Amit Kumar Choudhury, Kolkata V. DCIT, CIR-6, KOLKATA, Kolkata

ITA 1357/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1486 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 06-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A K GUPTA
• Keywords: Capital asset; Question of law; Cost of acquisition; Fair market value; Capital receipt
• Section: 148

Judgement Text

1 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1357/KOL./2015 ASSESSMENT YEAR: 2009-2010 AMIT KUMAR CHOUDHURY,.............................. ..................................APPELLANT P-205, PARNASHREE PALLY, KOLKATA-700 060 [PAN: ACTPC 0299A] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ....................RESPONDENT CIRCLE-26, KOLKATA, AAYAKAR BHAWAN (DAKSHIN), 2, GARIAHAT ROAD (SOUTH), KOLKATA-700 068 APPEARANCES BY: SHRI A.K. GUPTA, FCA, FOR THE ASSESSEE SHRI SALLONG YADEN, ADDL. CIT, D.R., FOR THE DEPART MENT DATE OF CONCLUDING THE HEARING : DECEMBER 01, 201 7 DATE OF PRONOUNCING THE ORDER : FEBRUARY 19, 2018 O R D E R PER SHRI P.M. JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-7, KOLKATA DAT ED 03.09.2015 AND THE SOLITARY ISSUE RAISED THEREIN RELATES TO THE AD DITION OF RS.33,35,781/- MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME O F THE ASSESSEE ON ACCOUNT OF GOODWILL, WHICH IS ENHANCED BY THE LD. C IT(APPEALS) TO RS.44,25,000/-. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L, WHO WAS A PARTNER IN THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS C O. WITH OTHER PARTNER BEING SHRI RANJIT MUKHERJEE HAVING PROFIT SHARE OF 50% EACH. THE SAID PARTNERSHIP FIRM WAS RECONSTITUTED ON 01.12.2008 BY INDUCTING TWO NEW PARTNERS SHRI PIYUSH CHAKRABORTY AND SHRI CHANDRALE KHA CHAKRABORTY. 2 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 AFTER THE RECONSTITUTION, THE PROFIT SHARING RATIO OF THE ERSTWHILE TWO PARTNERS INCLUDING THE ASSESSEE WAS REDUCED TO 5% F ROM 50% WITH THE PROFIT SHARING RATIO OF NEW PARTNERS BEING 60% AND 30% IN CASE OF SHRI PIYUSH CHAKRABORTY AND SHRI CHANDRALEKHA CHAKRABORT Y. THEREAFTER THE ASSESSEE RETIRED FROM THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS CO. FROM 01.04.2009. BEFORE HIS RETIREMENT, HE RECEIVED A SUM OF RS.81,81,158/- DURING THE PERIOD 01.12.2008 TO 30.0 3.2009 FROM THE PARTNERSHIP FIRM AS AGAINST THE CAPITAL BALANCE AMO UNT OF RS.40,02,377/- AS ON MARCH 31, 2008. THE ASSESSEE THUS HAD RECEIVE D A SUM OF RS.41,78,781/- IN EXCESS OF HIS CAPITAL ACCOUNT BAL ANCE AND SINCE THE SAME WAS NOT DECLARED BY THE ASSESSEE IN HIS RETURN OF I NCOME FILED ORIGINALLY ON 20.09.2009, THE ASSESSING OFFICER WAS OF THE VIE W THAT THERE WAS ESCAPEMENT OF INCOME OF THE ASSESSEE FROM THE ASSES SMENT TO THAT EXTENT. HE ACCORDINGLY ISSUED A NOTICE UNDER SECTION 148 ON 23.03.2012, IN REPLY TO WHICH A LETTER WAS FILED BY THE ASSESSEE ON 19.0 4.2012 REQUESTING THE ASSESSING OFFICER TO TREAT THE RETURN ORIGINALLY FI LED BY IT ON 29.09.2009, AS THE RETURN FILED IN RESPONSE TO THE NOTICE UNDER SECTION 148. THE ASSESSEE ALSO RAISED OBJECTIONS TO THE REOPENING OF THE ASSESSMENT VIDE LETTER DATED 09.05.2012, BUT OVERRULING THE SAME, T HE ASSESSING OFFICER PROCEEDED TO COMPLETE THE ASSESSMENT UNDER SECTION 147/143(3) VIDE AN ORDER DATED 05.12.2012. IN THE ASSESSMENT SO COMPLE TED, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE THAT THE EXCESS AMOUNT RECEIVED BY HIM ON HIS RETIREMENT FROM THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS CO. WAS TOWARDS HIS SHARE OF GOODWILL AND THE COST OF ACQUISITION OF THE SAME BEING NIL, NO CAPITAL GAIN COULD BE CHARGED. IN THIS REGARD, THE ASSESSING OFFICER RELIED ON THE AMENDME NT MADE IN SECTION 55(2)(A) OF THE ACT PROVIDING THAT THE COST OF ACQU ISITION OF THE SELF- GENERATED ASSETS LIKE GOODWILL SHOULD BE TAKEN AT N IL. THE ASSESSING OFFICER ALSO FOUND THAT THE ACTUAL AMOUNT RECEIVED BY THE ASSESSEE ON HIS RETIREMENT FROM THE PARTNERSHIP FIRM OF M/S. PROCES S CHEMICALS CO. IN EXCESS OF HIS CAPITAL ACCOUNT BALANCE AS ON 31.03.2 008 AS WELL AS FURTHER CREDITS MADE ON ACCOUNT OF PARTNERS SALARY, INTERE ST ON CAPITAL, COMMISSION AND SHARE OF PROFIT IN THE YEAR UNDER CO NSIDERATION WAS 3 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 ACTUALLY RS.33,35,781/-. HE ACCORDINGLY ADDED THE S AID EXCESS AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED UNDER SECTION 147/143(3) OF THE ACT VIDE AN ORDER DATED 0 5.12.2012. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 147/143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) AND KEEPING IN VIEW THE FACT THAT A SU M OF RS.44,25,000/- WAS CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS CO. AS H IS SHARE OF GOODWILL IN THE YEAR UNDER CONSIDERATION, THE LD. CIT(APPEALS) ISSUED SHOW-CAUSE NOTICE REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY THE ADDITION OF RS.33,35,781/- MADE BY THE ASSESSING OFFICER TO HIS TOTAL INCOME SHOULD NOT BE ENHANCED TO RS.45,25,000/- BEING THE CREDIT IN HIS CAPITAL ACCOUNT ON ACCOUNT OF CREATION OF GOODWILL. IN REPLY, IT WA S SUBMITTED BY THE ASSESSEE THAT THE CREATION OF GOODWILL IN THE BOOKS OF ACCOUNT OF THE PARTNERSHIP FIRM COULD NOT BE ADDED AS CAPITAL GIN AS THERE WAS NO TRANSFER SO AS TO BRING THE AMOUNT IN QUESTION TO T AX UNDER SECTION 45 OF THE ACT. IT WAS SUBMITTED THAT THE AMENDMENT MADE I N SECTION 55(2)(A) AND RELIED UPON BY THE ASSESSING OFFICER WAS TO BRI NG TO TAX THE CAPITAL GAIN ON TRANSFER OF GOODWILL ONLY AND THERE BEING N O TRANSFER OF GOODWILL ON THE RETIREMENT OF THE ASSESSEE FROM THE PARTNERS HIP FIRM OF M/S. PROCESS CHEMICALS CO., NO CAPITAL GAIN TAX COULD B E CHARGED ON NOTIONAL BASIS SINCE THERE WAS ONLY A CREATION OF GOODWILL I N THE BOOKS WITH NO TRANSFER TAKING PLACE. RELIANCE IN SUPPORT OF THIS CONTENTION WAS PLACED ON BEHALF OF THE ASSESSEE ON THE DECISION OF THE HO NBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS.- KARNATAKA AGRO (ITA NO. 594 OF 2013 DATED 29.06.2014), WHEREIN THE PARTNERSHIP FIRM HAD CREDI TED SELF-GENERATED ASSETS IN THE FORM OF GOODWILL OF BUSINESS TO THE E XTENT OF RS.7,69,28,000/- AND HAD TRANSFERRED THE SAME TO TH E CURRENT ACCOUNT OF FOUR PARTNERS PROPORTIONATELY CONSEQUENT TO THE REC ONSTITUTION OF THE FIRM. THE ASSESSING OFFICER BROUGHT THE GOODWILL SO CREATED TO TAX UNDER THE HEAD LONG-TERM CAPITAL GAIN AND WHEN THE MATT ER REACHED TO THE HONBLE HIGH COURT, THE HONBLE CALCUTTA HIGH COURT HELD THAT WHEN THE 4 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 GOODWILL WAS CREATED AND CREDITED TO THE FOUR PARTN ERS IN THEIR PROFIT SHARING RATIO IN THE BOOKS OF THE PARTNERSHIP FIRM AND TWO OF THE FOUR PARTNERS HAD RETIRED, THE GOODWILL CREATED CONTINUE D TO BE WITH THE PARTNERSHIP FIRM AND NO PORTION OF THE SAME WAS TRA NSFERRED TO THE RETIRING PARTNERS. IT WAS HELD THAT WHEN THERE WAS NO TRANSFER OF CAPITAL ASSET, SECTION 45(4) WAS NOT ATTRACTED. IT WAS ALSO HELD BY THE HONBLE KARNATAKA HIGH COURT THAT THE PARTNERSHIP FIRM DID NOT TRANSFER ANY RIGHT IN THE CAPITAL ASSET MUCH LESS THE GOODWILL IN FAVO UR OF THE RETIRING PARTNERS NOR THE RETIRING PARTNERS ACQUIRED ANY RIG HT IN THE PROPERTY AS NO PROPERTY WAS TRANSFERRED IN THEIR FAVOUR. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) THAT ON THE VALUATION OF THE GOODWILL, THE GOODWILL WAS TREATED TO BE AN ASSET O F THE PARTNERSHIP FIRM AND THE SAME CONTINUED TO BE AN ASSET OF THE FIRM E VEN AFTER HIS RETIREMENT. IT WAS ARGUED THAT THE CREATION OF GOOD WILL IN THE BOOKS OF THE PARTNERSHIP FIRM AND CORRESPONDING CREDIT IN THE PA RTNERS CAPITAL ACCOUNT THUS COULD NOT GIVE RISE TO ANY CAPITAL GAIN CHARGE ABLE TO TAX AS THERE WAS NO TRANSFER OF GOODWILL. 4. THE LD. CIT(APPEALS) DID NOT FIND MERIT IN THE S UBMISSIONS MADE BY THE ASSESSEE AND PROCEEDED TO HOLD THAT THE AMOUNT OF RS.44,25,000/- CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE-FIR M ON ACCOUNT OF GOODWILL WAS CHARGEABLE TO TAX IN HIS HANDS AS SHOR T-TERM CAPITAL GAIN FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- I HAVE CAREFULLY EXAMINED THE EXPLANATION OF THE APPELLANT. AS PER THE INFORMATION FURNISHED BY THE APPELLANT AND THE ACCOUNT COPY, AN AMOUNT OF RS.44,25,000 / - WAS CRE DITED TO THE APPELLANT'S CAPITAL ACCOUNT UNDER THE HEAD GOOD WILL. BOTH THE EXISTING PARTNERS I.E. THE APPELLANT AND SHRI P URANJIT MUKHERJEE APPOINTED M/S RAY AND RAY, CHARTERED ACCO UNTANTS FOR VALUATION OF GOODWILL AS ON 01/04/2008. THE VAL UERS HAVE SUBMITTED THEIR REPORT ON 27/10/2008 ESTIMATING THE VALUE AT RS.88,50,000/- AND NECESSARY ENTRIES HAVE BEEN PASS ED DEBITING THE GOODWILL AND CREDITING THE PARTNERS' C APITAL ACCOUNT @ RS.44,25,000/- EACH ON 27/10/2008/-. ON 1 ST DECEMBER 2008 PARTNERSHIP RECONSTITUTED WITH NEW PA RTNERS AND APPELLANT ALONG WITH MR. PURANJIT MUKHERJEE REL INQUISHED THEIR SHARES TO THE EXTENT OF 45% EACH IN FAVOUR OF NEW PARTNERS. IMMEDIATELY FROM 1 ST DECEMBER 2008 THE APPELLANT 5 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 STARTED WITHDRAWING THE AMOUNTS FROM HIS CAPITAL AC COUNT AND BY 30/03/2009 THE APPELLANT HAS WITHDRAWN RS.81.81 LACS INCLUDING THE GOODWILL AND GOT RETIRED FROM THE FIR M WITH EFFECT FROM 01/04/2009. THESE ENTIRE TRANSACTIONS C LEARLY SHOW THAT THE PARTNERS INTENDED TO RETIRE AND FOR T HAT PURPOSE, THE GOODWILL WAS VALUED AND CREDITED TO THE PARTNER S' CAPITAL ACCOUNT AND ACCORDINGLY AMOUNTS WERE WITHDRAWN FROM THE CAPITAL ACCOUNTS. THEREFORE, THE EXCESS PAYMENTS MA DE TO THE PARTNERS CAN BE REGARDED AS THE PAYMENTS FOR RELINQ UISHING OR ASSIGNING THEIR RIGHTS IN THE PARTNERSHIP FIRM. AND NOW THE ISSUE IS WHETHER THE PAYMENT ON ACCOUNT OF GOODWIL L IS TAXABLE IN THE HANDS OF THE RETIRING PARTNER OR NOT? SECTION 55 OF THE INCOME TAX HAS BEEN AMENDED WITH EFFECT FROM 01/04/1988 WITH AN INTENTION TO BRING THE TRAN SFER OF GOODWILL AND THE COST OF ACQUISITION WILL BE 'NIL'. THE AUTHORISED REPRESENTATIVE(A/R) OF THE APPELLANT HAS STRONGLY OBJECTED FOR TAXING THE GOODWILL IN THE HANDS OF TH E RETIRING PARTNER. HE OPINED THAT CREATION OF GOODWILL CANNOT BE TREATED AS TRANSFER AND CANNOT BE TAXED UNDER SECTION 45. H E ARGUED THAT THE ASSET GOODWILL IS CONTINUED TO BE THE ASSE T OF THE FIRM AND IT HAS NOT BEEN TRANSFERRED TO THE APPELLANT. N O TITLE HAS BEEN TRANSFERRED TO THE APPELLANT. HE OPINED THAT S ECTION 45(4) IS APPLICABLE ONLY IN CASE OF DISSOLUTION OF THE FIRM BUT NOT ON RETIREMENT. HE ALSO RELIED ON FINANCE ACT AN D ARGUED THAT NO CAPITAL GAINS TAX CAN BE CHARGED ON A NOTIO NAL BASIS WHERE IT WAS ONLY CREATED IN THE BOOKS AND NO ACTUA L TRANSFER TOOK PLACE. THE AUTHORIZED REPRESENTATIVE (AIR) REL IED ON HON'BLE SUPREME COURT .JUDGEMENT IN THE CASE OF CIT VS. MOHANBHAI PAMABHAI 225 ITR 221 AND HORR'BLE KARNATA KA HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. DYNAMIC ENTERPRISES 359 ITR 83 FULL BENCH AND ALSO CIT VS. KARNATAKA AGRO CHEMICALS. I HAVE GONE THROUGH THE JUDGEMENT RELIED UPON BY T HE LD. AUTHORIZED REPRESENTATIVE IN THE CASE OF MOHANBHAI PARNABHAI OF HORI'BLE SUPREME COURT AND IT WAS DELIVERED ON F EBRUARY 12, 1987 I.E. BEFORE AMENDMENT TO SECTION 55 OF INCOME TAX ACT. THEREFORE, HON'BLE SUPREME COURT JUDGEMENT IS NOT H ELPFUL IN THE ASSESSEE'S CASE. IN THE CASE OF KARNATAKA HIGH COURT JUDGEMENT IN THE CASE OF DYNAMIC ENTERPRISES WAS DE LIVERED IN CONNECTION WITH THE CASE OF THE FIRM BUT NOT IN THE CASE OF A PARTNER. IN PARA NO.32 HONOURABLE HIGH COURT HELD T HAT: IN SO FAR AS THE SUBSTANTIAL QUESTION OF LAW WHETH ER THE RETIRING PARTNER WOULD BE LIABLE TO PAY CAPITAL GAI NS TAX IS CONCERNED, THE SAID QUESTION DOES NOT ARISE FOR CON SIDERATION IN THE APPEAL AS THE ONLY QUESTION WHICH AROSE FOR 6 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 CONSIDERATION WAS WHETHER FIRM IS LIABLE TO PAY CAP ITAL GAINS TAX. THEREFORE THE SAID QUESTION OF LAW IS NOT ANSW ERED. IN VIEW OF THE ABOVE THE JUDGMENT OF HON'BLE HIGH COURT IS ALSO NOT HELPFUL TO THE APPELLANT. LD. AUTHORIZED REPRESENTATIVE ALSO RELIED ON HON'BLE KARNATAKA HIG H COURT JUDGEMENT IN THE CASE OF C.I.T VS KARNATAKA AGRO CH EMICALS BUT THIS JUDGEMENT ALSO CANNOT BE APPLIED BECAUSE T HE HON 'BLE HIGH COURT DELIVERED THE JUDGEMENT IN THE CASE OF T HE FIRM BUT NOT IN THE CASE OF PARTNER. THE ISSUE WHETHER THE GOODWILL IS TAXABLE OR NOT IN THE HANDS OF THE PARTNER WAS EXAMINED BY THE HON'BLE INCOME T AX APPELLATE TRIBUNAL HYDERABAD BENCH IN THE CASE OF S MT. GIRIJA REDDY, P. VS. INCOME TAX OFFICER, WARD-6(2) AND DEL IVERED THE DECISION IN ITA NO.297/HYD/2012 ASSESSMENT YEAR 200 8-09 AFTER CONSIDERING THE HON'BLE SUPREME COURT JUDGEME NT IN THE CASE OF CIT VS. MOHANBHAI PAMABHAI, HOBBLE SUPREME COURT JUDGEMENT IN THE CASE OF CIT VS. R. LINGMALLU RAGHU KUMAR (2001), AND VARIOUS OTHER JUDGEMENTS AND HELD AS UN DER: HELD: THUS, IN OUR OPINION, IT WAS A CASE OF LUMP SUM PAYMENT IN CONSIDERATION OF THE RETIRING PARTNER ASSIGNING OR RELINQUISHING HER SHARE OR RIGHT IN THE PARTNERSHIP AND ITS ASSETS IN FAVOUR OF THE CONTINUING PARTNERS. WE ARE OF THE VIEW THAT THE MANNER OF THE RETIREMENT IN CASE OF THE AS SESSEE IS SUCH THAT IT CAN BE REGARDED AS ASSIGNING OR RELINQ UISHING BY THE RETIRING PARTNER OF HER SHARE OR RIGHT IN THE P ARTNERSHIP FIRM AND ITS ASSETS IN FAVOUR OF THE CONTINUING PAR TNERS. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE SAT ISFIES THE PARAMETERS LAID DOWN BY THE BOMBAY HIGH COURT IN TH E CASES REFERRED TO ABOVE AND, THEREFORE, THERE WAS A TRANS FER OF INTEREST OF THE RETIRING PARTNER OVER THE ASSETS OF THE PARTNERSHIP FIRM ON HER RETIREMENT AND, THEREFORE, THERE WAS A LIABILITY TO TAX ON ACCOUNT OF CAPITAL GAIN. IN THIS CASE AN AMOUNT OF RS.44,25,000/- WAS CREDI TED TO THE APPELLANT'S CAPITAL ACCOUNT IN THE NAME OF GOODWILL . THE ABOVE AMOUNT WAS ALSO WITHDRAWN BY THE APPELLANT FROM HIS CAPITAL ACCOUNT. THIS AMOUNT WAS NOTHING BUT THE PAYMENT TO RETIRING PARTNER IN CONSIDERATION OF ASSIGNING OR RELINQUISH ING HIS SHARE OR RIGHT IN THE PARTNERSHIP AND ITS ASSETS IN FAVOUR OF CONTINUING PARTNERS AND ACCORDINGLY TAXABLE AS CAPI TAL GAINS IN THE HANDS OF THE APPELLANT AS HELD BY HON'BLE IT AT, HYD BENCH, IN THE CASE LAW CITED SUPRA. ACCORDINGLY I H OLD THAT THE AMOUNT OF GOODWILL CREDITED TO THE APPELLANT'S CAPI TAL ACCOUNT AMOUNTING TO RS.44,25,000/- SHOULD BE TAXED AS SHOR T TERM CAPITAL GAINS. I DIRECT THE ASSESSING OFFICER ACCOR DINGLY. 7 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE GOODWILL OF THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS CO. WAS CREATED DURING THE YEAR UNDER CONSIDERATION ON THE BASIS OF VALUAT ION REPORT DATED 27.10.2008 AND THE SAME WAS CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE TO THE EXTENT OF RS.44,25,000/- IN THE RAT IO OF HIS SHARE OF PROFIT AT 50%. THEREAFTER THE PARTNERSHIP FIRM OF M/S. PRO CESS CHEMICALS CO. WAS RECONSTITUTED ON 01.12.2008 WITH TWO NEW PARTNE RS JOINING THE FIRM AND THE ASSESSEE FINALLY RETIRED AS A PARTNER FROM THE SAID FIRM W.E.F. 1 ST APRIL, 2009. MEANWHILE THE ASSESSEE DURING THE PERI OD FROM 01.12.2008 TO 31.03.2009 WITHDREW THE ENTIRE AMOUNT OF HIS CAPITA L IN THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS CO. INCLUDING THE AM OUNT OF GOODWILL. THE AMOUNT OF GOODWILL SO WITHDRAWN FROM THE PARTNERSHI P FIRM ON HIS RETIREMENT WAS CLAIMED TO BE NOT CHARGEABLE TO TAX AS CAPITAL GAIN BY THE ASSESSEE ON THE GROUND THAT THE GOODWILL CREATED IN THE BOOKS OF THE PARTNERSHIP FIRM CONTINUED TO REMAIN WITH THE SAID PARTNERSHIP FIRM AND THERE WAS NO TRANSFER OF GOODWILL. IN SUPPORT OF TH IS CLAIM, THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIG H COURT IN THE CASE OF KARNATAKA AGRO AS WELL AS CBDT CIRCULAR NO. 495 DAT ED 22.09.1987 EXPLAINING THE LEGISLATIVE INTENTION BEHIND THE AME NDMENT MADE IN SECTION 55 BY THE FINANCE ACT, 1987. THE LD. CIT(AP PEALS), HOWEVER, DISTINGUISHED THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA AGRO (SUPRA) ON THE BASIS THAT TH E SAID DECISION WAS RENDERED IN THE CASE OF PARTNERSHIP FIRM AND NOT IN THE CASE OF THE PARTNER. AS SUBMITTED BY THE LD. COUNSEL FOR THE AS SESSEE, EVEN THOUGH THE SAID DECISION WAS RENDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PARTNERSHIP FIRM, THE PROVISIONS OF SECTION 45(4) WERE HELD TO BE NOT ATTRACTED ON THE GROUND THAT THERE WAS NO TRANS FER OF ANY RIGHT IN THE CAPITAL ASSET MUCH LESS THE GOODWILL BY THE PARTNER SHIP FIRM IN FAVOUR OF THE RETIRING PARTNERS. A PERUSAL OF THE IMPUGNED OR DER OF THE LD. 8 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 CIT(APPEALS) SHOWS THAT HE HAS MAINLY RELIED ON THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF SMT . GIRIJA REDDY VS.- ITO [52 SOT 113], WHEREIN IT WAS HELD THAT WHERE A LUMPSUM PAYMENT WAS MADE TO A RETIRING PARTNER FOR CONSIDERATION OF ASSIGNING OR RELINQUISHING HER SHARE OVER ASSETS OF PARTNERSHIP FIRM IN FAVOUR OF CONTINUING PARTNERS, IT WAS A CASE OF TRANSFER AND THE ASSESSEE THUS WAS LIABLE TO PAY TAX ON ACCOUNT OF CAPITAL GAIN. AT TH E TIME OF HEARING BEFORE THE TRIBUNAL, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE SAID DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IS DISTINGUISHABLE ON FACTS. HE HAS ALSO RELIED ON THE SUBSEQUENT DECISIO N OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS.- N. PRASAD [153 ITD 257], WHEREIN THE ASSESSEE ON HIS RETIREMENT AS A PARTNER FROM THE PARTNERSHIP FIRM HAD RECEIVED A SURPLUS AMOUNT OF RS.25,00,000/ - IN ADDITION TO HIS CAPITAL ACCOUNT BALANCE. THE SAID AMOUNT WAS BROUGH T TO TAX BY THE ASSESSING OFFICER IN THE HANDS OF THE ASSESSEE UNDE R THE HEAD CAPITAL GAINS BEING THE AMOUNT RECEIVED ON TRANSFER OF GOO DWILL. THE LD. CIT(APPEALS), HOWEVER, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSUE AND THE DECISION OF THE LD. C IT(APPEALS) WAS UPHELD BY THE TRIBUNAL HOLDING THAT THERE WAS NO TRANSFER OF ANY ASSET OR GOODWILL BY THE ASSESSEE ON HIS RETIREMENT TO THE P ARTNERSHIP FIRM. FOR THIS CONCLUSION, THE TRIBUNAL RELIED ON THE DECISIO N OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CHALASANI VENKATE SWARA RAO VS.- ITO [349 ITR 423], WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE AS FULL AND FINAL SETTLEMENT ON DISSOLUTIO N OF FIRM COULD NOT GIVE RISE TO ANY CAPITAL GAIN CHARGEABLE TO TAX AS THERE WAS NO TRANSFER OF ANY CAPITAL ASSET. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIED IN SUPPORT OF THE ASSESSEES CASE ON THE ISSUE UNDER CONSIDERATION ON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AJ AY KUMAR DOSHI VS.- ACIT (ITA NO. 1866/KOL/2012 DATED DECEMBER 11, 2015 ) WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL VIDE PARA GRAPHS NO. 10 TO 13 OF ITS ORDER, WHICH READ AS UNDER:- 9 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILA BLE ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOT H THE SIDES, THIS ISSUE INVOLVED IN GROUND NO. 2 OF THE ASSESSEE S APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE V ARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL. IN ONE SUCH DE CISION RENDERED IN THE CASE OF SHRI AMITABH SINGH (ITA NO. 1996/DEL/2006), HONBLE DELHI BENCH OF THIS TRIBUNA L DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN THE IDENTICAL FACTS AND CIRCUMSTANCES FOR THE FOLLOWING REASONS GIVEN I N PARAGRAPH NO. 5 OF ITS ORDER:- 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS. THE REVENUES CASE IS PRIMARILY BASED ON THE PROVISION CONTAINED IN SECTION 55(2) UNDER W HICH THE COST OF GOODWILL HAS TO BE TAKEN AS NIL IF IT H AS NOT BEEN PURCHASED FROM A PREVIOUS OWNER. SUCH IS THE C ASE HERE NONETHELESS, THIS COST IS FOR THE PURPOSE OF S ECTIONS 48 AND 49, WHICH DEAL WITH THE MODE OF COMPUTATION OF THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS. BEFORE COMING TO THE MODE OF COMPUTATION, IT HAS TO BE SEEN WHETHER ANY AMOUNT IS CHARGEABLE TO CAPITAL GA INS TAX U/S 45, WHICH IS THE CHARGING SECTION. THE LD. DR WAS NOT ABLE TO EXPLAIN HOW PROVISIONS OF SECTION 4 5 WERE APPLICABLE IN THE INSTANT CASE. SUB-SECTION 4 OF THIS SECTION DEALS WITH PROFITS OR GAINS ARISING FR OM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSET ON DISSOLUTION OR OTHERWISE OF A FIRM , AND BRINGS TO TAX THE CAPITAL GAINS IN THE HANDS OF THE FIRM. HOWEVER, WE ARE DEALING WITH A CASE OF THE PARTNER HERE. THE FIRM ACQUIRED GOODWILL OVER A PERIOD OF T IME, WHICH WAS BROUGHT INTO THE BOOKS AND DISTRIBUTED AMONGST EXISTING PARTNERS BEFORE THE NEW PARTNERS W ERE TAKEN IN AND SOME EXISTING PARTNERS RETIRED. THE AS SET OF THE FIRM ALREADY EXISTED AND IT WAS QUANTIFIED A ND CREDITED TO THE ACCOUNTS OF EXISTING PARTNERS. SIMI LARLY, WHEN THE ASSESSEE RETIRED FROM THE FIRM, HE DID NOT TRANSFER ANY GOODWILL TO THE FILM AS HE DID NOT HAV E ANY INDIVIDUAL GOODWILL. THE GOODWILL BELONGED TO THE F IRM AND CONTINUED TO REMAIN WITH THE FIRM. AS CLARIFIED BY THE LD. COUNSEL, NOTHING WAS CHARGED FROM THE INCOM ING PARTNERS BY WAY OF GOODWILL AND, THUS, THERE IS NO QUESTION OF EVEN INDIRECT REALIZATION OF THE VALUE OF GOODWILL BY THE ASSESSEE FROM THE INCOMING PARTNER THROUGH THE FIRM IN A NUMBER OF CASES, REFERRED TO ABOVE, IT HAS BEEN HELD THAT WHAT A PARTNER GETS AT THE TIME OF RETIREMENT IS NOTHING BUT HIS OWN SHARE IN THE ASSETS OF THE FIRM. IN SUCH A SCENARIO, THERE CANNO T BE ANY TRANSFER OF AN ASSET AND SUCH HAS BEEN THE DECI SION OF HON'BLE SUPREME COON IN THE CASE OF MOHANBHAI PAMABHAI AND TRIBHUVANDAS G. PATEL (SUPRA). THE FAC T IS THAT A PROVISION CORRESPONDING TO SUB-SECTION (3 ) REGARDING LEVY OF CAPITAL GAIN TAX WHEN A PARTNER 10 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 BRINGS IN A CAPITAL ASSET TO THE FIRM DOES NOT EXIS T ON THE STATUTE BOOK IN CASE OF RETIREMENT OF THE PARTN ER AND, THUS, GENERAL PROVISIONS OF LAW, NAMELY. THAT WHAT HE TAKES IS HIS SHARE IN THE ASSETS OF THE FIRM CON TINUES TO APPLY WITH THE EXCEPTION THAT UNDER SUB-SECTION (4), WHEN A CAPITAL ASSET IS DISTRIBUTED TO THE PARTNER ON DISSOLUTION OF THE FIRM OR ON HIS RETIREMENT AT LES S THAN THE FAIR MARKET VALUE, THEN, THE FIRM BECOMES LIABL E TO PAY CAPITAL GAINS TAX. SUCH IS NOT THE CASE HERE, A S WE ARE DEALING WITH THE CASE OF A PARTNER. THEREFORE, WE CONCUR WITH THE LD. CIT(APPEALS) THAT NOTHING WAS TAXABLE IN THE HANDS OF THE ASSESSEE. 12. THE COORDINATE BENCH OF THE TRIBUNAL AT KOLKAT A ALSO HAD A OCCASION TO CONSIDER THE SIMILAR ISSUE I N THE CASE OF NAWSHIR H. MIRZA, WHEREIN THE CASE OF THE ASSESS EE FOR EXEMPTION ON ACCOUNT OF SHARE OF GOODWILL RECEIVED ON RETIREMENT WAS HELD TO BE CAPITAL RECEIPT NOT CHARG EABLE TO TAX BY THE TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN ITS ORDER DATED 11.01.2008 PASSED IN ITA NO. 1252/KOL/2 007:- 9. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RI VAL CONTENTIONS AND ARE OF THE VIEW THAT THE ORDER OF T HE LD. CIT(A) NEEDS TO BE UPHELD AND DOES NOT CALL FOR ANY INTERFERENCE. IN THE INSTANT CASE, IT IS NOT DISPUT ED THAT THE SAID FIRMS WERE HAVING SELF GENERATED GOODWILL WHIC H WAS VALUED BY THEM DURING THE PRESENT ASSESSMENT Y.EAR THERE HAS BEEN NO TRANSFER OF SUCH GOODWILL BY THE SAID F IRMS. THE FIRMS STILL OWN AND HOLD SUCH GOODWILL AND THE ASSESSEE WHO HAS RETIRED HAS NO INTEREST OF ANY NAT URE WHATSOEVER THEREIN. THE REVENUE'S CASE IS PRIMARILY BASED ON VIEW THAT MONEY RECEIVED. IN LIEU OF GOODWILL FR OM THE FIRM BY THE PARTNER IS CASUAL RECEIPT IN THE NATURE OF INCOME WHICH IS NOT TAXABLE IN THE HANDS OF THE FIR M. WHAT THE PARTNERS GOT AT THE TIME OF THE RETIREMENT INCL UDING THE AMOUNT CREDITED FOR THE GOODWILL OF THE FIRMS I S A CAPITAL RECEIPT IN THEIR HANDS. THE PARTNERS DID NO T OWN THE GOODWILL NOR DID THEY TRANSFER THE SAME. THE GO ODWILL ALL ALONG REMAINED WITH THE FIRM AS ITS ASSET EVEN AFTER THE RETIREMENT OF THE PARTNERS. WHAT THE PARTNERS GOT O N RETIREMENT WAS FOR THE VALUE OF THEIR INTEREST IN T HE FIRM. THIS VIEW IS DULY SUPPORTED BY VARIOUS DECISION CIT ED BY THE LD. AUTHORISED REPRESENTATIVE INCLUDING THE DEC ISION .OF APEX COURT IN THE CASE OF SUNIL SIDDHARTHHBHAI VS. CIT (SUPRA). 9.1. IN THE INSTANT CASE, THE FIRMS HAVE NOT REALIZ ED ANY AMOUNT ON ACCOUNT OF GOODWILL HENCE THE QUESTION OF ANY AS SESSMENT BEING MADE IN THEIR HANDS DOES NOT ARISE. THE NOTIO NAL VALUATION OF THE GOODWILL IN ITS ACCOUNTS BY THE FIRM DOES NO T RESULT IN ANY TRANSFER WHICH CAN ATTRACT CAPITAL GAINS AS HAS ALS O BEEN CLARIFIED BY THE BOARD IN ITS CIRCULAR NO.495 DATED SEPTEMBER 27. 1987. EVEN THE AMENDMENT MADE IN SECTION 55(2) OF T HE ACT IS OF 11 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 NO HELP TO THE CASE OF THE DEPARTMENT IN VIEW OF TH E CLARIFICATION MADE BY THE BOARD. WE FAIL TO APPRECIATE HOW THE AMOUNT COULD BE ASSES SED IN THE HANDS OF THE PARTNERS AND THAT TOO UNDER THE HE AD 'INCOME FROM OTHER SOURCES. GOODWILL IS AN INTANGIBLE ASSET AND TRANSFER/SURRENDER OF WHICH WOULD ATTRACT SECTION 4 5 SO THAT THE VALUE RECEIVED WOULD BE A CAPITAL RECEIPT AND ASSES SABLE IF AT ALL ONLY UNDER ITEM 'E' OF SECTION 14. IT CANNOT BE TRE ATED AS A CASUAL RECEIPT AND BE SUBJECTED TO TAX UNDER SECTIO N 56. THE ARGUMENT THAT EVEN IF THE INCOME CANNOT BE CHARGEAB LE U/S. 45, BECAUSE OF THE INAPPLICABILITY OF THE COMPUTATION P ROVIDED U/S. 48, IT COULD STILL IMPOSE TAX UNDER THE RESIDUARY H EAD IS THUS UNACCEPTABLE. IF THE INCOME CANNOT BE TAXED U/S. 45 , IT CANNOT BE TAXED AT ALL AS HAS BEEN HELD IN THE CASE OF S.G. M ERCANTILE CORPORATION (P) LTD. VS.- CIT [1972] 83 ITR 700 (S C). 13. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS W ELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASES OF SHRI AMITABH SINGH (SUPRA) AND NAWSHIR H. MIRZA (SU PRA) DECIDED BY THE COORDINATE BENCHES OF THIS TRIBUNAL, WE RESPECTFULLY FOLLOW THE DECISION RENDERED IN THE SA ID CASES TO HOLD THAT THE AMOUNT IN QUESTION RECEIVED BY THE AS SESSEE AS HIS SHARE OF GOODWILL ON RETIREMENT FROM THE FIRM IS NO T CHARGEABLE TO TAX BEING CAPITAL RECEIPT. THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON TH IS ISSUE IS ACCORDINGLY DELETED. GROUND NO. 2 IS ACCORDINGLY AL LOWED. 7. IN OUR OPINION, THE ISSUE INVOLVED IN THE PRESEN T CASE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE V ARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE INCLUDING THE DECISI ON OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AJAY KUMAR DO SHI (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE ADDI TION MADE BY THE ASSESSING OFFICER AND ENHANCED BY THE LD. CIT(APPEA LS) ON ACCOUNT OF HIS SHARE OF GOODWILL RECEIVED BY THE ASSESSEE ON HIS R ETIREMENT FROM THE PARTNERSHIP FIRM OF M/S. PROCESS CHEMICALS CO. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF FEBRUARY, 2018. SD/- SD/- (S.S.VISWANETHRA RAVI) (P.M. JA GTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 19 TH DAY OF FEBRUARY, 2018 12 ITA NO. 1357/KOL/2015 ASSESSMENT YEAR: 2009-2010 COPIES TO : (1) SHRI AMIT KUMAR CHOUDHURY, P-205, PARNASHREE PALLY, KOLKATA-700 060 2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-26, KOLKATA, AAYAKAR BHAWAN (DAKSHIN), 2, GARIAHAT ROAD (SOUTH), KOLKATA-700 068 (3) CIT(APPEALS)-7, KOLKATA, (4) CIT- , KOLKATA, (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/DDO, INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.