAMILY GAVE THE HIGHEST BID OF RS.3.50 CRORES BEFORE THE ARBITRATOR S. THE ASSESSEE WAS OUT BIDED AND SHE WAS FORCED TO RETIRE FROM THE PARTNERSHIP BUSINESS WITH A PAYMENT OF RS. 2,58,78,998/- BEING HER 45% SHARE IN THE BUSINESS AND CAPITAL TOGETHER. THE AS SESSING OFFICER ADDED RS.1,57,50,000/- AS LONG TERM CAPITAL GAIN I. E. DIFFERENCE BETWEEN RS.2,58,78,988/- AND PURPORTED OUTSTANDING BALANCE OF CAPITAL AGAINST THE NAME OF THE ASSESSEE AND THE SA ID AMOUNT WAS TAXED. THE CIT(A) HELD THAT THE AMOUNT RECEIVE D BY RETIRING PARTNER IS NOT TAXABLE. 2.3 THUS, THE ISSUE BEFORE US IS WHETHER THE AMOUNT OF RS.1,57,50,000/- RECEIVED BY THE ASSESSEE ON RETIRE MENT FROM THE PARTNERSHIP FIRM PENOSH SERVICES, IS LIABLE TO BE T AXED UNDER THE HEAD 'CAPITAL GAINS' ARISING ON THE TRANSFER OF PAR TNERSHIP RIGHTS. AS STATED ABOVE, THE ASSESSEE, A PARTNER IN THE AFO RESAID FIRM RETIRED AND AS PER THE CONSENT INTERIM AWARD WAS AW ARDED HER 4 ITA NO.1168 OF 13 SMT. VILLOO NOSHIR ANKLESARIA SHARE WITH CAPITAL IN THE FIRM AT RS.2,58,78,998/-. THE ASSESSEE WAS A PARTNER TO THE EXTENT OF 45%. THE ASSESSEE C LAIMED THE SHARE RECEIVED INCLUDING GOODWILL AS CAPITAL RECEIP T NOT LIABLE TO TAX. HOWEVER, THE ASSESSING OFFICER HAS TAXED RS.1 ,57,50,000/- RECEIVED OVER AND ABOVE THE CAPITAL CONTRIBUTION AS LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER DERIVED SUPPOR T FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF BISHANLAL KANODIA VS CIT (2002) 257 ITR 449 (DEL). THE ASSES SING OFFICER HAS HELD THAT THE RECEIPTS OF THE ASSESSEE OVER AND ABOVE HER CAPITAL CONTRIBUTION WHICH WAS RECEIVED AS PER THE BIDDING PROCESS AMOUNTING TO RS. 1,57,50,000/- WAS TO BE TR EATED AS LONG-TERM CAPITAL GAIN. THE FACTS OF THE CASE LEAD ING TO THE RETIREMENT OF THE TWO PARTNERS OF THE FIRM AFTER TH E DISPUTES AMONG THEM REMAIN UNDISPUTED. THE AFORESAID FACT A LSO GETS CONFIRMED BY THE ARBITRATION PROCEEDINGS CARRIED OU T WHICH EVENTUALLY WAS RESOLVED AND SETTLED IN THE MONTH OF SEPTEMBER 2007. THE AWARD OF ARBITRATION PASSED ON 14.09.200 7 ON THE BASIS OF THE CONSENT TERMS BETWEEN THE PARTIES AND THE REFERENCE TO GOODWILL WITH RESPECT TO THE AMOUNT OF SETTLEMEN T CREDITED TO THE CAPITAL ACCOUNT PRIMA FACIE REPRESENTS THE APPR ECIATION IN THE VALUE OF THE ASSETS. THE CALCULATION OF THE ADDITI ONAL AMOUNT RECEIVED ON RETIREMENT WAS BASED ON THE POTENTIAL E ARNINGS BY THE FIRM. THE CIT(A) AGREED TO THE PROPOSITION OF THE ASSESSEE IN THIS REGARD AS WHAT WAS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION. THE ASSESSING OFFICER H AS NOT QUESTIONED THE CREDIBILITY OF THE TRANSACTION. WE FIND THAT IN THE CASE OF TRIBHUVANDAS G PATEL VS CIT (1999) 236 ITR 515 (SC), THE HONBLE SUPREME COURT HAS HELD THAT EVEN WHEN PARTN ER RETIRES AND SUM AMOUNT IS PAID TO HIM TOWARDS HIS SHARE, IT SHOULD NOT BE TREATED AS FALLING U/S.2(47). WE ALSO FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. R. LINGAMALLU RAGHUKUMAR (2001) 247 ITR 801 (SC) HAS HELD THAT ON RETIREMENT OF THE FIRM THERE WAS NO ELEMENT OF TRANSFER OF INTEREST IN PAR TNERSHIP ASSETS 5 ITA NO.1168 OF 13 SMT. VILLOO NOSHIR ANKLESARIA BY THE RETIRING PARTNER TO THE CONTINUING PARTNER A ND HENCE THE AMOUNT RECEIVED BY HIM IS NOT TAXABLE UNDER CAPITAL GAIN. ITAT, PUNE IN THE CASE OF RIYAZ A SHAIKH VS. ITO IN ITA NO.352/PN/2006 FOR A.Y. 2002-03 DT. 29.10.2010 HAS HELD THAT THE AMOUNT RECEIVED BY THE PARTNERS ON HIS RETIREME NT WERE EXEMPT FROM CAPITAL GAIN TAX. IN THIS BACKGROUND, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE AMOUNT PAID TO THE AS SESSEE IN CAPITAL AMOUNT BALANCE PAYABLE TO HER AT THE TIME O F RETIREMENT ON THE BASIS OF BIDDING PROCESS AS PER INTERIM ARBI TRATION AWARD, HENCE THE QUESTION OF EARNING OF ANY INCOME DOES NO T ARISE. IN VIEW OF ABOVE, WE ARE NOT INCLINED TO INTERFERE WIT H THE FINDING OF CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION OF RS.1 ,57,50,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LONG TE RM CAPITAL GAIN. WE UPHOLD THE SAME. 3. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF AUGUST, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH AUGUST, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-II, PUNE 4) THE CIT-II, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE