ACIT 21(2), MUMBAI V. R F NANGRANI (HUF), MUMBAI

ITA 5588/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8308 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K ATRI
• Keywords: Capital asset; Question of law
• Section: 143(3); 54F; 54

Judgement Text

, , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI , .. , ! ' # BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER . / ITA NOS.6124/MUM/2012 $ $ $ $ / ASSESSMENT YEAR: 2009-10 R.F. NANGRANI HUF, 503, SHARDA CHAMBERS, NEW MARINE LINES, MUMBAI-400020 VS. DCIT, CIRCLE-21(2), C-10/508, PRATYAKSHKAR BHAVAN, BANDRA(E), MUMBAI-400051 ( %& / ASSESSEE) ( ' / REVENUE) P.A. NUMBER : AAEHR3401E . / ITA NO.5588/MUM/2012 $ $ $ $ / ASSESSMENT YEAR: 2009-10 DCIT, CIRCLE-21(2), C-10/508, PRATYAKSHKAR BHAVAN, BANDRA(E), MUMBAI-400051 VS. R.F. NANGRANI HUF, 503, SHARDA CHAMBERS, NEW MARINE LINES, MUMBAI-400020 ( ' / REVENUE) ( %& / ASSESSEE ) P.A. NUMBER : AAEHR3401E ( %& ( (( ( ) ) ) ) / ASSESSEE BY SHRI RAKESH JOSHI ' ( (( ( ) ) ) ) /REVENUE BY : SHRI A.K.ATRI, CIT-DR ( &*! / DATE OF HEARING : 10/12/2014 +,$ ( &*! / DATE OF PRONOUNCEMENT : 10/12/2014 2 R.F. NANGRANI (HUF) ' - ' - ' - ' - / O R D E R PER JOGINDER SINGH (JM) : THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS AP PEALS AGAINST THE IMPUGNED ORDER DATED 11/06/2012 OF THE LD. FIRST APPELLATE AUTHORITY. THE ASSESSEE IS AGGRIEVED IN CONFIRMING THE AMOUNT OF RS.14,15,61,370/-, RECEIVED FROM PART NERSHIP FIRM (M/S LANDMARK DEVELOPMENTS), ON RETIREMENT, AS PER MUTUAL AGREEMENT, AS CAPITAL GAINS CHARGEABLE TO TA X. 2. DURING HEARING OF THIS APPEAL, SHRI RAKESH JOSHI , LD. COUNSEL FOR THE ASSESSEE CHALLENGED THE VIEW OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HOLDING THAT T HE PROFIT FROM SURRENDER OF RIGHTS IS LIABLE TO BE ASSESSED A S LONG TERMS CAPITAL GAINS U/S 45(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER THE ACT). THE LD. COUNSEL OUT RIGHTLY CANVASSED T HAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE PU NE BENCH OF THE TRIBUNAL IN THE CASE OF MR. RIYAZ A. SHEKH VS I TO (ITA NO. 352/PN/2006) ORDER DATED 29/10/2010 AND ALSO FROM H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS RIY AZ A. SHEKH (2014) 41 TAXMAN.COM 455 (BOM), PRASHANT S. JOSHI V S ITO (324 ITR 154)(BOM.) AND ANOTHER DECISION FROM THE M UMBAI BENCH OF THE TRIBUNAL IN ITO VS A.R. ASHAR & ORS. ( ITA NO.5256/MUM/2009) ORDER DATED 11/02/2011. ON THE O THER HAND, THE LD. CIT-DR, SHRI A.K. ATRI, STRONGLY DEFE NDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONT ENDING THAT THE CASE OF N.A. MODY VS CIT (1986) 162 ITR 420 IS SQUARELY 3 R.F. NANGRANI (HUF) APPLICABLE TO THE FACTS OF THIS CASE. THE IMPUGNED ORDER WAS DEFENDED. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY (HUF) DECLARED INCOME OF RS.24,46,236/- IN ITS RETURN FILED ON 29/07/2009. THE ASSESSEE WAS A PARTNER IN THE FIRM NAMELY LANDMARK DEVELOPME NT SINCE 16/09/1993. THE ASSESSEE RETIRED FROM THE FIRM WIT H EFFECT FROM 14/08/2008, AS PER RETIREMENT DEED, DATED 14/0 8/2008. AS PER THE DEED, IT WAS MUTUALLY AGREED BETWEEN THE RETIRING PARTNERS AND CONTINUING PARTNERS TO PAY A SUM OF RS .15 CRORE TO THE ASSESSEE. WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT, AN ADDITION AS LONG TERMS CAPITAL GAIN, IN RESPECT OF THE AFORESAID AMOUNT, WAS MADE BY THE ASSESSING OFFICER . THE STAND OF THE ASSESSEE RIGHT FROM ASSESSMENT STAGE I S THAT THERE IS NO TRANSFER OF CAPITAL ASSET AND HENCE NO CAPITA L GAIN ARISES, CHARGEABLE TO TAX. HOWEVER, THE LD. ASSESSING OFFI CER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE THE ADDITION AS LONG TERM CAPITAL GAIN. 2.2. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) IDENTICAL PLEA WAS RAISED BY THE ASSESSEE . HOWEVER, THE LD. FIRST APPELLATE AUTHORITY PLACED RELIANCE U PON THE DECISION OF THE MUMBAI BENCH IN SUDHAKAR SHETTY (20 11) 130 ITD 197 (MUM.) AND ANOTHER DECISION IN N.A. MODY VS CIT (1986) 162 ITR 420 DECIDED AGAINST THE ASSESSEE CON FIRMING THE 4 R.F. NANGRANI (HUF) STAND TAKEN IN THE ASSESSMENT ORDER. THE AGGRIEVED ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, MAKING THE ADDITION AS LONG TERM CAPITAL GAIN, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD AND TH E ASSERTION MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXT APOSITION AND ANALYZED, THE ISSUE BEFORE US IS ABOUT TAXABILITY O F AMOUNT RECEIVED BY THE ASSESSEE ON RETIREMENT FROM THE PAR TNERSHIP FIRM. WE NOTE THAT THE PUNE BENCH OF THE TRIBUNAL, ON IDENTICAL FACT IN THE CASE OF RIYAZ A. SHEKH (SUPRA) HAS DEAL T WITH THE ISSUE AFTER CONSIDERING THE CASES RELIED BEFORE US AND DECIDED IN FAVOUR OF THE ASSESSEE. IT IS PERTINENT TO MENTION HERE THAT THIS DECISION OF PUNE BENCH WAS AFFIRMED BY HONBLE JURI SDICTIONAL HIGH COURT. THUS, FOR READY REFERENCE, WE ARE REPR ODUCING HEREUNDER THE RELEVANT PORTION FROM THE ORDER DATED 29 TH OCTOBER 2010 OF THE PUNE BENCH: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. A S NOTED EARLIER, THE SHORT POINT INVOLVED IN THIS APP EAL RELATES TO TAXABILITY OF AMOUNT RECEIVED BY THE ASSESSEE ON RETIREMENT FROM PARTNERSHIP FIRM. THE HONBLE SUPREME COURT IN THE CASE OF MOHANBHAI PAMABHAI (SUPRA) FOLLOWING ITS JUDGMENT IN THE CASE OF SUNIL SIDDHARTHBHAI VS CIT 156 ITR 509 (SC) HELD TH AT WHEN A PARTNER RETIRED FROM THE FIRM AND RECEIVED H IS 5 R.F. NANGRANI (HUF) SHARE OF AN AMOUNT CALCULATED ON THE VALUE OF THE N ET PARTNERSHIP ASSETS INCLUDING GOODWILL OF THE FIRM, THERE IS NO TRANSFER OF THE PARTNER IN THE GOODWILL, AND NO PART OF THE AMOUNT RECEIVED IS ASSESSABLE AS CAPITA L GAIN U/S 45 OF THE ACT. THE JUDGMENT OF THE HONBL E GUJARAT HIGH COURT ITR 801 (SC), THE SUPREME COURT HELD, WHILE AFFIRMING THE PRINCIPLE LAID DOWN IN TH E CASE OF MOHANBHAI PAMABHAI (SUPRA) THAT WHEN A PARTNER RETIRES FROM THE PARTNERSHIP FIRM AND THE AMOUNT OF HIS SHARE IN NET PARTNERSHIP ASSETS AFTER DEDUCTION OF LIABILITIES IS DETERMINED, THERE IS NO ELEMENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSETS BY THE RETIRED PARTNER TO THE CONTINUING PAR TNERS AND THE AMOUNT RECEIVED BY THE RETIRING PARTNER IS NO CAPITA GAIN UNDER SECTION 45 OF THE ACT. FURTHER , THE LEARNED COUNSEL FOR THE APPELLANT HAS CORRECTLY POINTED OUT THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TRIBHUVANDAS G. PATEL (SUPRA) FOLLOW ED IN THE CASE OF N.A. MODY (SUPRA) HAS BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE CASE OF TRIBHUVANDAS G. PATEL REPORTED 236 ITR 515(SC) ON THIS ASPECT OF THE MATTER. IN FACT, THE HONBLE BO MBAY HIGH COURT IN A RECENT DECISION IN THE CASE OF PRAS HANT S. JOSHI (SUPRA) HAS NOTED THE AFORESAID LEGAL POSI TION. IN THIS CIRCUMSTANCES THE RELIANCE PLACED BY THE AUTHORITIES BELOW ON THE JUDGMENT OF THE HONBLE 6 R.F. NANGRANI (HUF) BOMBAY HIGH COURT IN THE CASE OF N.A. MODY (SUPRA) TO DECIDE THE CONTROVERSY AGAINST THE ASSESSEE, CANNOT BE UPHELD. INFACT, THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRASHANT S. JOSHI (SUPRA) HAS ALSO NOTED THE OMISSION OF SECTION 47(I I) OF THE ACT AND INSERTION OF SECTION 45(4) OF THE ACT WITH EFFECT FROM 01.04.1988. CONSIDERING THE ENTIRETY O F THE LEGAL POSITION, IT HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT THAT AMOUNTS RECEIVED BY THE PARTNER ON HIS RETIREMENT, ARE EXEMPT FROM CAPITAL GAINS TAX. IN THIS VIEW OF THE MATTER, WE FIND IT APPROPRIATE TO ALLOW THE CLAIM OF THE ASSESSEE AND ACCORDINGLY THE ORDER OF THE CIT(A) IS SET ASIDE. THE ASSESSING OFFICER IS DIRE CTED TO DELETE THE IMPUGNED ADDITION. THUS, IN GROUND N OS. 2 & 3, ASSESSEE SUCCEEDS AS ABOVE. 2.4. IT IS NOT WORTHY THAT AGAINST THE AFORESAID OR DER THE DEPARTMENT PREFERRED APPEAL BEFORE THE HONBLE JURI SDICTIONAL HIGH COURT, WHEREIN VIDE ORDER DATED 26/02/2013 IN THE CASE OF VERY SAME ASSESSEE (2014) 41 TAXMAN.COM 455 (BOM.), THE HONBLE HIGH COURT HELD AS UNDER: 2. WE FIND THAT BY THE IMPUGNED ORDER, THE TRIBUNAL WHILE HOLDING THAT AMOUNTS RECEIVED BY A PARTNER ON HIS RETIREMENT FROM PARTNERSHIP FIRM ARE EXEMPT FROM CA PITAL GAINS TAX RELIED UPON THE DECISION OF THIS COURT IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) V/S. INCOME TAX 7 R.F. NANGRANI (HUF) OFFICER [2010] 324 ITR 154/189 TAXMAN 1 (BOM). COUNSEL FOR THE REVENUE IS UNABLE TO POINT OUT AS T O HOW THE DECISION IN THE MATTER OF PRASHANT S. JOSHI (SU PRA) INTER ALIA HOLDING THAT NO CAPITAL GAINS ARE PAYABL E BY AN ERSTWHILE PARTNER ON AMOUNTS RECEIVED ON RETIREMENT WOULD NOT BE APPLICABLE TO THE PRESENT CASE. THE ON LY SUBMISSION ON BEHALF OF THE REVENUE IS THAT THERE W AS AN EARLIER DECISION OF THIS COURT IN THE MATTER OF N.A . MODY V/S. CIT [1986] 162 ITR 420/24 TAXMAN 219 (BOM.) AN D 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 TO THE DECISION OF THIS COURT IN THE MATTER OF N.A. MO DY (SUPRA) AND STATES THAT IT FOLLOWS THE DECISION OF THIS COURT IN THE MATTER OF CIT V/S. TRIBHUVANDAS G. PAT EL (1978) 115 ITR 95 (BOM.) AND THE SAME HAS BEEN REVERSED BY THE APEX COURT IN TRIBHUVANDAS G. PATEL V/S. CIT (1999) 236 ITR 515. THIS COURT IN THE MATT ER OF PRASHANT S. JOSHI (SUPRA) HAS ALSO REFERRED TO THE DECISION OF TRIBUVANDAS G. PATEL (SUPRA) RENDERED B Y THIS COURT AND ITS REVERSAL BY THE APEX COURT. MOREOVER, THE DECISION OF THIS COURT IN THE CASE OF PRASHANT S. J OSHI (SUPRA). PLACED RELIANCE UPON THE DECISION OF THE S UPREME COURT IN THE CASE OF CIT V/S R. LINGAMALLU RAJKUMA R (2001) 247 ITR 801/(2002) 124 TAXMAN 127 WHEREIN IT 8 R.F. NANGRANI (HUF) HAS BEEN HELD THAT AMOUNTS RECEIVED ON RETIREMENT B Y A PARTNER IS NOT SUBJECT TO CAPITAL GAINS TAX. IN TH E ABOVE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PROPOSED QUESTION OF LAW. 2.5. IN THE LIGHT OF THE ABOVE, MORE SPECIFICALLY, WHEN THE ISSUE HAS BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. THE HON BLE APEX COURT, AS DISCUSSED BY THE HONBLE JURISDICTIONAL H IGH COURT IN THE AFORESAID CASE ALSO, IN CIT VS R. LINGAMALLU RA JKUMAR (2001) 247 ITR 801 HELD THAT AMOUNTS RECEIVED ON RE TIREMENT BY A PARTNER IS NOT SUBJECT TO CAPITAL GAINS TAX. OUR VIEW IS ALSO FORTIFIED BY THE DECISION BY THE COORDINATE BE NCH IN ACIT VS SHRI N. PRASAD, EXECUTIVE CHAIRMAN, SECUNDERABAD (ITA NO.1200/HYD/2010) ORDER DATED 27/01/2014. 2.6. HOWEVER, THE HONBLE KARNATAKA HIGH COURT IN C IT VS DYNAMIC ENTERPRISES, WHILE INTERPRETING SECTION 45( 4) OF THE ACT HELD THAT IN CASE OF DISTRIBUTION OF CAPITAL ASSET ON THE DISSOLUTION OF THE FIRM, THERE IS A TRANSFER OF CAP ITAL ASSET BY THE FIRM IN FAVOUR OF A PERSON RESULTING PROFIT ARE GAI NS SHALL BE CHARGEABLE TO TAX AS INCOME OF THE FIRM. HOWEVER, IN VIEW OF THIS DECISION FROM HONBLE APEX COURT, WE ARE OF TH E VIEW THAT IN CASE OF RETIREMENT OF A PARTNER, THE AMOUNT SO RECE IVED, CANNOT BE BROUGHT TO TAX. OUR VIEW IS FURTHER FORTIFIED B Y THE DECISION 9 R.F. NANGRANI (HUF) FROM CHALASANI VENKATESWARA RAO VS ITO (25 TAXMAN.C OM 378)(AP). THE DIVISION BENCH OF HONBLE ANDHRA PRAD ESH HIGH COURT IN L. RAGHU KUMAR FOLLOWED THE DECISION OF TH E HONBLE GUJARAT HIGH COURT IN CIT VS. MOHAN BHAI PAMA BHAI (1973) 91 ITR 393 (GUJ.) AND HELD THAT NO TRANSFER IS INVOLVE D WHEN A RETIRING PARTNER RECEIVES AT THE TIME OF RETIREMENT FROM THE FIRM, HIS SHARE IN THE PARTNERSHIP ASSET EITHER IN CASH O R ANY OTHER ASSET. THE RATIO LAID DOWN IN P.H. PATEL (171 ITR 128) WHEREIN IT WAS HELD THAT WHEN A PARTNER RETIRES FROM A PARTNER SHIP TAKING HIS SHARE OF PARTNERSHIP INTEREST, THERE IS NO ELEM ENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSET BY THE RETIRIN G PARTNER. THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND TH E CIRCUMSTANCES BY APPLYING THE RATIO LAID DOWN BY HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RIYAZ A. S HEKH, WHICH IS BINDING ON US, WE REVERSE THE ORDER OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS). THUS, APPEAL OF THE ASSESSES IS ALLOWED. 2.7. SO FAR AS, THE APPEAL OF THE REVENUE (ITA NO. 5588/MUM/2012) IS CONCERNED, DIRECTING THE ASSESSIN G OFFICER TO GIVE PROPORTIONATE DEDUCTION U/S 54F OF THE ACT IN RESPECT OF AMOUNT OF RS.4,87,13,222/-, INVESTED IN CONSTRUCTIO N OF HOUSE UP TO 31/03/2011 AGAINST THE LONG TERM CAPITAL GAIN OF RS.14,15,61,371/- IS CONCERNED, THERE IS UNCONTROVE RTED FINDING IN THE IMPUGNED ORDER THAT ALL THE PAYMENTS TO THE CONTRACTORS WERE BY CHEQUE ONLY, THUS AS PER THE PROVISIONS OF SECTION 54(2) OF THE ACT, THE ASSESSEE WAS TO INVEST THE CAPITAL GAINS AS PER 10 R.F. NANGRANI (HUF) THE PROVISION OF THE ACT, WE FIND NO INFIRMITY IN G RANTING DEDUCTION U/S 54 TO THE EXTENT MENTION IN THE ORDER THUS WE FIND NO SUBSTANCE IN THE APPEAL OF THE REVENUE. HO WEVER SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE, THUS TH E APPEAL OF THE REVENUE HAS REMAINED FOR ACADEMIC INTEREST ONLY . THE ASSESSING OFFICER MAY PROCEED IN THE LIGHT OF OUR D ECISION IN THE APPEAL OF THE ASSESSEE (ITA NO.6124/MUM/2012). FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISPOSED OF IN TERMS INDICATED HEREI NABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF HEARING ON 10/12/2014 . SD/- SD/- B.R. BASKARAN JOGINDER SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED -10/12/2014 F{X~{T? P.S/. . . ' - ' - ' - ' - ( (( ( .&/ .&/ .&/ .&/ 0 /$& 0 /$& 0 /$& 0 /$& / COPY OF THE ORDER FORWARDED TO : 1. 12 / THE APPELLANT 2. .312 / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. /5 .& , , / DR, ITAT, MUMBAI 6. 56 7 / GUARD FILE. ' - ' - ' - ' - / BY ORDER, 3/& .& //TRUE COPY// 8 88 8 / 9 9 9 9 ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI