ACIT, Pune V. Shri Atul Nemichand Bhalgat, Pune

ITA 2362/PUN/2012

• Counselvise Citation: 236224514 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Question of law; Difference of opinion; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.2361/PN/2012 (ASSESSMENT YEAR 2009-10) ACIT, CIRCLE-III, PUNE .. APPELLANT VS. SHRI TUSHAR NEMICHAND BHALGAT, 996, NAVI PETH, PUNE-411030 PAN NO.AARPB9419K .. RESPONDENT ITA.NO.2362/PN/2012 (ASSESSMENT YEAR 2009-10) ACIT, CIRCLE-III, PUNE .. APPELLANT VS. SHRI ATUL NEMICHAND BHALGAT, 996, NAVI PETH, PUNE-411030 PAN NO.AASPB3734G .. RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI A.K. MODI DATE OF HEARING : 04-03-2014 DATE OF PRONOUNCEMENT : 10-03-2014 ORDER PER R.K. PANDA, AM : THE ABOVE APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST THE SEPARATE ORDERS DATED 27-07-2012 OF THE CIT(A)- II, PUNE RELATING TO ASSESSMENT YEAR 2009-10. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE APPEALS, THEREFORE, THESE WERE HEARD TOGET HER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.2361/PN/2012 (SHRI TUSHAR NEMICHAND BHALGAT) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME FOR THE IMPUGNED ASS ESSMENT YEAR ON 23-09-2009 DECLARING TOTAL INCOME OF RS.51,87,500/- . THE SAID RETURN WAS SUBSEQUENTLY REVISED ON 05-10-2009 DECLA RING TOTAL INCOME OF RS.51,85,630/-. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED FROM THE COMPUTATION STATEMENT FILED BY THE ASSESSE E THAT ASSESSEE HAS RECEIVED AN AMOUNT OF RS.6,03,00,000/- FROM THE FIRM M/S. RAHUL CONSTRUCTION COMPANY AS PER RETIREMENT DEED DATED 0 9-05-2008. THE ABOVE AMOUNT WAS OVER AND ABOVE THE CAPITAL ACC OUNT OF THE ASSESSEE IN THE PARTNERSHIP FIRM AND HAS BEEN CREDI TED TO THE PERSONAL CAPITAL ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS FURTHER CLAIMED THAT THE SAID AMOUNT IS NOT LIABLE TO TAX AND HENCE NOT INCLUDED IN THE TOTAL INCOME. FOR THIS PROPOSITION, THE ASSESSEE HAS PLA CED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F PRASHANT S. JOSHI VS. ITO REPORTED IN 36 DTR 227 . HOWEVER, TH E AO WAS OF THE OPINION THAT THE FACTS OF THE INSTANT CASE ARE TOTALLY DISTINGUISHABLE AND THIS DECISION HAS NO BEARING ON THE SAME. 2.2 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSES SEE, HE OBSERVED THAT THE ASSESSEE AND HIS BROTHER SHRI ATU L BHALGAT HAD ENTERED INTO A PARTNERSHIP FOR EXECUTING A BUILDING PROJECT NAMED AS ATUL NAGAR UNDER THE NAME AND STYLE OF M/S. RAHUL CONSTRUCTION COMPANY. THERE WERE 3 OTHER PARTNERS IN THE SAID F IRM. DUE TO 3 CERTAIN DIFFERENCE OF OPINION, THE ASSESSEE DECIDED TO RETIRE FROM THE PARTNERSHIP. AS PER THE TERMS OF AGREEMENT, HE RET IRED FROM THE SAID PARTNERSHIP FIRM FROM 09-05-2008. HE WAS PAID RS.7 .25 CRORES AS AN OVERALL SETTLEMENT OF HIS RIGHTS INCLUDING THE RIGH TS TO CAPITAL ACCOUNT BALANCES, UNDISTRIBUTED SHARE OF PROFITS, IF ANY, A ND GOODWILL AS PER CLAUSE (12) OF THE RETIREMENT DEED. THE AO FURTHER NOTED THAT, ON THE DATE OF RETIREMENT, ASSESSEE HAD CREDIT BALANCE IN THE FIRM TO THE TUNE OF RS.1.22 CRORES. THUS, THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.6.03 CRORES OVER AND ABOVE THE CAPITAL BALANCES ON THE DATE OF RETIREMENT. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY AN AMOUNT OF RS.6.03 CRORES SHOULD NOT BE HELD AS TAXABLE IN THE HANDS OF THE ASSESSEE. 2.3 REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND DISTINGUISHING THE VARIOUS DECISIONS THE AO HELD TH AT THE INCOME OF RS.6.03 CRORES IS REQUIRED TO BE TAXED UNDER THE HE AD CAPITAL GAINS. FOR THIS PROPOSITION, THE AO RELIED ON THE FOLLOWIN G DECISIONS : 1. GANGADHAR BAIJNATH VS. CIT REPORTED IN 60 ITR 626 (ALL) 2. BHARANI PICTURES VS. CIT REPORTED IN 43 ITR 474 ( MAD.) 3. CIT VS. TRIBHUVANDAS PATEL REPORTED IN 115 ITR 95 (BOM.) 4. CIT VS. H.R. ASLOT REPORTED IN 115 ITR 255 (BOM.) 5. N.A. MODY VS. CIT REPORTED IN 162 ITR 420(BOM.) 6. CIT VS. GRACE COLLIS REPORTED IN 248 ITR 323 (SC) 7. ARATHI SHENOY VS. JCIT REPORTED IN 75 ITD 100 (IT AT-SB- BANGALORE) 8. SHEVANTIBHAI MEHTA REPORTED IN 83 TTJ 542 (ITAT -PUNE) 9. SUDHAKAR SHETTY VS. ACIT REPORTED IN 139 TTJ 687 (ITAT- MUMBAI) 3. IN APPEAL THE LD.CIT(A) RELYING ON VARIOUS DECIS IONS HELD THAT AMOUNT RECEIVED BY THE RETIRING PARTNER IS NOT TAXA BLE BEING A CAPITAL RECEIPT. WHILE DOING SO, THE LD.CIT(A) RELIED ON V ARIOUS DECISIONS 4 INCLUDING THE DECISION OF THE PUNE BENCH OF THE TRI BUNAL IN THE CASE OF RIYAZ A. SHAIKH VS. ITO VIDE ITA NO.352/PN/2006 ORDER DATED 29-10-2010 FOR A.Y. 2002-03 AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRASHANT M. JOSHI REPORTED IN 324 ITR 154. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.6.03 CRORESS HOLDING THAT THE AMOUNT RECEIVED BY THE ASSESS EE ON RETIREMENT FROM FIRM IS NOT TAXABLE BEING A CAPITAL RECEIPT. 2. THE LD.CIT(A) ERRED IN FAILING TO CONSIDER THE HO NBLE ITAT, PUNES DECISION IN THE CASE OF SHEVANTIBAI MEHTA REPOR TED IN 83 TTJ 542 RELIED IN THE ORDER U/S.143(3) OF I.T. ACT, 1961 WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED BY THE PARTNER ON RET IREMENT FROM FIRM BY EXTINGUISHING HIS RIGHTS IN THE FIRM IN FAVOUR OF THE CONTINUING PARTNERS, IS CHARGEABLE TO CAPITAL GAINS TA X. 5. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET F ILED A COPY OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. MR. RIYAZ A. SHAIKH VIDE ITA NO.1969/2011 ORDER DAT ED 26-02- 2013. REFERRING TO THE SAID DECISION HE SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT AMOUNT RECEIVED ON RETIREM ENT BY A PARTNER IS NOT SUBJECT TO CAPITAL GAIN TAX. ACCORDINGLY, T HE ORDER OF THE TRIBUNAL WAS UPHELD AND THE APPEAL FILED BY THE REV ENUE HAS BEEN DISMISSED. HE ACCORDINGLY SUBMITTED THAT THIS BEIN G A COVERED MATTER BY THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT THE GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICE R. 5 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE TO BE ADJUDICATED IN THE IMPUGNED APPEAL IS AS TO WHET HER THE AMOUNT RECEIVED BY THE PARTNER ON RETIREMENT FROM A FIRM I S TAXABLE OR NOT TAXABLE BEING A CAPITAL RECEIPT. WE FIND IN THE IN STANT CASE THE ASSESSEE RECEIVED AN AMOUNT OF RS.6.03 CRORES OVER AND ABOVE HIS CREDIT BALANCES IN THE FIRM WHICH IT CLAIMED TO BE A CAPITAL RECEIPT AND NOT LIABLE TO BE TAXED. WE FIND THE LD.CIT(A) FOLLOWING VARIOUS DECISIONS HAS UPHELD THE CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 7.1 WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE T HE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MR. RIYAZ A. S HAIKH VIDE ITA NO.352/PN/2006 ORDER DATED 29-10-2010 FOR A.Y. 2002 -03 WHEREIN IT WAS HELD BY THE TRIBUNAL THAT AMOUNT RECEIVED ON RETIREMENT IS NOT EXIGIBLE TO CAPITAL GAIN TAX U/S.45 OF THE I.T. ACT . WE FIND ON FURTHER APPEAL BY THE REVENUE THE HONBLE HIGH COURT DISMIS SED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER : 1. IN THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YE AR 2002 - 03, THOUGH THREE QUESTIONS OF LAW ARE RAISED, AT THE T IME OF HEARING, COUNSEL FOR THE REVENUE PRESSES ONLY ONE QUESTION, WHICH READS AS UNDER :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS CORRECT IN REVERSING THE DECISIO N OF CIT(A) AND DELETING THE ADDITION OF RS.66,20,005/- MADE BY THE ASSESSING OFFICER TOWARDS LONG TERM CAPITAL GAIN ON TRANSFER OF GOODWIL L ? 2. WE FIND THAT BY THE IMPUGNED ORDER, THE TRIBUNA L WHILE HOLDING THAT AMOUNTS RECEIVED BY A PARTNER ON HIS RET IREMENT FROM PARTNERSHIP FIRM ARE EXEMPT FROM CAPITAL GAINS TAX RE LIED UPON THE 6 DECISION OF THIS COURT IN THE MATTER OF PRASHANT S. JO SHI V/S. INCOME TAX OFFICER & ANR. REPORTED IN [2010] 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 R ECEIVED ON RETIREMENT WOULD NOT BE APPLICABLE TO THE PRESENT CA SE. THE ONLY SUBMISSION ON BEHALF OF THE REVENUE IS THAT THERE WAS A N 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 RENDERED IN THE MATTER OF PRASHANT S. JOHSI (SUPRA). 3. IN THE IMPUGNED ORDER, THE TRIBUNAL DOES REFER T O 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 CI T 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 236 ITR 515. THIS COURT IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) HAS ALSO REFERRED TO THE DECISION OF TRIBUVANDA S G. PATEL (SUPRA) RENDERED BY THIS COURT AND ITS REVERSAL BY THE APEX COURT. MOREOVER, THE DECISION OF THIS COURT IN THE CASE OF PR ASHANT S. JOSHI (SUPRA) PLACED RELIANCE UPON THE DECISION OF THE SUPR EME COURT IN THE 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 GAI NS TAX. IN THE ABOVE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PROPOSED QUESTION OF LAW. 4. ACCORDINGLY, THE APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. 7.2 RESPECTFULLY FOLLOWING THE DECISION OF THE JURI SDICTIONAL HIGH COURT CITED (SUPRA), WE FIND NO INFIRMITY IN THE OR DER OF THE CIT(A) HOLDING THAT THE AMOUNT RECEIVED ON RETIREMENT BY A PARTNER IS NOT SUBJECT TO CAPITAL GAIN TAX. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.2362/PN/2012 (SHRI ATUL NEMICHAND BHALGAT) : 8. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.6.03 CRORESS HOLDING THAT THE AMOUNT RECEIVED BY THE ASSESS EE ON RETIREMENT FROM FIRM IS NOT TAXABLE BEING A CAPITAL RECEIPT. 2. THE LD.CIT(A) ERRED IN FAILING TO CONSIDER THE HO NBLE ITAT, PUNES DECISION IN THE CASE OF SHEVANTIBAI MEHTA REPOR TED IN 83 TTJ 542 RELIED IN THE ORDER U/S.143(3) OF I.T. ACT, 1961 WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED BY THE PARTNER ON RET IREMENT FROM 7 FIRM BY EXTINGUISHING HIS RIGHTS IN THE FIRM IN FAVOUR OF THE CONTINUING PARTNERS, IS CHARGEABLE TO CAPITAL GAINS TA X. 8.1 AFTER HEARING BOTH THE SIDES, WE FIND THE GROUN DS RAISED BY THE REVENUE ARE IDENTICAL TO GROUNDS OF APPEAL IN ITA NO.2361/PN/2012. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE REVENUE HAVE BEEN DISMISSED. FOLLOWING THE SAME RATIO, THE GROUNDS RAISED BY THE REVENUE ARE D ISMISSED. 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10-03-2014. SD/- SD/- (R.S.PADVEKAR ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED 10 TH MARCH , 2014 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE