ACIT, Hyderabad V. Shri N.Prasad, Secunderabad

ITA 1200/HYD/2010

• Counselvise Citation: 120022514 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y R RAO
• Keywords: Capital asset; Cost of acquisition; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND S HRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1200/HYD/2010 ASSESSMENT YEAR 2006-07. THE ACIT, CIR-16(2), -V- SRI N. PRASAD, EXECUTIVE CHAIRMAN HYDERABAD. SECUNDERABAD. PAN:ABKPN 3078N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SOLGYJOSE T. KOTTARAM RESPONDENT BY SHRI Y.R. RAO DATE OF HEARING 28-11-2013 DATE OF PRONOUNCEMENT 27-01-2014 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL FILED BY THE DEPARTMENT IS DIRECTED A GAINST THE ORDER DATED 16-6-2010 OF CIT (A)-V, HYDERABAD PASSED IN ITA NO.292/DC- 16(2)/CIT(A)-V/2008-09 PERTAINING TO ASSESSMENT YE AR 2006-07. 2. THE ONLY ISSUE ARISING FOR CONSIDERATION IN T HE PRESENT APPEAL IS WHETHER THE CIT (A) WAS CORRECT IN DELETING THE ADDITION OF RS.25 LAKHS BY HOLDING THAT THERE IS NO TRANSFER WITHIN T HE MEANING OF SEC. 2(47) OF THE ACT. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS AN INDIVI DUAL. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED HIS RET URN OF INCOME 2 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. ON 31-10-2006 DECLARING INCOME OF RS.8,54,47,144/- DURING THE SCRUTINY ASSESSMENT PROCEEDING IT CAME TO THE NOTIC E OF THE ASSESSING OFFICER THAT THE ASSESSEE DURING THE PREV IOUS YEAR HAD RETIRED AS A PARTNER FROM THE PARTNERSHIP FIRM M/S SQUARE PROJECTS ASSOCIATES ON 20-4-2005. ON RETIREMENT, THE ASSESSE E APART FROM HIS SHARE CAPITAL OF RS.1 CRORE HAD RECEIVED RS.25 LAKHS SURPLUS FROM THE PARTNERSHIP FIRM. THIS SURPLUS OF RS.25 LAKHS WAS NOT OFFERED FOR TAXATION. WHEN QUERIED BY THE ASSESSING OFFICER THE ASSESSEE RELYING UPON A DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. R. LINGAMALLU RAGHU KUMAR (247 ITR 801) SUBMITTED T HAT THE AMOUNT IS NOT TAXABLE AS THERE IS NO TRANSFER. TH E ASSESSING OFFICER HOWEVER REJECTED THE CONTENTION OF THE ASSE SSEE BY HOLDING THAT SURPLUS RECEIVED BY ASSESSEE FROM THE FIRM IS NOTHING BUT GOODWILL PAID TO HIM FOR LEAVING THE FIRM. THE GOO DWILL IS TAXABLE UNDER THE HEAD CAPITAL GAINS INCOME. HE FURTHER HE LD THAT THE DECISION RELIED UPON BY THE ASSESSEE BEING PRIOR TO THE AMENDMENT OF SEC. 55(2) IT IS NOT APPLICABLE. ACCORDINGLY, T HE ASSESSING OFFICER BY TREATING THE COST OF ACQUISITION AS NIL TREATED THE AMOUNT OF RS.25 LAKHS AS THE SHORT TERM CAPITAL GAIN FOR THE YEAR. 4. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSE D THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A). T HE CIT (A) RELYING UPON THE JUDGMENT OF THE HONBLE SUPREME CO URT IN CASE OF CIT VS. R. LINGAMALLU RAGHU KUMAR (247 ITR 801) DEL ETED THE ADDITION MADE BY THE ASSESSING OFFICER HOLDING AS U NDER:- 5.4. FROM THE ABOVE JUDGMENT IT IS CLEAR THAT THE AFORE MENTIONED RETIREMENT OF PARTNER DOES NOT TANTAMOUNT TO TRANSF ER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. MOREOVER, THE ASSESSING OFFICER HAS ONLY PRESUMED THAT THE GOODWILL OF THE FIRM HAS BEEN 3 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. TRANSFERRED IN PART TO THE APPELLANT. THERE IS NO BASIS FOR SUCH A CONCLUSION. FURTHER, IN THE CASE OF PURAYANNUR IND USTRIES (2010) 188 TAXMAN 34 (KOCHI), THE HONBLE INCOME-TAX APPE LLATE TRIBUNAL HAD HELD IN RECENT JUDGMENT THAT ON ALLOCATION OF P ROPERTIES AND GOODWILL TO THE ACCOUNT OF THE RETIRING PARTNER, TH ERE IS NO TAXABILITY OF THE SURPLUS IN THE HANDS OF THE RETIR ING PARTNER. IN FACT, THE INCOME-TAX APPELLATE TRIBUNAL EVEN WENT T O THE EXTENT OF STATING THAT IF A NEW FIRM IS CONSTITUTED BY THE RE MAINING PARTNERS ON THE NEXT DAY F THE RETIREMENT OF THE OLD PARTNER , IT WOULD STILL NOT AMOUNT TO DISSOLUTION OF THE EARLIER FIRM AND T HERE WOULD BE NO TAXABILITY. 5.5. KEEPING IN VIEW OF THE AFOREMENTIONED FACTS, C IRCUMSTANCES AND JUDGMENTS, I HOLD THAT THE SURPLUS RECEIPT BY T HE RETIRING PARTNER I.E., APPELLANT IS NOT TAXABLE IN HIS HANDS AS IT DOES NOT AMOUNT TO TRANSFER WITHIN THE MEANING OF THE SECTIO N 2(47). THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFIC ER IS ORDERED TO BE DELETED. 5 . THE LEARNED DR SUBMITTED THAT SINCE THE ASSESSEE RECEIVED THE EXCESS CONSIDERATION OF RS.25 LAKHS TOWARDS TRANSFE R OF GOODWILL, THE ASSESSING OFFICER HAS RIGHTLY TAXED IT AS SHORT TER M CAPITAL GAIN. HE FURTHER SUBMITTED THAT AS GOODWILL IS A CAPITAL ASS ET, ANY CONSIDERATION RECEIVED TOWARDS TRANSFER OF GOODWILL IS CHARGEABLE TO CAPITAL GAIN TAX. THEREFORE, CIT (A) WAS NOT CORRE CT IN DELETING THE ADDITION MADE BY RELYING UPON A DECISION WHICH IS F ACTUALLY DISTINGUISHABLE. 6. THE LEARNED AR IN ADDITION TO SUBMISSIONS MADE A T THE TIME OF HEARING ALSO FILED A WRITTEN SUBMISSION. THE LEARN ED AR CONTENDED THAT AS PER SEC. 14 OF THE PARTNERSHIP ACT GOODWIL L IS ALWAYS THE 4 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. ASSET OF THE FIRM AND THERE CANNOT BE ANY TRANSFER OF GOODWILL BY THE ASSESSEE. THE ASSET OF THE FIRM CONTINUES TO BE HE LD BY THE FIRM ITSELF, HENCE THERE IS NO PROVISION TO TAX. THE LE ARNED AR SUBMITTED, DIFFERENT HIGH COURTS AS WELL AS DIFFERENT BENCHES OF THE TRIBUNAL HAVE HELD THAT EXCESS AMOUNT BY RECEIVED CANNOT BE TAXED AS TRANSFER OF GOODWILL AND THE EXCESS AMOUNT RECEIVED BY PARTNERS ON RETIREMENT OR DISSOLUTION WILL NOT BE LIABLE FOR CA PITAL GAINS TAX IN THE HANDS OF RETIRING PARTNER. IN SUPPORT OF SUCH C ONTENTION THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS. ITO VS. PRABHURAJ (6 SOT 415) ITO VS. AMITABH SINGH (16 SOT 453) 7. THE LEARNED AR SUBMITTED THAT A LARGER BENCH OF KARNATAKA HIGH COURT IN A JUDGMENT DATED 16-9-2013 IN ITA NO. 1414/2006 IN CASE OF CIT VS. DYNAMIC ENTERPRISES HELD THAT ON RE TIREMENT OF PARTNER THERE IS NO TRANSFER OF CAPITAL ASST. HE S UBMITTED THAT THOUGH HIGH COURT DID NOT ANSWER THE ISSUE OF TAXAT ION IN THE HANDS OF RETIRING PARTNER BUT THE NATURAL INFERENCE FROM THE FINDINGS WOULD BE WHEN THERE IS NO TRANSFER AT ALL THE QUESTION OF TRANSFEROR AND TRANSFEREE DOES NOT ARISE, HENCE THERE IS NO OCCASI ON TO TAX ANYONE. THE LEARNED AR RELIED UPON A DECISION OF SMT. DURDA NA KHATOON VS. DCIT [93 ITD 15] WHEREIN THE TRIBUNAL HELD AS UNDER :- 'THUS, WHEN A PARTNER RECEIVES HER SHARE IN THE ASS ETS OF THE PARTNERSHIP FIRM OR WHEN SHE RECEIVES SOMETHING IN EXCESS OF HER SHARE IN THE ASSETS OF THE PARTNERSHIP FIRM, AND EVEN IN A C ASE WHERE THE PARTNER RECEIVES A SHARE OF PROFIT, EITHER IN T HE CASE OF RETIREMENT OR IN A CASE OF DISSOLUTION THE SAME CANNOT BE BROU GHT TO TAX IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRIBHUVANDAS G.PATEL(SUPRA) AS WELL AS THE DECISION OF THE HON'BLE 5 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. SUPREME COURT IN THE CASE OF R. LINGMALLU RAGHUKUMA R (SUPRA), IRRESPECTIVE OF THE EXISTENCE OR DELETION OF SECTIO N 47(II) FROM THE ACT. AS WE HAVE FOLLOWED THE DECISION OF THE JURISD ICTIONAL HIGH COURT AND THE SUPREME COURT, WE NEED NOT DEAL WITH THE JUDGMENT OF THE DELHI AND BOMBAY HIGH COURTS RELIED UPON BY THE REVENUE. THUS, WE RESPECTFULLY FOLLOW THE JUDGMENTS OF THE J URISDICTIONAL HIGH COURT WHICH IS UPHELD BY THE SUPREME COURT AND HOLD THAT THE AMOUNT IN QUESTION CANNOT BE BROUGHT TO TAX AS CAPI TAL GAIN UNDER SECTION 45 READ WITH SECTION 2(47) OF THE INCOME TA X ACT AS THERE IS NO TRANSFER '. (EMPHASIS SUPPLIED) 8. HE FURTHER RELIED UPON A DECISION OF THE KERALA HIGH COURT IN CASE OF CIT VS. KUNNANKULAM MILL BOARD (257 ITR 54 4) WHEREIN THE COURT HELD AS UNDER:- 'IF A PARTNER RETIRES, HE DOES NOT TRANSFER ANY RIG HT IN THE IMMOVABLE PROPERTY IN FAVOUR OF THE SURVIVING PARTNER BECAUSE HE HAS NO SPECIFIC RIGHT WITH RESPECT TO THE PROPERTIES OF TH E FIRM. WHAT TRANSPIRES IS THAT THE RIGHT TO SHARE THE INCOME OF THE PROPERTIES STANDS TRANSFERRED IN FAVOUR OF THE SURVIVING PARTN ERS, AND THERE IS NO TRANSFER OF OWNERSHIP OF THE PROPERTY IN SUCH CA SES. IN LIGHT OF ABOVE AND CATENA OF DECISIONS IT COULD BE SAID THAT WHEN A PARTNERSHIP IS RECONSTITUTED BY ADDING A NEW PARTNE R, THERE IS NO TRANSFER OF ASSETS WITHIN THE MEANING OF SECTION 45 (4). (PAGE 48 OF PAPER BOOK) 9. THE LEARNED AR SUBMITTED THAT THOUGH THE TRIBUNA L IN SOME CASES SUCH AS GIRIJA REDDY VS. ITO (52 SOT 113), SH EVANTI BHAI VS. ITO (4 SOT 94), SUDHAKAR M. SETTY VS. ACIT (130 ITD 197) HAS HELD THAT EXCESS AMOUNT RECEIVED IN LUMP SUM BY A RETIRI NG PARTNER IS TAXABLE BUT IN ALL THESE DECISIONS SUCH CONCLUSION WAS REACHED MOSTLY ON THE BASIS OF RATIO LAID DOWN BY THE MUMBA I HIGH COURT IN THE FOLLOWING CASES:- 6 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. I) CIT VS. TRIBHUVANDAS G. PATEL (115 ITR 95) II) CIT VS. HR AHOT (115 ITRE 255) III) W.A MOODY VS. CIT (162 ITR 420 10. THE LEARNED AR SUBMITTED THAT DECISION OF MUMBA I HIGH COURT IN CASE OF TRIBHUVANDAS G. PATEL WAS REVERSED BY TH E APEX COURT IN 236 ITR 515. THEREFORE, RATIO LAID DOWN BY THE MUM BAI HIGH COURT CANNOT BE CONSIDERED TO BE GOOD LAW. HE SUBMITTED T HAT THE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. P.H. P ATEL (171 ITR 128) DISSENTED FROM THE DECISION OF THE MUMBAI HIGH COUR T AND HELD AS UNDER:- ' WE MAY ALSO REFER TO THE DECISION OF A DIVISION B ENCH OF THIS COURT IN CIT VS. L. RAGHU KUMAR[1983] 141 ITR 674. IN IDE NTICAL CIRCUMSTANCES, THIS COURT HELD THAT WHEN A PARTNER RETIRES FROM THE PARTNERSHIP, AND RECEIVES HIS INTEREST EITHER IN LU MP SUM OR OTHERWISE, THERE IS NO ELEMENT OF TRANSFER OF INTER EST IN THE PARTNERSHIP ASSETS BY THE RETIRING PARTNER TO THE C ONTINUING PARTNER'. 11. HE FURTHER REFERRED TO A DECISION OF MADRAS HIG H COURT IN CASE OF CIT VS. PALANIAPPANI (143 ITR 343) WHEREIN THE C OURT HELD AS UNDER. ' WHETHER THE RETIRING PARTNER RECEIVES A LUMP SUM CO NSIDERATION OR WHETHER THE AMOUNT IS PAID TO HIM AFTER A GENERAL T AKING OF ACCOUNTS AND AFTER AN ASCERTAINMENT OF HIS SHARE IN THE NET ASSETS OF THE PARTNERSHIP AS ON THE DATE OF HIS RETIREMENT THE RESULT IN TERMS OF THE LEGAL CHARACTER OF THE PAYMENT AS WELL AS THE CONSEQUENCES THEREOF, IS PRECISELY THE SAME'. 7 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. 12. THE LEARNED AR SUBMITTED THAT THE JURISDICTIONA L HIGH COURT IN CASE OF CHALASANI VENKATESWARA RAO (25 TAXMAN COM.3 78) HAS HELD THAT EVEN IN CASE OF DISSOLUTION, W.E.F. 1988-89 ON LY FIRM IS TAXABLE U/S 45(4) AND NOT PARTNER. HE SUBMITTED THAT THE J URISDICTIONAL HIGH COURT HELD THAT BOTH RETIREMENT AND DISSOLUTION STA ND ON THE SAME FOOTING, HENCE AS PER SEC. 45(4) ONLY THE FIRM IS T AXABLE NOT THE PARTNER. HE SUBMITTED THAT WHEN THERE IS NO PROVIS ION IN THE ACT TO CHARGE SUCH RECEIPT IN THE HANDS OF THE RETIRING PA RTNER, IT CANNOT BE TAXED. IT WAS SUBMITTED THAT EVEN OTHERWISE ALSO CL AUSE 4 OF RETIREMENT DEED SPEAKS OF EXCESS PAYMENT AFTER TAKI NG INTO CONSIDERATION THE ASSETS OF THE FIRM, HENCE, THE EX CESS BEING IN RELATION TO ASSETS, IT IS NOT TAXABLE EVEN ACCORDIN G TO THE DECISIONS OF PUNE BENCH, MUMBAI BENCH AND HYDERABAD BENCH (IN CASE OF GIRIJA REDDY) 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. WE HAVE ALSO CARE FULLY APPLIED OUR MIND TO THE DECISIONS CITED BEFORE US. UNDISPUT ED FACTS ARE, THE ASSESSEE ALONG WITH TWO OTHERS WAS CARRYING ON BUSI NESS IN PARTNERSHIP IN THE NAME AND STYLE OF SQUARE PROJECT S ASSOCIATES BY VIRTUE OF A PARTNERSHIP DEED DATED 12-3-2003. ASSES SEE VIDE LETTER DATED 18-1-2005 EXPRESSED HIS INTENTION OF RETIRING FROM THE PARTNERSHIP. ON THE BASIS OF MUTUAL AGREEMENT BETW EEN THE PARTNERS THE ASSESSEE WAS ALLOWED TO RETIRE FROM TH E PARTNERSHIP W.E.F. 20-4-2005 BY VIRTUE OF A DEED OF RETIREMENT EXECUTED ON 20- 4-2005 AND THE OTHER PARTNERS CONTINUED TO CARRY ON THE PARTNERSHIP BUSINESS. AS PER THE TERMS OF THE DEED OF RETIREME NT, THE ASSESSEE WAS TO BE PAID A LUMP SUM AMOUNT OF RS.1,25,00,000/ -. THE 8 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. RELEVANT CLAUSE OF THE DEED OF RETIREMENT IS EXTRAC TED HEREUNDER FOR CONVENIENCE:- IT IS AGREED BETWEEN THE PARTIES A THAT AFTER TAKI NG INTO ACCOUNT THE CAPITAL INVESTMENT MADE BY THE RETIRING PARTNER , THE GOODWILL OF THE PARTNERSHIP BUSINESS WITH REGARD TO THE IMMOVAB LE PROPERTIES PURCHASED BY THE PARTNERSHIP FIRM AND EFFORTS MADE AND TIME GIVEN BY THE RETIRING PARTNER OF THE PARTNERSHIP BUSINESS , THE PARTY OF FIRST PART IS ENTITLED TO RECEIVE A SUM OF RS.1,25, 00,000/- ( RUPEES ONE CRORE TWENTY FIVE LAKHS ONLY) FROM THE CONTINUI NG PARTNERS TOWARDS FULL AND FINAL SETTLEMENT AND PAYMENT OF HI S SHARES, RIGHT, TITLE AND INTEREST AND THE CLAIMS OF THE PARTNERSHI P BUSINESS AND ITS ASSETS INCLUDING GOODWILL 14. WHILE THE ASSESSING OFFICER BROUGHT TO TAX THE SURPLUS AMOUNT OF RS.25 LAKHS BY TREATING IT AS A TRANSFER OF GOOD WILL, THE CIT (A) DELETED THE ADDITION BY HOLDING THAT THERE IS NO T RANSFER WHEN A PARTNER RECEIVED HIS SHARE IN THE PARTNERSHIP BUSIN ESS. KEEPING IN VIEW THE AFORESAID BASIC FACTS WE WILL NOW EXAMINE THE LEGAL ISSUE WHETHER THERE AT ALL IS A TRANSFER WITHIN THE MEA NING OF SEC. 2(47) OF THE ACT. 15. THE HONBLE SUPREME COURT IN CASE OF CIT VS. R . LINGAMALLU RAGHU KUMAR (SUPRA) WHILE CONSIDERING THE ISSUE OF EXCESS AMOUNT RECEIVED BY THE ASSESSEE ON RETIREMENT FROM PARTNER SHIP FIRM WHETHER IS ASSESSABLE TO CAPITAL GAINS UPHELD THE V IEW OF THE HONBLE A.P. HIGH COURT AND THAT OF GUJARAT HIGH CO URT IN CASE OF CIT VS. MOHANBHAI PAMABHAI (91 ITR 393) WHEREIN I T WAS HELD THAT THERE WAS NO TRANSFER OF ANY ASSET AS CONTEMPLATED BY THE EXPRESSION TRANSFER AS DEFINED IN SECTION 2(47) O F IT ACT. THE HONBLE KERALA HIGH COURT IN CASE OF CIT VS. KUNNI KULAM MILL BOARD 9 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. (SUPRA) HELD THAT WHERE THERE IS A RECONSTITUTION OF THE FIRM CONSEQUENT TO THE RETIREMENT OF SOME OF THE PARTNE RS IT CANNOT BE SAID THAT THERE WAS ANY TRANSFER OF ANY RIGHT IN IM MOVABLE PROPERTY IN FAVOUR OF CONTINUING PARTNER. THE LARGER BENCH O F KARNATAKA HIGH COURT IN CASE OF CIT VS. DYNAMIC ENTERPRISES (SUPR A) WHILE INTERPRETING SECTION 45(4) OF THE I T ACT HELD THA T IN CASE OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION O F THE FIRM, THERE IS A TRANSFER OF CAPITAL ASSET BY THE FIRM IN FAVOUR OF THE PERSON AND RESULTING PROFITS OR GAINS SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM. THE LARGER BENCH FURTHER WENT ON TO H OLD THAT WHEN CASH REPRESENTING THE VALUE OF THE SHARE IN THE PAR TNERSHIP IS GIVEN TO THE RETIRING PARTNERS, NO CAPITAL ASSET WAS TRAN SFERRED BY THE FIRM TO THE PARTNER. THE HONBLE HIGH COURT HELD THAT T O ATTRACT SECTION 45(4) THERE SHOULD BE A TRANSFER OF CAPITAL ASSET F ROM THE FIRM TO THE RETIRING PARTNER BY WHICH THE FIRM CEASES TO HAVE A NY RIGHT IN THE PROPERTY WHICH IS SO TRANSFERRED. IN OTHER WORDS, ITS RIGHT TO THE PROPERTY SHOULD STAND EXTINGUISHED AND THE RETIRING PARTNER ACQUIRES ABSOLUTE TITLE TO THE PROPERTY. IF WE APPLY THE AFO RESAID TESTS TO THE FACTS OF THE PRESENT CASE, THE ASSESSEE RECEIVED A LUMP SUM AMOUNT OF RS.1,25,000 FROM THE PARTNERSHIP FIRM TOW ARDS HIS SHARE IN THE PARTNERSHIP. THE PARTNERSHIP FIRM DID NOT T RANSFER ANY CAPITAL ASSET TO THE ASSESSEE TO THE EXTENT BY WHICH THE FI RM CEASED TO HAVE ANY RIGHT IN THE PROPERTY. IN THE PRESENT CASE, ACC ORDING TO THE ASSESSING OFFICER THERE IS TRANSFER OF GOODWILL. T HE ITAT, HYDERABAD BENCH IN CASE OF DURDANA KHATOON VS. ITO (SUPRA) HELD THAT WHEN A PARTNER RECEIVES HER/HIS SHARE IN THE ASSETS OF T HE PARTNERSHIP FIRM OR WHEN HE RECEIVES ANYTHING IN EXCESS OF HER/ HIS SHARE IN THE ASSETS OF THE PARTNERSHIP FIRM AND EVEN IN A CASE A PARTNER RECEIVES 10 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. A SHARE OF PROFIT EITHER IN CASE OF RETIREMENT OR IN CASE OF DISSOLUTION, THE SAME CANNOT BE BROUGHT TO TAX IN V IEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE TRIBHUVAN DAS G. PATEL VS. CIT (236 ITR 515) AND IN CASE OF CIT VS. R. L INGAMALLU RAGHU KUMAR (SUPRA). WHILE DOING SO, THE INCOME-TAX APPEL LATE TRIBUNAL, HYDERABAD BENCH ALSO HELD THAT IN VIEW OF THE DECIS IONS OF HONBLE SUPREME COURT, JUDGMENTS OF HONBLE DELHI HIGH COUR T AND HONBLE BOMBAY HIGH COURT (SUPRA) ARE NOT APPLICABLE. THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CHALASANI VENK ATESWARA RAO VS. ITO (SUPRA) HELD AS UNDER: 20. IN L. RAGHU KUMAR ( SUPRA ), A DIVISION BENCH OF THE ANDHRA PRADESH HIGH COURT FOLLOWED THE JUDGMENT OF THE GUJARAT HIG H COURT IN CIT V. MOHANBHAI PAMABHAI [1973] 91 ITR 393 (GUJ.) AND HELD THAT NO TRANSFER IS INVOLVED WHEN A RETIRING PARTNER RECEIVES AT THE TI ME OF RETIREMENT FROM THE FIRM, HIS SHARE IN THE PARTNERSHIP ASSETS EITHER IN CASH OR ANY OTHER ASSET. IT FURTHER HELD THAT FOR THE PURPOSE OF SECTION 45 OF THE I.T. ACT, NO DISTINCTION CAN BE DRAWN BETWEEN AN AMOUNT RECEIVED BY THE PART NER ON THE DISSOLUTION OF THE FIRM AND THAT RECEIVED ON HIS RETIREMENT, SI NCE BOTH OF THEM STAND ON THE SAME FOOTING. 21. IN P.H. PATEL ( SUPRA ), A DIVISION BENCH OF THE AP HIGH COURT NOTICED TH AT THE JUDGMENT IN MOHANBHAI PAMABHAI ( SUPRA ) WAS APPROVED BY THE SUPREME COURT IN ADDL. CIT V. MOHANBHAI PAMABHAI [1987] 165 ITR 166 AND FOLLOWING THE JUDGMENT IN L. RAGHUKUMAR ( SUPRA ) HELD THAT WHEN A PARTNER RETIRES FROM A PARTNERSHIP FIRM TAKING HIS SHARE OF PARTNERSHIP INTEREST, NO ELEMENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSET BY THE RETIRING PARTNER TO THE CONTINUING PARTNER WAS INVOLVED. 22. IN THE LIGHT OF THE ABOVE DECISIONS, WHICH ARE BINDING ON US, WE HOLD THAT THE I.T.A.T. WAS NOT CORRECT IN CONFIRMING THE ORDERS PASSED BY THE C.I.T. (APPEALS) AND THE RESPONDENT. WHEN THE APPEL LANT WAS PAID RS. 15.00 LAKHS BY Y. KALYANA SUNDARAM IN FULL AND FINAL SETT LEMENT TOWARDS HIS 50% SHARE ON THE DISSOLUTION OF THE FIRM, THERE WAS NO 'TRANSFER' AS UNDERSTOOD IN LAW AND CONSEQUENTLY THERE CANNOT BE TAX ON ALLE GED CAPITAL GAIN. THE APPELLANT WAS CORRECT IN LAW IN CONTENDING THAT THE AMOUNT HE RECEIVED FROM Y. KALYANA SUNDARAM IS TOWARDS THE FULL AND FINAL S ETTLEMENT OF HIS SHARE AND SUCH ADJUSTMENT OF HIS RIGHT IS NOT A 'TRANSFER ' IN THE EYE OF LAW. IT IS A RECOGNIZED METHOD OF MAKING UP THE ACCOUNTS OF THE DISSOLVED FIRM AND THE RECEIPT OF MONEY BY HIM IS NOTHING BUT A RECEIPT OF HIS SHARE IN THE DISTRIBUTED ASSET OF THE FIRM. THE APPELLANT RECEIV ED THE MONEY VALUE OF HIS 11 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. SHARE IN THE ASSETS OF THE FIRM. HE DID NOT AGREE T O SELL, EXCHANGE OR TRANSFER HIS SHARE IN THE ASSETS OF THE FIRM. PAYMENT OF THE AMOUNT AGREED TO BE PAID TO THE APPELLANT UNDER THE COMPROMISE WAS NOT IN CO NSEQUENCE OF ANY SHARE, EXCHANGE OR TRANSFER OF ASSETS TO Y. KALYANA SUNDARAM. MOREOVER , AS RIGHTLY CONTENDED BY THE ASSESSEE, UP TO THE ASSESS MENT YEAR 1987-1988, SECTION 47 (II) OF THE INCOME TAX ACT, 1961 EXCLUDE D THESE TRANSACTIONS. FROM ASSESSMENT YEAR 1988-89, IN THE CASE OF DISSOL UTION OF A FIRM, ONLY THE FIRM IS TAXABLE ON CAPITAL GAINS ON DISSOLUTION UND ER SECTION 45(4) OF THE INCOME TAX ACT, 1961 AND NOT THE PARTNER. S.45(4) S TATES AS FOLLOWS: 'S.45(4) THE PROFITS OR GAINS ARISING FROM THE TRAN SFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOL UTION OF A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO- OPERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABL E TO TAX AS THE INCOME OF THE FIRM, ASSOCIATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER.' THUS IT IS CLEAR THAT THE LEGISLATURE, EVEN THOUGH IT WAS AWARE OF THE ABOVE DECISIONS, DID NOT CHOOSE TO AMEND THE LAW BY MAKIN G THE PARTNER LIABLE WHEN IT AMENDED THE I.T ACT,1961 BY INTRODUCING CLA USE (4) TO S.45 BY THE FINANCE ACT,1987 W.E.F 1.4.1988 AND MADE ONLY THE F IRM LIABLE. THEREFORE THE CONTENTION OF THE ASSESSEE HAS TO BE ACCEPTED A ND THAT OF THE REVENUE IS LIABLE TO BE REJECTED. 16. A CAREFUL READING OF THE AFORESAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT WOULD MAKE IT CLEAR THAT THEY APPROVED THE VIEW OF THEIR EARLIER DECISION HOLDING THAT THE AMO UNT RECEIVED BY THE PARTNER ON THE DISSOLUTION OF THE FIRM OR ON HI S RETIREMENT STAND ON THE SAME FOOTING AND NO DISTINCTION CAN BE DRAWN . THE HONBLE HIGH COURT FURTHER REFERRED TO THE DECISION OF JURI SDICTIONAL HIGH COURT IN CASE OF CIT VS. P.H. PATEL (171 ITR 128) W HEREIN IT WAS HELD THAT WHEN A PARTNER RETIRES FROM A PARTNERSHIP TAKING HIS SHARE OF PARTNERSHIP INTEREST, NO ELEMENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSET BY THE RETIRING PARTNER TO THE CO NTINUING PARTNER WAS INVOLVED. THE AFORESAID RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT CLEARLY APPLY TO THE FACTS OF THE ASSESS EES CASE. 12 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. HOWEVER, WE NEED TO MENTION HERE THAT THE INCOME-TA X APPELLATE TRIBUNAL, HYDERABAD BENCH IN CASE OF SMT. GIRIJA RE DDY VS. ITO (52 SOT 113) HAS TAKEN A CONTRARY VIEW BY HOLDING THAT LUMP SUM PAYMENT RECEIVED BY A RETIRING PARTNER ASSIGNING OR RELINQUISHING HIS/HER RIGHT IN THE PARTNERSHIP AND ITS ASSET IN F AVOUR OF THE CONTINUING PARTNER WILL ATTRACT CAPITAL GAIN TAX. THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH WHILE COMING TO SUCH CONCLUSION HAD MAINLY RELIED UPON THE FOLLOWING DEC ISIONS. I) CIT VS. TRIBHUVAN DAS G. PATEL (115 ITR 95) II) CIT VS. H.R. ASLOT III) N.A. MOODY VS. CIT (SUPRA) IV) MUMBAI TRIBUNAL IN THE CASE OF SUDHAKAR M. SHETTY V S. ACIT (130 ITD 197) V) SHEVANTI BHAI VS. ITO (4 SOT 94) 17. HOWEVER, IT APPEARS THE DECISION OF INCOME-TAX APPELLATE TRIBUNAL , HYDERABAD BENCH IN CASE OF DOORDANA KHAT OON VS. ITO (SUPRA) WAS NOT PLACED BEFORE THE BENCH. THAT BES IDES THE AFORESAID DECISION OF INCOME-TAX APPELLATE TRIBUNAL IN CASE OF SMT. GIRIJA REDDY WAS PRIOR TO THE JUDGMENT OF THE HONB LE JURISDICTIONAL HIGH COURT IN CASE OF CHALASANI VENKATESWARA RAO VS . ITO (SUPRA). THAT APART, A READING OF CLAUSE 4 OF THE DEED OF RE TIREMENT MAKES IT CLEAR THAT THE AMOUNT OF RS.1.25 CORES WAS PAID TO THE ASSESSEE TOWARDS HIS SHARE CAPITAL AND NOT FOR RELINQUISHING OR EXTINGUISHING HIS RIGHTS OVER ANY ASSETS OF THE FIRM. THE TERM GOODWILL, IN OUR VIEW HAS BEEN LOOSELY USED IN THE AFORESAID CLAUSE. FURTHERMORE, A PLAIN READING OF THE CLAUSE 4 WILL NOT IN ANY MANNE R INDICATE THAT PAYMENT OF RS.25 LAKHS WAS TOWARDS TRANSFER OF GOOD WILL AS 13 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED. SUGGESTED BY THE ASSESSING OFFICER. THEREFORE, CON SIDERING TOTALITY OF FACTS AND THE CIRCUMSTANCES OF THE CASE AND APP LYING THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHALASANI VENKATESARA RAO (SUPRA), WHICH IS BINDING ON US, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE CIT (A) NE EDS TO BE UPHELD. ACCORDINGLY, WE DISMISS THE GROUNDS RAISED BY THE D EPARTMENT. 18. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 27-01-2014. SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 27 TH JANUARY, 2014. JMR* COPY TO:- 1) ACIT, CIR-16(2), AAYAKAR BHAVAN, HYDERABAD. 2) SRI N. PRASAD, EXECUTIVE CHARIMAN, MATRIX LABORATOR IES LIMITED, 5 TH FLOOR, ALEXANDER ROAD, SECUNDERABAD. 3) CIT(A)-V, HYDERABAD. 4) CIT (A) IV, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. 14 ITA NO.1200 OF 2010 SHRI N. PRASAD , EXECUTIVE CHAIRMAN, MATRIX LABORATORIES L IMITED.