Ashwin Jain, Hyd, Hyderabad V. ITO, Ward-6(3), Hyd, Hyderabad

ITA 31/HYD/2016

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98519 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: LAXMINIVAS SHARMA
• Keywords: Capital asset; Cost of acquisition; Fair market value; Capital receipt
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.31/HYD/2016 ASSESSMENT YEAR 2008-2009 MR. ASHWIN JAIN, HYDERABAD 34. PAN ADTPJ4485C VS. THE INCOME TAX OFFICER, WARD 6(3), HYDERABAD NOW ITO, WARD-14(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. LAXMINIVAS SHARMA FOR REVENUE : MR. A. SITARAMA RAO DATE OF HEARING : 30.08.2016 DATE OF PRONOUNCEMENT : 14.09.2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2008-09. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN SUSTAINING THE ADDITION OF RS.5,79,990 TOWARDS GOODWILL RECEIVED AT THE TIME OF RETIREMENT FROM THE PARTNERSHIP FIRM. ACCOR DING TO THE LEARNED COUNSEL FOR THE ASSESSEE, IT DOES NOT COME INTO THE PURVIEW OF THE CAPITAL GAIN, AS IT IS A CAPITAL RECEIPT , AND THERE IS NO TRANSFER OF ANY ASSET AS CONTEMPLATED BY THE EXPRESSI ON TRANSFER AS DEFINED IN SECTION 2(47) OF THE I.T. ACT, 1961. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, FILED HIS RETURN OF INCOME FOR THE RELEVA NT ASSESSMENT YEAR ON 19.11.2008 DECLARING INCOME OF RS.3,62,183. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE AC T, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS RETIRE D FROM THE 2 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. FIRM, SERINITY WORK SPACE, AND AT THE TIME OF RETIREMEN T, THE ASSESSEE HAS RECEIVED GOODWILL OF RS.5,79,990. HE O BSERVED THAT WHERE THE OUTGOING PARTNERS OF A FIRM SURRENDERED THEIR RIGHTS IN THE FIRM IN CONSIDERATION OF THE AMOUNT PAID TO THEM BY THE FIRM, THERE IS A TRANSFER OF A CAPITAL ASSET AND THE RESULTANT C APITAL GAIN IS LIABLE TO TAX AS CAPITAL GAIN IN THE HANDS OF EACH PARTNER. FURTHER, HE ALSO OBSERVED THAT IN THE CASE OF THE ASSESS EE THE SUM OF RS.5,79,990 IS PAID IN LIEU OF SHARE OF GOOD WILL ON RETIREMENT OF THE PARTNER AND THEREFORE, ACCORDING TO HIM , IT AMOUNTS TO TRANSFER AND IS LIABLE TO CAPITAL GAINS TAX S INCE HIS RIGHT IN THE FIRM IS A CAPITAL ASSET AND EXTINGUISHMEN T OF SUCH A RIGHT IN THE FIRM IS A TRANSFER. ACCORDINGLY, HE BRO UGHT IT TO TAX AS SHORT TERM CAPITAL GAIN UNDER SECTION 45 OF THE I. T. ACT, 1961. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE ASSESSING OFFIC ER AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BY TH E ASSESSEE BEFORE THE AUTHORITIES BELOW, HAS DRAWN OUR ATTENTION TO VARIOUS DECISIONS OF COORDINATE BENCHES OF THIS TRIBUNAL, WHE REIN UNDER SIMILAR CIRCUMSTANCES IT HAS BEEN HELD THAT THE GOODWILL RECEIVED ON RETIREMENT FROM A PARTNERSHIP FIRM IS NOT CHARGEAB LE TO TAX, AS IT IS A CAPITAL RECEIPT. 5. THE LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE COORDINATE BENCH OF THIS 3 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. TRIBUNAL AT KOLKATA IN THE CASE OF AJAY K. DOSHI IN ITA.NO.1866/KOL/2012 FOR THE A.Y. 2003-2004, VIDE OR DERS DATED 11 TH DECEMBER, 2015, HAS CONSIDERED THE ISSUE AT LENGTH A ND TAKING INTO CONSIDERATION OF DECISIONS OF VARIOUS HIG H COURTS ON THE ISSUE, HAS HELD AS UNDER : 8. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD RETIRED FROM THE PARTNERSHIP FIRM OF M/S. S.R. BATL IBOI & CO. UPON HIS RETIREMENT, HE WAS PAID, INTER AL IA, A SUM OF RS.22,56,250/- IN LIEU OF THE GOODWILL FROM THE SAID FIRM AND THE SAME WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE FROM TAX BEING IN THE NATURE OF CAPITAL RE CEIPT. THE CLAIM MADE BY THE ASSESSEE IN THIS REGARD WAS THAT THE SAID AMOUNT COULD NOT BE TAXED EVEN AS CAP ITAL GAINS SINCE THERE WAS NO TRANSFER OF GOODWILL . THI S CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND THE SUM OF RS.22,56,250/- RECEIVED BY THE ASSESSEE AS HIS SHARE OF GOODWILL F ROM M/S. S.R. BATLIBOI & COMPANY ON HIS RETIREMENT WAS BROUGHT TO TAX BY THE ASSESSING OFFICER IN THE HAND S OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES FOR THE FOLLOWING REASONS GIVEN IN PARAGRA PH NO. 5.1 OF THE ASSESSMENT ORDER :- 5.1. THE FIRM CREATED GOODWILL AND APPORTIONED THE SAME AMONGST THE PARTNERS AND CREDITED THE VALUE OF THE GOODWILL TO THE ACCOUNTS OF THE PARTNERS ACCORDING TO THE PROFIT SHARING RATIO. ON CREATION OF THE GOODWILL , I T DOES NOT IPSO FACTO BECOME ANY INCOME IN THE HANDS OF THE FIRM BUT THE VALUE OF THE GOODWILL DEPENDS ON THE REPUTATION AND THE QUANTUM OF INCOME GENERATED/EARNED IN THE POST. THEREFORE, WHEN I T IS PAID TO THE PARTNER ON RETIREMENT, THE PARTNER'S SHARE IN THE PROFIT AND LOSS RATIO ASSUMES THE CHARACTER OF DISTRIBUTION OF THE FIRM' S ACCUMULATE D INCOME IN THE FORM OF GOODWILL WHICH WAS NOT TAXED IN THE FIRM'S HANDS. THE MONEY RECEIVED FROM THE FIRM BY A PARTNER ON ACCOUNT OF HIS CAPITAL IS A CAPITAL RECEIPT BECAUSE WHAT IS RECEIVED BY THE PARTNER IS HIS OWN CAPITAL WHICH 4 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. WAS EITHER CONTRIBUTED BY HIM OR WAS OUT OF ACCUMULATION OF PROFIT SUBJECTED TO TAX. BUT WHEN IT IS RECEIVED ON ACCOUNT OF GOODWILL, IT IS NOT HI S CAPITAL CONTRIBUTION OR OUT OF INCOME ACCUMULATION SUBJECTED TO TAX IN FIRM'S HANDS . AS HE RECEIVES ANY MONEY IN LIEU OF GOODWILL, THE SAID MONEY BECOMES HIS INCOME AS HE GETS IT BY VIRTUE OF HIS BEING A PARTNER AND IN EXERCISE OF HIS PROFESSION. MOREOVER, ANY INCOME HAS TO BE TAXED EITHER IN THE HANDS OF THE EARNER OR RECEIVER OF INCOME IN BENEFICIAL CAPACITY. THEREFORE, I DO NOT AGREE WITH ASSESSEE'S CONTENTION THAT HIS SHARE IN GOODWILL RECEIVED ON RETIREMENT IS A CAPITAL RECEIPT, RATHER IT IS CASUAL RECEIPT IN THE NATURE OF INCOME WHICH WAS NOT TAXED IN THE HANDS OF FIRM. MOREOVER, THIS RECEIPT IS NOT LIABLE TO BE TAXED UNDER ANY OF THE HEADS FROM A TO E OF SECTION 14 OF THE ACT . IN VIEW OF THE OPENING SENTENCE OF SECT ION 56 OF THE ACT , SUCH RECEIPT OF INCOME IS LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES. ACCORDINGLY, I TREAT THE ASSESSEES SHARE OF GOODWILL OF RS .22,56,250/- AS INCOME FROM OTHER SOURCES AND INCLUDE THE SAME IN ASSESSEE S TOTAL INCOME. 9. ON APPEAL , THE LD. CIT(APPEALS) CONFIRMED THE SAID ADDITION MADE BY THE ASSESSING OFFICER AFTER RECORD ING THE FOLLOWING OBSERVATIONS IN PARAGRAPH NO. 6 OF HI S IMPUGNED ORDER :- 6.1. I HAVE CONSIDERED THE A.O.'S FINDINGS AS WELL AS SUBMISSIONS MADE BY APPELLANT CAREFULLY INCLUDING NUMBER OF CASE LAWS CITED IN WRITTEN SUBMISSION. GOODWILL THOUGH NOT DEFINED IN THE I.T. ACT, 1961 (THE ACT) I T IS A CAPITAL AS SET FOR THE PURPOSE OF COMPUTING CAPITAL GAIN AS IS CLEAR FROM SECTION 55(2)(A) OF THE ACT WHICH PROVIDES FOR COST OF ACQUISITION OF GOODWILL TRADE MARK ETC. FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. IN PRESENT CASE IT IS AN ADMITTED FACT THAT T HE TERMS OF PARTNERSHIP OF M/S.S.R. BATLIBOI & CO. (THE FIRM) THERE IS A PROVISION SINCE INCEPTION THAT GOODWILL, IF ANY, OF THE FIRM SHALL ALWAYS BELONG T O 5 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. THE FIRM AND THAT NONE OF THE PARTNERSHIP WOULD HAVE ANY RIGHT , T I T LE OR INTEREST IN GOODWILL O F THE FIRM OF WHATSOEVER NATURE. INSPITE OF THIS TERM, DURING THE YEAR UNDER APPEAL FIRM CREATED GOODWILL AS AN ASSET IN ITS BOOKS BY DEBITING TO GOODWILL ACCOUNT AND CREDITING TO THE ACCOUNT S OF THE THEN PARTNERS IN THEIR PROFIT SHARING RATIO. ACCORDINGLY IN PREVIOUS YEAR ENDED ON 31-03-2003 THE FIRM CREDITED RS.22,56,250/- TO THE ACCOUNTS OF THE APPELLANT ON ACCOUNT OF GOODWILL APART FROM OTHER CREDITS ON ACCOUNT OF INTEREST ON CAPITAL AND SHARE OF PROFIT. OUT OF TOTAL CREDIT APPELLANT WITHDRAW RS.2,41,71,614/- OVERDRAWING BY RS.7,32,237/-. THUS THE CREDIT IN APPELLANT 'S ACCOUNT IS FOR GOODWILL RS.22,56,250/- OF THE FIRM WHICH IS CLEARL Y LIABLE TO BE TAXED AS CAPITAL GAIN. HERE, AN ISSUE MAY BE RAISED THAT THE GOODWILL SO CREATED BY FIRM IN ITS BOOKS WILL BE/ CAN BE SOLD BY FIRM ONLY AS T HE APPELLANT HAS NOT SOLD GOODWILL TO ANYONE. BUT THE FIRM ON SALE OF GOODWILL AT A FUTURE DATE WILL CLAI M DEDUCT ION AGAINST SALE CONSIDERATION AS COST OF ACQUISITION THE TOTAL AMOUNT CREDITED TO ALL THE PARTNERS AS GOODWILL DURING THE YEAR UNDER REFERENCE AND CAN AVOID PAYMENT OF CAPITAL GAIN TAX SUBSTANTIALLY, IN TERMS OF SECT ION 55(2)(A)(I) OF THE ACT. SEC.10(2A) OF THE ACT INVOKED BY THE APPELLANT CANNOT HELP HIM AS SAID SECT ION DEALS WITH SHARE O F A PARTNER IN THE TOTAL INCOME OF THE FIRM AND NOT SHARE OF GOODWILL OF THE FIRM. IN APPELLANT'S CASE HE IS BEING CREDITED HIS SHARE IN GOODWILL WHICH CREDI T GOES IN CREATION OF GOODWILL IN THE FIRM'S ASSETS. IN SUCH CASE PROVISIONS OF SECTION 55(2)(A)(I) WHICH PROVIDES THAT IN CASES WHERE THERE IS NO PURCHASE OF GOODWILL COST OF ACQUISITION WILL BE CONSIDERED AS 'NIL' AS APPELLANT HAS NOT PURCHASED GOODWILL WHIC H IS COVERED BY SUB-CLAUSE (I) OF CLAUSE (A) OF SECTI ON 55(2). IN VIEW OF ABOVE NO INTERVENTION IS CALLED FOR IN A.O.'S ACTION EXCEPT THAT IN PLACE OF INCOME FROM OTHER SOURCE IT IS TO BE TAXED AS LONG TERM CAPITAL GAIN AS THE AMOUNT IS FOR GOODWILL RECEIVED BY THE APPELLANT FROM THE FIRM . 6 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. 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 BOTH THE SIDES, THIS ISSUE INVOLVED IN GROUND NO. 2 OF T HE ASSESSEES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISIONS OF THE COORDINATE BENCHES O F THIS TRIBUNAL . IN ONE SUCH DECISION RENDERED IN TH E CASE OF SHRI AMITABH SINGH (ITA NO. 1996/DEL/2006), HONBLE DELHI BENCH OF THIS TRIBUNAL DECIDED THE SI MILAR ISSUE IN FAVOUR OF THE ASSESSEE IN THE IDENTICAL FA CTS 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 WHICH THE COST OF GOODWILL HAS TO BE TAKEN AS NIL IF IT HAS NOT BEEN PURCHASED FROM A PREVIOUS OWNER. SUCH IS THE CASE HERE NONETHELESS, THIS COST IS FOR THE PURPOSE OF SECT IONS 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 GAINS TAX U/S 45, WHICH IS THE CHARGING SECT ION. THE LD. DR WAS NOT ABLE TO EXPLAIN HOW PROVISIONS OF SECTION 45 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 GOOD WILL OVER A PERIOD OF TIME, WHICH WAS BROUGHT INTO THE BOOKS AND DISTRIBUTED AMONGST EXISTING PARTNERS BEFORE THE NEW PARTNERS WERE TAKEN IN AND SOME EXISTING PARTNERS RETIRED. THE ASSET OF THE FIRM ALREADY EXISTED AND IT WAS QUANTIFIED AND CREDITED TO THE ACCOUNTS OF EXISTING PARTNERS. SIMILARLY, WHEN THE ASSESSEE RETIRED FROM THE FIRM, HE DID NOT TRANSFER ANY GOODWILL TO 7 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. THE FIRM AS HE DID NOT HAVE ANY INDIVIDUAL GOODWILL. THE GOODWILL BELONGED TO THE FIRM AND CONTINUED TO REMAIN WITH THE FIRM. AS CLARIFIED BY THE LD. COUNSEL, NOTHING WAS CHARGED FROM THE INCOMING PARTNERS BY WAY OF GOODWILL AND, THUS, THERE IS NO QUESTION OF EVEN INDIRECT REALIZATION O F 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 GET S AT THE TIME OF RETIREMENT IS NOTHING BUT HIS OWN SHARE IN THE AS SETS OF THE FIRM. IN SUCH A SCENARIO, THERE CANNOT BE ANY TRANSFER OF AN ASSET AND SUCH HAS BEEN THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MOHANBHAI PAMABHAI AND TRIBHUVANDAS G. PATEL (SUPRA). THE FACT IS THAT A PROVISION CORRESPONDING TO SUB-SECT ION (3) REGARDING LEVY OF CAPITAL GAIN TAX WHEN A PARTNER BRINGS IN A CAPITAL AS SET TO TH E FIRM DOES NOT EXIST ON THE STATUTE BOOK IN CASE OF RETIREMENT OF THE PARTNER AND, THUS, GENERAL PROVISIONS OF LAW, NAMELY. THAT WHAT HE TAKES IS HIS SHARE IN THE ASSET S OF THE FIRM CONTINUES 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 LESS THAN THE FAIR MARKET VALUE, THEN, THE FIRM BECOMES LIABLE TO PAY CAPITAL GAINS TAX. SUCH IS NOT THE CASE HERE, AS 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 KOLKATA ALSO HAD A OCCASION TO CONSIDER THE SIMILAR ISSUE IN THE CASE OF NAWSHIR H. MIRZA, WHEREIN THE CASE OF THE ASSESS EE FOR EXEMPTION ON ACCOUNT OF SHARE OF GOODWILL RECEI VED ON RETIREMENT WAS HELD TO BE CAPITAL RECEIPT NOT CHARGEABLE TO TAX BY THE TRIBUNAL FOR THE FOL LOWIN G REASONS GIVEN IN ITS ORDER DATED 11.01.2008 PASSED IN ITA NO.1252/KOL/2007:- 9. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS AND ARE OF THE VIEW THAT THE 8 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. ORDER OF THE LD. CIT(A) NEEDS TO BE UPHELD AND DOES NOT CAL L FOR ANY INTERFERENCE. IN THE INSTANT CASE, IT IS NOT DISPUTED THAT THE SAID FIRMS WERE HAVING SELF GENERATED GOODWILL WHICH WAS VALUED BY THEM DURING THE PRESENT ASSESSMENT YEAR THERE HAS BEEN NO TRANSFER OF SUCH GOODWILL BY THE SAID FIRMS. THE FIRMS STILL OWN AND HOLD SUCH GOODWILL AND THE ASSESSEE WHO HAS RETIRED HAS NO INTEREST OF ANY NATURE WHATSOEVER THEREIN. THE REVENUE'S CASE IS PRIMARILY BASED ON VIEW THAT MONEY RECEIVED. IN LIEU OF GOODWILL FROM THE FIRM BY THE PARTNER IS CASUAL RECEIPT IN THE NATURE OF INCOME WHICH IS NOT TAXABLE IN THE HANDS OF THE FIRM. WHAT THE PARTNERS GOT AT THE TIME OF THE RETIREMENT INCLUDING THE AMOUNT CREDITED FOR THE GOODWILL OF THE FIRMS IS A CAPITAL RECEIPT IN THEIR HANDS . THE PARTNERS DID NOT OWN THE GOODWILL NOR DID THEY TRANSFER THE SAME. THE GOODWILL ALL ALONG REMAINED WITH THE FIRM AS ITS ASSET EVEN AFTER THE RETIREMENT OF THE PARTNERS. WHAT THE PARTNERS GOT ON RETIREMENT WAS FOR THE VALUE OF THEIR INTEREST I N THE FIRM. THIS VIEW IS DULY SUPPORTED BY VARIOUS DECISION CITED BY THE LD. AUTHORISED REPRESENTATIVE INCLUDING THE DECISION OF APEX COURT IN THE CASE OF SUNIL SIDDHARTHHBHAI VS. CIT (SUPRA) . 9.1. IN THE INSTANT CASE, THE FIRMS HAVE NOT REALIZED ANY AMOUNT ON ACCOUNT OF GOODWILL HENCE THE QUESTION OF ANY ASSESSMENT BEING MADE IN THEIR HANDS DOES NOT ARISE. THE NOTIONAL VALUATION OF THE GOODWILL IN ITS ACCOUNTS BY THE FIRM DOES NO T RESULT IN ANY TRANSFER WHICH CAN ATTRACT CAPITAL GAINS AS HAS ALSO BEEN CLARIFIED BY THE BOARD IN ITS CIRCULAR NO.495 DATED SEPTEMBER 27, 1987. EVEN THE AMENDMENT MADE IN SECT ION 55(2) OF THE ACT IS OF NO HELP TO THE CASE OF THE DEPARTMENT IN VIEW OF THE CLARIFICATION MADE BY THE BOARD. WE FAIL TO APPRECIATE HOW THE AMOUNT COULD BE ASSESSED IN THE HANDS OF THE PARTNERS AND THAT TOO UNDER THE HEAD ' INCOME FROM OTHER SOURCES. GOODWILL IS AN INTANGIBLE ASSET AND TRANSFER/ 9 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. SURRENDER OF WHICH WOULD AT TRACT SECT ION 45 SO THAT THE VALUE RECEIVED WOULD BE A CAPITAL RECEIPT AND ASSESSABLE IF AT ALL ONLY UNDER ITEM 'E' OF SECTION 14. IT CANNOT BE TREATED AS A CASUAL RECEIPT AND BE SUBJECTED TO TAX UNDER SECTION 56. THE ARGUMENT THAT EVEN IF THE INCOME CANNOT BE CHARGEABLE U/S. 45, BECAUSE OF THE INAPPLICABILITY OF THE COMPUTATION PROVIDED U/S. 48, IT COULD STILL IMPOSE TAX UNDER THE RESIDUARY HEAD IS THUS UNACCEPTABLE. IF THE INCOME CANNOT BE TAXED U/S. 45, IT CANNOT BE TAXED AT AL L AS HAS BEEN HELD IN THE CASE OF S.G. MERCANTILE CORPORATION (P) LTD. VS. CIT [1972] 83 ITR 700 (SC) . 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 (SUPRA) DECIDED BY THE COORDINATE BENCHES OF THIS TRIBUNAL, WE RESPECTFULLY FOLLOW THE DECISION RENDE RED IN THE SAID CASES TO HOLD THAT THE AMOUNT IN QUESTI ON RECEIVED BY THE ASSESSEE AS HIS SHARE OF GOODWILL O N RETIREMENT FROM THE FIRM IS NOT CHARGEABLE TO TAX B EING 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 ALLOWED . 6.1. SIMILAR ISSUE WAS ALSO DECIDED BY THE COORDINA TE BENCH OF THIS TRIBUNAL AT HYDERABAD IN ITA.NO.1200/H YD/2010 IN THE CASE OF ACIT, CIRCLE-16(2), HYDERABAD VS. MR. N. PRASAD, EXECUTIVE CHAIRMAN, SECUNDERABAD IN ITA.NO.1200/HYD/ 2010 DATED 27.01.2014 TO WHICH ONE OF US I.E., ACCOUNTANT M EMBER IS A SIGNATORY, WHEREIN IT WAS HELD AS UNDER : 17. HOWEVER, IT APPEARS THE DECISION OF INCOME-T AX APPELLATE TRIBUNAL, HYDERABAD BENCH IN CASE OF DOOR DANA KHATOON VS. ITO (SUPRA) WAS NOT PLACED BEFORE THE B ENCH. THAT BESIDES THE AFORESAID DECISION OF INCOME-TAX A PPELLATE TRIBUNAL IN CASE OF SMT. GIRIJA REDDY WAS PRIOR TO THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N CASE OF CHALASANI VENKATESWARA RAO VS. ITO (SUPRA). THAT AP ART, A 10 ITA.NO.31/HYD/2015 MR. ASHWIN JAIN, HYDERABAD. READING OF CLAUSE 4 OF THE DEED OF RETIREMENT MAKES IT CLEAR THAT THE AMOUNT OF RS.1.25 CORES WAS PAID TO THE AS SESSEE TOWARDS HIS SHARE CAPITAL AND NOT FOR RELINQUISHING OR EXTINGUISHING HIS RIGHTS OVER ANY ASSETS OF THE FIR M. THE TERM GOODWILL, IN OUR VIEW HAS BEEN LOOSELY USED IN TH E AFORESAID CLAUSE. FURTHERMORE, A PLAIN READING OF THE CLAUSE 4 WILL NOT IN ANY MANNER INDICATE THAT PAYMENT OF RS.25 LAKHS WAS TOWARDS TRANSFER OF GOODWILL AS SUGGESTED BY THE AS SESSING OFFICER. THEREFORE, CONSIDERING TOTALITY OF FACTS A ND THE CIRCUMSTANCES OF THE CASE AND APPLYING THE RATIO LA ID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CHALASANI VENKATESARA RAO (SUPRA), WHICH IS BINDING ON US, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE CIT (A) NEEDS TO BE UPHELD. ACCORDINGLY, WE DISMISS THE GROUNDS R AISED BY THE DEPARTMENT. 6.2. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COOR DINATE BENCH ON SIMILAR ISSUE, WE ALLOW THE ASSESSEES APP EAL AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION ON ACCOUNT OF WHICH THE IMPUGNED SUM BEING A CAPITAL RECEIPT. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.09.2016 SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 14 TH SEPTEMBER, 2016 VBP/- COPY TO 1. MR. ASHWIN JAIN, H.NO.8-2-268/S/91/A-2, SAGAR CO-OP SOCIETY, ROAD NO.2, BANJARA HILLS, HYDERABAD 34. 2. THE INCOME TAX OFFICER, WARD 6(3), NOW ITO, WARD - 14(2), HYDERABAD. 3. CIT(A)-VI, HYDERABAD. 4. PR. CIT-6, HYDERABAD. 4. D.R. ITAT A BENCH, HYDERABAD 5. GUARD FILE