ACIT RG 16(2), MUMBAI V. LAXMI M AIYER, MUMBAI

ITA 5894/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48977 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 05-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: A T JAIN
• Keywords: Capital asset; Capital receipt
• Section: 15

Judgement Text

1 ITA NO.5892 - 5895/M/2009 MRS. LAKSHMI M. AIYAR IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI R.S. SYAL, (AM) AND SHRI V. DURGA RAO, (JM) ITA NO.5892/MUM/2009 (A.Y. ): 2001-02 ITA NO.5893/MUM/2009 (A.Y. ): 2002-03 ITA NO.5894/MUM/2009 (A.Y. ): 2003-04 ITA NO.5895/MUM/2009 (A .Y. ): 2004-05 DY. COMMISSIONER OF INCOME TAX CIRCLE-16(2), MATRU MANDIR TARDEO ROAD MUMBAI-400 007. VS. MRS. LAKSHMI M. AIYAR L-1, BREACH CANDY APTS. BHULABHAI DESAI ROAD MUMBAI-400 026. P.A. NO.AABPM 7143 B APPELLANT RESPONDENT APPELLANT BY SHRI SHRAVAN KUMAR RESPONDENT BY SHRI A.T. JAIN ORDER PER BENCH. THESE APPEALS RAISED BY THE REVENUE ARE DIRECTED AG AINST A COMMON ORDER DATED 17.8.2009, PASSED BY THE CIT(A) FOR TH E ASSESSMENT YEARS 2001-02, 2002-03, 2003-04 AND 2004-05. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THE SAME WERE HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE CONVENIENCE. 2. A COMMON GROUND RAISED IN ALL THESE APPEALS , WHICH READS AS UNDER:- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) IS CORRECT IN TREATING THE AMOUNT RECEIVED B Y ASSESSEE AS CAPITAL RECEIPT INSTEAD OF REVENUE RECEIPT SINCE IT IS NOT DERIVED BY THE ASSESSEE FROM ANY PARTICIPATION IN BUSINESS ACTIVIT Y OF THE FIRM 2 ITA NO.5892 - 5895/M/2009 MRS. LAKSHMI M. AIYAR 2. AT THE TIME OF HEARING BEFORE US, THE LEARNED RE PRESENTATIVES OF BOTH THE PARTIES AGREED THAT THE ISSUE INVOLVED IN ALL T HE ABOVE APPEALS IS SIMILAR TO THE CASE DECIDED BY THE ITAT IN ASSESSEES OWN C ASE FOR AY 2005-06, THEREFORE, THE DECISION OF THE ITAT IN THE SAID CAS E MAY BE FOLLOWED IN THESE APPEALS ALSO. 3. WE HAVE HEARD THE HEARD THE LEARNED REPRESENTATI VES OF THE PARTIES AND PERUSED THE RECORD. THE ITAT IN ITA NO. 2436/M UM/09 FOR AY 2005-06 IN ASESSSEES OWN CASE OBSERVED AS UNDER:- 7. WE HAVE HEARD BOTH THE RIVAL PARTIES AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ONLY ISSUE INVOLVED IN TH IS APPEAL IS WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE, AFTER THE DEAT H OF HER HUSBAND FROM THE FIRM M/S. K.S. AIYER & CO., IN WHICH HE WA S A PARTNER, IS A CAPITAL OR REVENUE RECEIPT. ACCORDING TO THE ASSES SEE THE AMOUNT RECEIVED IS IN THE NATURE OF CAPITAL RECEIPT BECAUS E SHE HAS RECEIVED THESE PAYMENTS UN-RELATING TO ANY BUSINESS OR LOSS OF PROFITS AND FURTHER IT WAS NOT A RECOMPENSE FOR SERVICE, PAST O R FUTURE. FURTHER, THE ASSESSEE HAS RELIED ON THE DECISION OF MRS. JAYA BH ASKARAN (SUPRA). ACCORDING TO THE ASSESSING OFFICER THE PAYMENT RECE IVED BY THE ASSESSEE IS REVENUE IN NATURE BECAUSE ACCORDING TO THE PARTNERSHIP DEED CLAUSE 9(1)(B), PAYMENT UNDER THIS CLAUSE SHA LL BE FOR FULL AND FINAL SETTLEMENT OF SHRI MANI ARJUN AIYER INCLUDIN G THE USER OF HIS SHARE OF GOODWILL, TENANCY RIGHTS, CAPITAL ASSETS A ND ALL HIS OTHER CLAIMS IN THE FIRM IN RESPECT OF HIS PAST CONNECTIO N WITH THE FIRM. THE LEARNED CIT(A) CONSIDERED THE ENTIRE FACTUAL MATRIX OF THE CASE OF MRS. JAYA BHASKARAN (SUPRA) AND P.H. DIVECHA SUPRA AND H ELD THAT THE DECISION IN THE CASE OF MRS. JAYA BHASKARAN SQUAREL Y APPLIES TO ASSESSEE'S CASE AND AS SUCH THE PAYMENT RECEIVED BY THE ASSESSEE COULD NOT BE CHARGED TO TAX. UNDER SIMILAR CIRCUMS TANCES WHEN SOME OTHER PARTNER OF THE FIRM DIED AND THE COMPENSATION WAS PAID BY THE FIRM, THE REVENUE SOUGHT TO TAX THE SAME. THE HONB LE PATNA HIGH COURT IN THAT CASE OF CIT VS. MRS. JAYA BHASKARAN (SUPRA) UPHELD THE TRIBUNAL ORDER BY HOLDING THAT THE RECEIPT WAS NOT TAXABLE I N THE HANDS OF THE WIDOW OF THE DECEASED. IN HOLDING SO, RELIANCE WAS ALSO PLACED ON THE DECISION IN THE CASE OF P.H. DIVECHA VS. CIT (SUPRA ) WHEREIN THE HONBLE SUPREME COURT. IN THE SAID CASE OF MRS. JAYA BHASKA RAN, THE TRIBUNAL WHILE DECIDING THE ISSUE FOLLOWING THE CASE OF P.H. DIVECHA (SUPRA) HAS NOTED THAT THE HONBLE SUPREME COURT OBSERVED THAT IN DETERMINING WHETHER THIS PAYMENT AMOUNTS TO A RETURN FOR LOSS O F A CAPITAL ASSET OR IS INCOME, PROFITS OR GAINS LIABLE TO INCOME-TAX, O NE MUST HAVE REGARD TO THE NATURE AND QUALITY OF THE PAYMENT. IF THE PAYM ENT WAS NOT RECEIVED TO COMPENSATE FOR A LOSS OF PROFITS OF BUS INESS, THE RECEIPT IN THE HANDS OF THE APPELLANT CANNOT PROPERLY BE DESCR IBED AS INCOME, PROFITS OR GAINS AS COMMONLY UNDERSTOOD. TO CONSTI TUTE INCOME, PROFITS 3 ITA NO.5892 - 5895/M/2009 MRS. LAKSHMI M. AIYAR OR GAINS, THERE MUST BE A SOURCE FROM WHICH THE PAR TICULAR RECEIPT HAS ARISEN, AND A CONNECTION MUST EXIST BETWEEN THE QUA LITY OF THE RECEIPT AND THE SOURCE. IF THE PAYMENT IS BY ANOTHER PERSO N, IT MUST BE FOUND OUT WHY THAT PAYMENT HAS BEEN MADE. IT IS NOT THE MOTIVE OF THE PERSON WHO PAYS THAT IS RELEVANT. MORE RELEVANCE A TTACHES TO THE NATURE OF THE RECEIPT IN THE HANDS OF THE PERSON WH O RECEIVES IT THOUGH IN TRYING TO FIND OUT THE QUALITY OF THE RECEIPT ON E MAY HAVE TO EXAMINE THE MOTIVE OUT OF WHICH THE PAYMENT WAS MADE.THE PERIODICITY OF THE PAYMENT DOES NOT MAKE THE PAYMENT A RECURRING I NCOME BECAUSE PERIODICITY MAY BE THE RESULT OF CONVENIENCE AND NO T NECESSARILY THE RESULT OF THE ESTABLISHMENT OF A SOURCE EXPECTED TO BE PRODUCTIVE OVER A CERTAIN PERIOD. 8. IN THE INSTANT CASE IT IS QUITE MANIFES T FROM THE FACTS OF THE CASE THAT THE PAYMENT MADE TO THE ASSESSEE DID NOT RELATE TO ANY BUSINESS DONE BY HER FOR THE FIRM. IN THE LIKE MANN ER IT WAS NOT TO COMPENSATE THE ASSESSEE FOR ANY LOSS OF PROFITS SUF FERED BY HER BECAUSE OF THE FIRM. IT WAS ALSO NOT A COMPENSATIO N FOR ANY SERVICES RENDERED BY HER EITHER IN PRESENT OR IN FUTURE. TH E ASSESSEE WAS NEITHER THE PRINCIPAL HOLDER OF THE PARTNERSHIP FIR M NOR HAD INVESTED ANY CAPITAL NOR HAD RENDERED ANY SERVICE TO THE FIR M. AT THE SAME TIME, IT IS PALPABLE THAT IT WAS HER DECEASED HUSBAND, WH O WAS PARTNER IN THE FIRM, ON WHOSE DEATH, THE FIRM PAID THE SAID AM OUNT TO THE ASSESSEE. IT IS FURTHER IMPORTANT TO BEAR IN MIND T HAT IT WAS NOT A ONE- TIME PAYMENT. RATHER IT CONTINUED TO BE PAID BY THE FIRM TO THE ASSESSEE OVER THE PERIOD AS PER THE TERMS OF THE PA RTNERSHIP DEED. AS THE PAYMENT WAS TOWARDS THE RECOGNITION OF THE VALU ED SERVICES RENDERED BY THE PARTNER DURING HIS LIFE TIME AND IT WAS A SORT OF RELIEF TO THE DISTRESSED FAMILY, AND THAT TOO AS PER THE T ERMS OF THE PARTNERSHIP DEED, IT COULD NOT BE SAID TO HAVE A R EVENUE CHARACTER IN HER HANDS. THEREFORE, IN OUR CONSIDERED OPINION THE PAYMENT RECEIVED BY THE ASSESSEE DID NOT BEAR THE RECEIPT IN THE NAT URE OF REVENUE INCOME. IT CANNOT BE TAXED IN THE HANDS OF THE ASS ESSEE. THE PRINCIPLE LAID DOWN BY THE DECISION IN CIT VS. MRS. JAYA BHAS KARAN(SUPRA) FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF P.H. DIVECHA (SUPRA), SQUARELY APPLIES TO THE ASSESSEE'S CASE. THE ANALOGY CAN BE DRAWN FROM THE CIRCULAR NO.573,F.NO.200/115/ 90-IT(A-I) DATED 21.8.1990, AS PER WHICH A LUMP SUM EX-GRATIA PAYMEN T MADE TO THE WIDOW OR OTHER LEGAL HEIRS OF AN EMPLOYEE, WHO DIES WHILE STILL IN ACTIVE SERVICE, IS NOT TAXABLE AS INCOME UNDER THE INCOME TAX ACT, 1961. THE VERY SPIRIT OF THE CIRCULAR, THAT WHEN ANY PAYMENT IS MADE TO THE LEGAL HEIR TO SUPPORT THEM IN HARDSHIP AND ENSURE LIVELIH OOD, IT CANNOT BE TAXED, COINCIDES WITH THE RATIO OF THE AFORENOTED JUDGMENT IN THE CASE OF P.H. DIVECHA (SUPRA). IN THE CASE OF PADMARAJE R S. KADAMBANDE VS. CIT, [1992] 195 ITR 877, THE HONBLE SUPREME COURT HELD AS UNDER:- IN SUCH OF THOSE CASES FALLING UNDER CL. (D) OF TH E PROVISO TO S. 15(1) OF THE 1955 ACT, NO STATUTORY RIGHT IS CREATED. THIS I S UNLIKE THOSE CASES FALLING UNDER CLS. (I), (II) AND (III) OF SUB-S. (1 ) OF S. 15. THE FACT THAT THE ASSESSEE HAS APPLIED FOR A GRANT FOR MAINTENANCE NO R AGAIN, THE 4 ITA NO.5892 - 5895/M/2009 MRS. LAKSHMI M. AIYAR PERIODICITY OF PAYMENT, WOULD BE CONCLUSIVE. NEITHE R THE NOMENCLATURE NOR THE PERIODICITY OF THE PAYMENT WOULD BE DETERMI NATIVE FACTORS. REGARD MUST BE HAD ONLY TO THE NATURE AND QUALITY O F THE PAYMENT. THE MARGINAL HEADING OF S. 15 IS 'COMPENSATION'. THE FA CT THAT, UNDER CLS. (I), (II) AND (III) OF S. 15(1), THE COMPENSATION I S PAID AS OF RIGHT AND IN CASES FALLING UNDER CL. (D) OF THE PROVISO, IT IS A DISCRETIONARY PAYMENT, WOULD NOT STAMP THE PAYMENT WITH THE CHARACTER OF R EVENUE. THE PAYMENT MADE BY THE GOVERNMENT IS UNDOUBTEDLY VOLUN TARY. HOWEVER, IT HAS NO ORIGIN IN WHAT MIGHT BE CALLED A REAL SOU RCE OF INCOME. NO DOUBT S. 15(1), PROVISO, CL. (D) ENABLES THE APPLIC ANT TO SEEK PAYMENT BUT THAT IS FAR FROM SAYING THAT IT IS A SOURCE. TH EREFORE, IT CANNOT AFFORD ANY FOUNDATION FOR SUCH A SOURCE. FURTHER, I T IS A COMPASSIONATE PAYMENT FOR SUCH LENGTH OF PERIOD AS THE GOVERNMENT MAY, IN ITS DISCRETION, ORDER. HENCE, THE AMOUNTS RECEIVED BY T HE ASSESSEE DURING THE FINANCIAL YEARS IN QUESTION HAVE TO BE REGARDED AS CAPITAL RECEIPTS AND, THEREFORE, ARE NOT INCOME WITHIN THE MEANING O F S. 2(24). 10. IN VIEW OF THE ABOVE JUDGMENTS OF THE H ONBLE SUPREME COURT AND ALSO THE JUDGMENT OF THE HONBLE PATNA HIGH COU RT IN THE CASE OF JAYA BHASKARAN (SUPRA), TAKING INTO CONSIDERATION O F THE FACTS OF THE PRESENT CASE, WE UPHOLD THE ORDER OF CIT(A) IN HOLD ING THAT THE AMOUNT IN QUESTION RECEIVED BY ASSESSEE CANNOT BE CHARGED TO TAX AS THE SAME ARE IN CAPITAL RECEIPT. 3. SINCE IN THE YEARS UNDER CONSIDERATION, THE ISSU E IS MATERIALLY IDENTICAL TO THAT OF AY 2005-06, WE RESPECTFULLY FO LLOW THE DECISION OF ITAT IN THAT YEAR AND IN THE LIGHT OF THAT WE CONFIRM TH E ORDER OF THE CIT(A) IN TREATING THE AMOUNT RECEIVED BY ASSESSEE AS CAPITAL RECEIPT. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN ALL THE YEARS UNDE R CONSIDERATION ARE DISMISSED. 4. IN THE RESULT, ALL THE APPEALS ARE DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011 SD/- SD/- ( R. S. SYAL) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 27 TH MAY, 2011. 5 ITA NO.5892 - 5895/M/2009 MRS. LAKSHMI M. AIYAR COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-CONCERNED. 4 CIT, CONCERNED. 5.DR,A BENCH,MUMBAI. 6.MASTER FILE. KV (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATIO N 1. DRAFT DICTATED ON 3.5.2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 3.5.2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER