WADIA GHANDY & CO., MUMBAI V. ACIT CIR. 16(3), MUMBAI

ITA 5328/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5735 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 30-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K. PRAHDAN, ACCOUNTANT MEMBER ITA NO. 5328 / MUM . /201 6 ( ASSESSMENT YEAR : 2012 13 ) WADIA GHANDY & CO. N.M. WADIA BUILDING 123, M.G. ROAD, FORT MUMBAI 400 001 PAN AAAFW1081H . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 16(3) , MUMBAI . RESPONDENT ITA NO. 6183 /MUM. /2016 ( ASSESSMENT YEAR : 2012 13 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 16(3) , MUMBAI . APPELLANT V/S WADIA GHANDY & CO. N.M. WADIA BUILDING 123, M.G. ROAD, FORT MUMBAI 400 001 PAN AAAFW1081H . RESPONDENT REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH ASSESSEE BY : SHRI MILLIN DATTANI A/W SHRI PARTH DESAI DATE OF HEARING 17.10.2018 DATE OF ORDER 07.08.2019 2 WADIA GHANDY & CO. O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED CROSS APPEALS ARISE OUT OF ORDER DATED 5 TH JULY 2016, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 7, MUMBAI, FOR THE ASSESSMENT YEAR 2012 13. ITA NO.5328/MUM./2016 ASSESSEES APPEAL 2 . THE ONLY GROUND RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF ` 4,83,690, ON ACCOUNT OF DEPRECIATION OF TENANCY RIGHTS. 3 . BRIEF FACTS ARE, THE ASSESSEE IS A PARTNERSHIP FIRM OF ADVOCATES, SOLICITORS AND NOTARY. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER 2012, DECLARING TOTAL INCOME OF ` 27,38,79,640. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF ` 4,83,690, ON TENANCY RIGHTS BY TREATING IT AS AN INTANGIBLE ASSET. WHEN CALLED UPON TO JUSTIFY THE CLAIM, THE ASSESSEE FURNISHED A WRITTEN SUBMISSION STATING THAT TENANCY RIGHT IS A INTANGIBLE A SSET ELIGIBLE FOR DEPRECIATION. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT ASSESSEES CLAIM CONSIDERING THE FACT THAT IN ASSESSEES OWN CASE, THE TRIBUNAL HAS HELD THAT TENANCY RIGHT IS NOT A 3 WADIA GHANDY & CO. DEPRECIABLE ASSET. ACCORDINGLY, HE DISALLOWED ASSESSEES CLAI M OF DEPRECIATION. 4 . L EARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5 . SHRI HIRO RAI, THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THE ISSUE HAS BEEN CONSISTENTLY DECIDED AGAINST THE ASSESSEE BY TH E TRIBUNAL IN THE EARLIER ASSESSMENT YEAR S . IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE LATEST ORDER OF THE TRIBUNAL PASSED FOR THE ASSESSMENT YEAR 2011 12 IN ITA NO.2835/MUM./2016, DATED 1 ST MARCH 2018. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UP ON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN FROM RECORD, THE DISPUTE RELATING TO ASS ESSEES CLAIM OF DEPRECIATION ON TENANCY RIGHT IS A RECURRING ISSUE FROM THE EARLIER ASSESSMENT YEARS . W HILE DECIDING THE ISSUE IN EARLIER ASSESSMENT YEARS, THE TRIBUNAL HAS CONSISTEN TLY HELD THAT THE TENANCY RIGHT IS NOT AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECATION UNDER SECTION 32 OF THE ACT. IN FACT, I N THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 2011 12 CITED SUPRA, THE TRIBU NAL, FOLLOWING ITS EARLIER VIEW HAS 4 WADIA GHANDY & CO. DISALLOWED ASSESSEES CLAIM OF DEPRECIATION ON TENANCY RIGHTS. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIB UNAL IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR S , WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. GROUNDS RAISED ARE DISMISSED. 8 . IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ITA NO. 6183 /MUM./201 6 REVENUES APPEAL 9 . THE EFFECTIVE GROUNDS RAISED BY THE REVENUE ARE ON THE COMMON ISSUE OF DELETION OF DISALLOWANCE OF PAYMENTS MADE TO THE LEGAL HEIRS OF THE DECEASED PARTNERS AMOUNTING TO ` 1,57,32,275. 10 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICING THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF AN AMOUNT OF ` 1,57,32,275, TOWARDS PAYMENT MADE TO LEGAL HEIRS OF DECEASED PARTNERS CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE DEDUCTION CLAIMED SHOULD NOT BE DISALLOWED. IN RESPONSE, IT WAS SUBMITT ED THAT AS PER THE TERMS OF THE PARTNERSHIP DEED, ASSESSEE HAS TO PAY 5% OF THE NET PROFIT TO THE RETIRED PARTNERS OR THE LEGAL HEIRS OF THE DECEASED PARTNERS ON ACCOUNT OF GOODWILL OF THE PARTNERS. IT WAS SUBMITTED , SINCE THE PAYMENT MADE WAS FOR THE PURP OSE OF BUSINESS IT HAS TO BE ALLOWED AS EXPENDITURE. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED THE DEDUCTION 5 WADIA GHANDY & CO. CLAIMED. THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE A UTHORITY. 11 . L EARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF THE FACTS AND MATERIAL ON RECORD, FOUND THAT IN ASSESSEES OWN CASE, THE FIRST APPELLATE AUTHORITY HAS DECIDED THE ISSUE IN ITS FAVOUR WHILE DISPO SING OF THE APPEAL FOR THE ASSESSMENT YEAR 2011 12. FOLLOWING THE SAID DECISION, HE ALLOWED ASSESSEES CLAIM. 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER. 13 . THE LEARNED COUNSEL FOR THE ASSESSEE REL IED UPON THE DECISION OF THE FIRST APPELLATE AUTHORITY AND REITERATING THE SUBMISSIONS MADE BEFORE HIM SUBMITTED , THE ASSESSEE IS A SOLICITOR FIRM AND WAS INITIALLY CONSTITUTED BY THREE PARTNERS WHO WERE EMINENT LAWYERS. HE SUBMITTED , ALL THE THREE PARTNER S HAD CREATED HUGE GOODWILL WHICH WAS DEFINITELY EXPLOITED BY THE FIRM. HE SUBMITTED , FOR USE OF GOODWILL, THE FIRM WAS REQUIRED TO PAY 5% OF THE NET PROFIT TO THE CONCERNED PARTNERS OR THEIR LEGAL HEIRS, AS PROVIDED IN THE PARTNERSHIP DEED. HE SUBMITTED , SUCH PAYMENT MADE BY THE FIRM FOR USE OF GOODWILL IS AN ALLOWABLE EXPENDITURE. FURTHER, HE SUBMITTED , SINCE THE PARTNERSHIP DEED SPECIFICALLY PROVIDED FOR PAYMENT TO LEGAL HEIRS OF THE DECEASED 6 WADIA GHANDY & CO. PARTN ERS, A CHARGE IS CREATED TO THAT EXTENT AND THE INCOME TO THE EXTENT OF GOODWILL FALLING TO THE SHARE OF LEGAL HEIRS OF DECEASED PARTNERS IS DIVERTED AT SOURCE BY OVERRIDING TITLE, HENCE, DOES NOT FORM PART OF THE INCOME OF THE ASSESSEE. IN SUPPORT OF SUCH SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON A NUMBER OF JUDICIAL PRECEDENTS. WITHOUT PREJUDICE, HE SUBMITTED , THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS AND THERE BEING NO CHANGE IN FACTS, THE DECISIONS OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S WOULD SQUARELY APPLY. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE LATEST ORDER OF THE TRIBUNAL PASSED FOR THE ASSESSMENT YEAR 2011 12 IN ITA NO.3400/ MUM./2016, DATED 1 ST MARCH 2018. 14 . WE HAVE CONSIDERED RIVAL SUBMISSION S AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT , THE ALLOWABILITY OF PAYMENT MADE TO THE LEGAL HEIRS OF DECEASED PARTNERS TOWARDS SHARE IN GOODWILL IS A RECURRING ISSUE BETWEEN THE PARTIES CONTINUING FROM THE PRECEDING ASSESSMENT YEARS. THOUGH , THE ASS ESSING OFFICER IN THE PRECEDING ASSESSMENT YEAR S HAS MADE SIMILAR DISALLOWANCE, HOWEVER, WHEN THE ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL, IT WAS HELD THAT THE PAYMENT MADE TO THE LEGAL HEIRS OF THE DECEASED PARTNERS IS ALLOWABLE AS DEDUCTION. IN THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 2011 12 CITED SUPRA, THE TRIBUNAL FOLLOWING ITS EARLIER ORDERS HAS UPHELD THE 7 WADIA GHANDY & CO. DECISION OF LEARNED COMMISSIONER (APPEALS) IN ALLOWING ASSESSEES CLAIM OF DEDUCTION. FACTS BEING IDENTICAL , RESPECTFULLY FOLLO WING THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED TO ABOVE, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. GROUNDS RAISED ARE DISMISSED. 15 . IN THE RESULT, REVENUE S APPEAL IS DISMISSED. 16 . TO SUM UP, BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 07.08.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 0 7 .08.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI