SHRI RAJESH MANIKRAO KACHORE, Nagpur V. ITO-WARD-8(1), Nagpur

ITA 118/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1596 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: KAILASH JAGAN; MUKESH AGRAWAL S
• Keywords: Capital asset; Question of law
• Section: 147; 148

Judgement Text

1 ITA NO. 118/NAG/2014 IN TH E INCOME TAX APPELLATE TRIBUNAL: NAGPUR BENCH: NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.118/NAG/2014 ASSESSMENT YEAR: 2006 - 07 SHRI RAJESH MANIKRAO KACHORE, KASORE BHAWAN, WARDHA ROAD, SOMALWADA CHOWK, NAGPUR 440 025 PAN:AFOPK3395K VS THE INCOME TAX OFFICER, WARD - 8 ( 1 ), MECL BUILDING, SEMINARY HILLS, NAGPUR - 06 (APPELLANT) (RESPONDENT) APPELLANT BY SHRI KAILASH JAGAN AND SHRI MUKESH AGRAWAL, ADVOCATES RESPONDENT BY SHRI NAREN DRA KANE, DR DATE OF HEARING: 10 - 09 - 2015 DATE OF PRONOUNCEMENT: 24 - 11 - 2015 O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF THE LEARNED CIT (A) - I I , NAGPUR DATED 15 - 10 - 2013. 2. THE MAIN IS SUE WHICH IS RAISED AS PER THE GROUNDS OF APPEAL IS IN RESPECT OF AN ADDITION OF RS.45,00,000/ - WHICH WAS RECEIVED BY THE ASSESSEE AS RETIRING PARTNER FROM A FIRM TAXED UNDER THE HEAD LONG TERM CAPITAL GAIN . 3 . FACTS IN BRIEF, AS EMERGED FROM THE CORRES PONDING ASSESSMENT ORDER PASSED U/S 147 OF THE IT ACT DATED 30 TH DECEMBER, 2010 WERE THAT THE ASSESSEES CASE WAS REOPENED U/S 148 OF THE IT ACT FOR THE REASONS THAT AN INFORMATION WAS RECEIVED THAT A SUM OF RS.45,00,000/ - WAS RECEIVED BY THE ASSESSEE FROM A FIRM 2 ITA NO. 118/NAG/2014 NAMELY M/S. UNIVERSAL INFRASTRUCTURE, NAGPUR DURING THE FINANCIAL YEAR 2005 - 06. AS PER THE AO, THE AMOUNT IN QUESTION WAS RECEIVED BY THE ASSESSEE AT THE TIME OF HIS RETIREMENT AS A PARTNER FROM THE SAID FIRM. ACCORDING TO THE AO , IT WAS A FINAL ON E TIME SETTLEMENT AMOUNT RECEIVED BY THE ASSESSEE ON HIS RETIREMENT FROM THE FIRM. IN RESPO NSE TO THE NOTICE ISSUED, THE EXPLANATION OF THE ASSESSEE WAS THAT THERE WAS NO ELEMENT OF TRANSFER OF INTEREST IN THE ASSETS OF THE PARTNERSHIP FIRM BECAUSE THE ASS ESSEE WAS ONLY RETIRING AS A PARTNER FROM THE FIRM, HOWEVER, REST OF THE PARTNERS HAVE CONTINUED IN THE PARTNERSHIP FIRM, THEREFORE, NO TAXABLE AMOUNT WAS RECEIVED. IT HAS ALSO BEEN EXPLAINED THAT AS PER THE PROVISIONS OF SECTION 45(4) OF THE IT ACT, AN AM OUNT IS TAXABLE IF RECEIVED ON DISTRIBUTION OF ASSETS ON DISSOLUTION OF THE FIRM. THE AO HAS ALSO REFERRED TO THE TERMS & CONDITIONS OF DEED OF RETIREMENT DATED 26 TH JULY , 2005 . THE AO HAS REPRODUCED THE RELEVANT PORTION AS UNDER: - WHEREAS THE RETIRING PARTNER HAS RETIRED FROM 26 - 7 - 2005 AND CONTINUING PARTNER HAVE TAKEN OVER THE BUSINESS OF THE SAID PARTNERSHIP FIRM AS A GOING CONCERN W. E. F. 26.7.2005 WITH ALL ASSETS, LIABILITY, ENTITLEMENTS, RIGHTS ETC. ... THE ACCOUNTS OF THE PARTNERSHIP PERTAINING T O THE TRANSACTIONS THEREOF UPTO 26 - 7 - 2005 HAVING BEEN TAKEN INTO CONSIDERATION ALL ASSETS AND LIABILITIES, GOODWILL, ENTITLEMENTS, QUOTA RIGHTS, CAPITAL CONTRIBUTION AND OTHER RELEVANT FACTORS HAVE BEEN VERIFIED BY RETIRING PARTNER AND IS SATISFIED ABOUT T HE ACCOUNTS SO SETTLED. THE AMOUNT OF RS.6400000/ - (RUPEES SIXTY FOUR LAC) ONLY IS PAID TO THE RETIRING PARTNER TOWARDS THE SETTLEMENT OF HIS SHARE, ACCOUNT, PROFIT, REIMBURSEMENT OF HIS RIGHTS IN GOODWILL AND PARTNERSHIP OUT OF WHICH AMOUNT OF RS.5500000/ - (RUPEES FIFTY FIVE LAC) ONLY BY CHEQUE NO.24204, 25659 & 25560 DRAWN ON BHANDARA URBAN COOPERATIVE BANK LTD., NAGPUR & RS.900000/ - (RUPEES NINE LAC) ONLY PAID/ADJUSTED IN TERMS OF TRANSFER ON OWNERSHIP BASIS THE UNIT/SHOP NOS. S - 003, S - 004 & S - 005 COVERI NG A TOTAL BUILT UP AREA 48,035 SQ. MTRS. ON GROUND FLOOR OF UNIVERSAL MERIDIAN & UNIT/SHOP NOS. 002 & 003 COVERING A TOTAL BUILT UP AREA OF 32.823 SQ. MTRS. ON GROUND FLOOR OF UNIVERSAL AUDUMBER. 3 ITA NO. 118/NAG/2014 IN CONSIDERATION OF HAVING RECEIVED THE AMOUNT OF HIS SHARE ALONGWITH PREMIUM DESIRED BY HIM, THE RETIRING PARTNER HAS RELINQ UISHED ALL HIS RIGHTS, INTEREST ENTITLEMENT IN FAVOUR OF CONTINUING PARTNERS. FINALLY, THE AO HAS HELD THAT THE AMOUNT IN QUESTION WAS RECEIVED BY THE ASSESSEE AS A TRANSFER OF HIS RIGHTS AS DEFINED U/S 2(47) OF THE ACT; HENCE, THE PROVISIONS OF SECTION 45(4) OF THE ACT SHOULD BE APPLIED TO TAX UNDER THE HEAD LONG TERM CAPITAL GAIN. AS A RESULT, THE IMPUGNED AMOUNT OF RS.45,00,000/ - WAS TAXED IN THE HANDS OF THE ASSESSEE. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 4 . BEFORE THE LEARNED CIT (A), THE ASSESSEE HAS REITERATED ALL THOSE ARGUMENTS AND PLACED RELIANCE ON THE FOLLOWING DECISIONS: - I) CIT VS R. LINGMALLU RAGHUKUMAR 247 ITR 0801 (SC) II) CIT V S DILIP ENGINEERING WORKS - (1981) 129 ITR 688 (GUJ.) III) ADDL. CIT VS. SMT. MAHINDERPAL BHASIN - (1979) 117 ITR 26 (ALL.) 5. AFTER DISCUSSING FEW CASE LAWS, THE LEARNED CIT (A) HAS PLACED RELIANCE ON THE DECISION OF SUDHAKAR M. SHETTY VS ASST. CIT (130 ITD 197) [ITAT, MUMBAI] AND THE DECISION OF CIT VS A. N. NA IK ASSOCIATES & ANR . (265 ITR 346) [MUMBAI] AND ALSO THE DECISION OF BISHANLALKANODIA VS CIT (257 ITR 449 (DELHI) AND DISMISSED THE APPEAL OF THE ASSESSEE. 6 . ON THIS SHORT ISSUE, WE HAVE HEARD BO TH THE SIDES. THE LEARNED COUNSEL OF THE ASSESSEE MR. KAILASH JAGAN AND MR. MUKESH AGRAWAL PLEADED THAT THE AMOUNT IN QUESTION WAS RECEIVED ON RETIREMENT; THEREFORE, IT IS NOT A CASE OF TRANSFER OF ASSETS IN FAVOUR OF THE ASSESSEE, HENCE, DIRECTLY COVERED BY THE DECISION OF CIT VS R. LINGMALLU RAGHUKUMAR 247 ITR 0801 (SC). 7 . ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LEARNED DR, MR. NARENDRA KANE APPEARED AND PLEADED THAT THIS IS A CASE WHERE TANGIBLE ASSETS HAVE BEEN TRANSFERRED; HENCE, THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 2 (47) ALONG WITH THE PROVISIONS OF SECTION 45(4) OF THE IT ACT. 4 ITA NO. 118/NAG/2014 8 . SO FAR AS, THE FACTS OF THE CASE ARE CONCERNED, WE HAVE NOTED THAT THERE WAS NO DISAGREEMENT AMONG THE LITIGANTS BEFORE US THAT THE AMOUNT WAS U NDISPUTEDLY RECEIVED IN TERMS OF A DEED OF RETIREMENT FROM PARTNERSHIP DATED 26 TH JULY, 2005. IT IS EVIDENT FROM THE CLAUSES OF THE DISSOLUTION DEED THAT THE FIRM REMAINED CONTINUED BY THE EXISTING PARTNER S . THE RETIRING PARTNER WAS NOT ENTITLED TO LODGE ANY CLAIM AGAINST THE CONTINUING PARTNER AFTER HIS RETIREMENT. THE CONTINUING PARTNER WAS ENTITLED TO CONTINUE THE BUSINESS. LIKEWISE, THE RETIRING PARTNER WAS NOT RESPONSIBLE FOR ANY LIABILITY PERTAINING TO THE BUSINESS OF THE SAID PARTNERSHIP FIRM. AN AM OUNT OF RS.64,00,000/ - WAS PAID TO THE ASSESSEE AS A RETIRING PARTNER TOWARDS THE SETTLEMENT OF HIS SHARE. WE HAVE FOUND THAT IN ALMOST IDENTICAL SITUATION, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS R. LINGMALLU RAGHUKUMAR (SUPRA) HAS HELD AS UNDER: - 2. THE HIGH COURT HAS HELD THAT THERE WAS NO TRANSFER OF ANY ASSETS AS CONTEMPLATED BY THE EXPRESSION TRANSFER AS DEFINED IN SECTION 2(47) OF THE INCOME - TAX ACT. THE HIGH COURT HAD PLACED RELIANCE ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN CIT V. MOH ANBHAI PAMABHAI [1973] 91 ITR 393, WHEREIN IT HAS BEEN HELD THAT WHERE A PARTNER RETIRES FROM A PARTNERSHIP AND THE AMOUNT OF HIS SHARE IN THE NET PARTNERSHIP ASSETS AFTER DEDUCTION OF LIABILITIES AND PRIOR CHARGES IS DETERMINED ON TAKING ACCOUNTS IN THE M ANNER PRESCRIBED BY THE RELEVANT PROVISIONS OF THE PARTNERSHIP LAW THERE IS NO ELEMENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSETS BY THE RETIRED PARTNER TO THE CONTINUING PARTNERS. THE SAID JUDGMENT OF THE GUJARAT HIGH COURT HAS BEEN AFFIRMED BY THI S COURT IN ADDL. CIT V. MOHANBHAI PAMABHAI (1987) 165 ITR 166. IN VIEW OF THE SAID JUDGMENT WE FIND NO MERIT IN THIS APPEAL AND THE SAME IS, THEREFORE, DISMISSED. NO ORDER AS TO COSTS. 9 . BEFORE US, AN ORDER OF THE JURISDICTIONAL BOMBAY HIGH COURT HAS ALS O BEEN PLACED IN THE CASE OF CIT VS MR. RIYAZ A SHEIKH ORDER DATED 26 - 02 - 2013 (INCOME TAX APPEAL NO.1969 OF 2011) WHEREIN THE HONBLE COURT HAS DISCUSSED FEW ORDERS PRONOUNCED IN THE PAST AND FINALLY HELD 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 5 ITA NO. 118/NAG/2014 COURT IN THE MATTER OF PRASHANT S. JOSHI V/S. INCOME TAX OFFICER & ANR, REPORTED IN [2 010] 324 ITR 154 (BOM). COUNSEL FOR THE REVENUE IS UNABLE TO POINT OUT AS TO HOW THE DECISION IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) INTER ALIA HOLDING THAT NO CAPITAL GAINS ARE PAYABLE BY AN ERSTWHILE PARTNER ON AMOUNTS RECEIVED ON RETIREMENT WOULD NO T BE APPLICABLE TO THE PRESENT CASE. THE ONLY SUBMISSION ON BEHALF OF THE REVENUE IS THAT THERE WAS AN EARLIER DECISION OF THIS COURT IN THE MATTER OF N. A. MODY V/S. CIT REPORTED IN [1986] 162 ITR 420 AND IT HAS NOT BEEN CONSIDERED IN THE DECISION RENDERE D IN THE MATTER OF PRASHANT S. JOSHI (SUPRA). 3. IN THE IMPUGNED ORDER, THE TRIBUNAL DOES REFER TO THE DECISION OF THIS COURT IN THE MATTER OF N. A. MODY (SUPRA) AND STATES THAT IT FOLLOWS THE DECISION OF THIS COURT IN THE MATTER OF CIT V/S.TRIBHUVANDAS G. PATEL REPORTED IN 115 ITR 95 AND THE SAME HAS BEEN REVERSED BY THE APEX COURT IN TRIBHUVANDAS G. PATEL V/S. CIT REPORTED IN 263 ITR 515. THIS COURT IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) HAS ALSO REFERRED TO THE DECISION OF TRIBHUVANDAS G. PATEL (SUPR A) RENDERED BY THIS COURT AND ITS REVERSAL BY THE APEX COURT. MOREOVER, THE DECISION OF THIS COURT IN THE CASE OF PRASHANT S. JOSHI (SUPRA) PLACED RELIANCE UPON THE DECISION OF THE SUPREME COURT IN T HE CASE OF CIT V/S. R. LINGAMALLU RAJKUMAR REPORTED IN [ 2001] 247 ITR 801, WHEREIN IT HAS BEEN HELD THAT AMOUNTS RECEIVED ON RETIREMENT BY A PARTNER IS NOT SUBJECT TO CAPITAL GAINS TAX. IN THE ABOVE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PROPOSED QUESTION OF LAW. 10. WE, THEREFORE, CONCLUDE THAT UNDE R THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ISSUE IN HAND IS SQUARELY COVERED BY THE PRECEDENCE AS CITED SUPRA IN FAVOUR OF THE ASSESSEE. THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL ARE HEREBY ALLOWED. 11 . IN THE RESULT, THE ASSESS EES APPEAL IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24TH DAY OF NOV., 2015. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 24 TH NOV., 2015. LAKSHMIKANT DEKA/SR. PS 6 ITA NO. 118/NAG/2014 COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T., CONCERNED 4. CIT ( APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASS ISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. DATE INITIAL ORIGINAL DI CTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 18.11.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 20.11.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. AP PROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER