BAHRAM N. VAKIL, MUMBAI V. ASST CIT 16(2), MUMBAI

ITA 6332/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2403 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 15-07-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 16-10-2012
• Court: TRIBUNAL
• Department Lawyers: MURLI
• Assessee Lawyers: JEHANGIR D J MISTRI
• Keywords: Reopening of assessment; Tangible material
• Section: 143(3); 148

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R.C . SHARMA, A M AND SHRI RAM LAL NEGI , JM ./ I.T.A. NO. 6332/MUM/2012 ( / ASSESSMENT YEAR: 2002 - 03 ) MR. BAHRAM N. VAKIL NEPTUNE COURT, NEPEAN SEA ROAD, M UM BAI - 400 006 . / VS. ASSST. COMMISSIONER OF INCOME TAX - 16(2), 2 ND FLOOR, MATRU MANDIR, TARDEO, MUMBAI - 400 007 . ./ ./ PAN/GIR NO. AABPV 1253D ( / APPELLANT ) : ( / RESPONDENT ) / APPELLA NT BY : SHRI JEHANGIR D. J. MISTRI / RESPONDENT BY : SHRI MURLI / DATE OF HEARING : 22 /07 /2016 / DATE OF PRONOUNCEMENT : 22/07/2016 / O R D E R PER R.C. SHARMA , A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DI RECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , MU MB AI (CIT(A) FOR SHORT) DATED 03.07 . 2014 FOR THE ASSESSMENT YEAR (A.Y.) 2011 - 12 , IN THE MATTER OF ORDER PASSED U/S 143(3) R.W.S. 147 OF THE I.T. ACT,1961. 2. IN THIS APPEAL ASSE SSEE IS AGGRIEVED FOR REOPENING OF ASSESSMENT AS WELL AS OBSERVATION MADE BY CIT(A) CONCERNING AY S 2003 - 04 AND 20 04 - 05 W HICH WAS NOT BEFORE HIM AND ARE BEYOND JURISDICTION AND BAD IN LAW. 2 ITA NO. 6332 / M UM/2012 (A.Y. 2002 - 03 ) MR. BAHRAM N. VAKIL VS. ACIT 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE HAD FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002 - 03 DECLARING TOTAL INCOME OF RS.13,91,357/ - . HE RECEIVED A SUM OF RS.1,36,12,500/ - ON RETIREMENT AS A PARTNER IN THE FIRM M/S LITTLE AND CO. THIS AMOUNT WAS NOT OFFERED FO R TAXATION BY THE ASSESSEE. THE CASE WAS REOPENED U/S 147 AND NOTICE ISSUED U/S 148 AND SERVED ON THE ASSESSEE ON 31.03.2009. 4. IN THE ASSESSMENT ORDER U/S 143 R.W.S. 147 AO MADE ADDITION OF RS.1,36,12,500/ - UNDER THE HEAD CAPITAL GAIN , ASSESSEE CHALLEN GE REOPENING AS WELL AS MERIT OF THE ADDITION BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE REOPENING BUT DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER : I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT, ASSESSMENT ORDER AND FACTS OF THE C ASE. THE APPELLANT RETIRED FROM THE FIRM OF M/S. LITTLE & CO. WITH EFFECT FROM 31 ST DECEMBER , 2001. AS PER THE PARTNERSHIP DEED, THE APPELLANT WAS TO RECEIVE RS.1,36,12,500/ - IN 3 INSTALLMENTS OF RS.22,27,500/ - IN ASSESSMENT YEAR 2002 - 03, FOR ASSESSMENT YE AR 2003 - 04 RS.64,35,000/ - AND FOR ASSESSMENT YEAR 2004 - 05 RS.49,50,000/ - . IT IS NOTED THAT WHILE THE REASONS FOR REOPENING THE ASSESSMENT WAS THAT THE RECEIPT OF RS.1,36,12,500/ - IS IN THE NATURE OF NON - COMPETE FEE TAXABLE U/S 28(VA) BUT EVENTUALLY THE A.O . HAS TAXED THE ENTIRE RECEIPT AS CAPITAL GAIN ON THE GROUND THAT NON SOLICITATION OF CLIENTS FOR THREE YEARS AMOUNTS TO RENUNCIATION OF CAPITAL RIGHT OF PRACTICING THE PROFESSION. IN MY VIEW, RESTRICTION BY WAY OF NON SOLICITATION OF CLIENTS FOR THREE YEA RS IS IN THE NATURE OF RESTRICTIVE COVENANT COVERED BY SECTION 28(VA). THE SAID PROVISION WAS APPLICABLE W.E.F. A.Y. 2003 - 04 AND THUS THE INSTALLMENT OF RS.22,27,500/ - RECEIVED IN A.Y. 2002 - 03 IS NON - TAXABLE U/S 28(VA) OR U/S 48. HOWEVER THE AO CAN EXAMINE THE ISSUE OF TAXING THE OTHER TWO RECEIPTS OF RS.64,35,000/ - IN A.Y. 2003 - 04 AND RS.49,50,000/ - IN A.Y. 3 ITA NO. 6332 / M UM/2012 (A.Y. 2002 - 03 ) MR. BAHRAM N. VAKIL VS. ACIT 2004 - 05 U/S 28(VA). THE AO CAN REFER TO THE PROVISION FOR SECTION 150(1) OF THE I.T. ACT IN THIS REGARD. AS OF NOW THE ADDITION OF RS.1,36,12,500/ - UND ER THE HEAD CAPITAL GAIN IS DIRECTED TO BE DELETED AND GROUND NOS.3,4&5 ARE ALLOWED. 5. AGAINST THE ABOVE ORDER OF CIT(A) ASSESSEE IF FURTHER APPEAL BEFORE US. IT WAS ARGUED BY LD. AR THAT CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT ASSESSMENT WAS VALIDLY REOPENED IN SO FAR AS EXACTLY SIMILAR ISSUE HAS BEEN CONSIDERED IN RESPECT OF OTHER PARTNER OF M/S. L ITTLE AND COMPANY BY HONBLE BOMBAY HIGH COURT IN THE CASE OF BALKRISHNA HIRALAL WANI 321 ITR 519 WHEREIN HIGH COURT HELD AS UNDER : INCOME WHICH CAN BE TA XED UNDER SECTION 28(IV) OF THE INCOME - TAX ACT,1961, MUST NOT ONLY BE REFERABLE TO A BENEFIT OR PERQUISITE, BUT IT MUST BE ARISING FROM BUSINESS . THIS SECTION HAS NO APPLICATION TO BEFITS IN CASH OR MONEY. THE ASSESSEE WAS PARTNER IN A FIRM OF SOLICITORS. ON HIS RETIREMENT ON OCTOBER 2,2003, HE RECEIVED A CERTAIN AMOUNT FROM THE FIRM. IN A FOOT NOTE TO THE COMPUTATION OF TOTAL INCOME FURNISHED WITH THE RETURN FOR THE ASSESSMENT YEAR 2004 - 05, THE ASSESSEE HAD SHOWN RECEIVABLES FROM THE FIRM ON RETIREMENT AMO UNTING TO RS.21,65,625/ - AS NOT TAXABLE . THERE WAS NO ASSESSMENT UNDER SECTION 143(3) OF THE ACT. A NOTICE UNDER SECTION 148 WAS ISSUED WITHIN FOUR YEARS TO THE ASSESSEE. WHILE RECORDING HIS REASONS FOR THE FORMATION OF BELIEF THAT INCOME HAD ESCAPED ASSES MEN5T, THE ASSESSING OFFICER PLACED RELIANCE ON CLAUSE 35 OF THE DEED OF PARTNERSHIP WHICH STATED THAT A PARTNER WHO RETURNED VOLUNTARILY OR WAS REQUIRED TO WITHDRAW FROM THE FIRM UNDER CLAUSE 41 SHALL NOT, SO LONG AS THE CONTINUING OR SURVIVING PARTNERS O R NAY OF THEM SHALL CARRY ON THE BUSINESS , SOLICIT THE CLIENTS OF THE FIRM FOR A PERIOD OF THREE YEARS. THE INFERENCE WHICH THE ASSESSING OFFICER DREW FROM CLAUSE 35 WAS THAT THE AMOUNT PAID BY THE FIRM TO THE RETIRING PARTNER WAS ON ACCOUNT OF THE RETIRIN G PARTNERS RENUNCIATION OF THE RIGHT TO HAVE FREE TRADE AND PROFESSION ENVISAGED IN THE CONSTITUTION FOR THREE YEARS. WHILE DISPOSING OF THE OBJECTIONS RAISED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT HE AMOUNT RECEIVED BY THE ASSESSEE ON HIS RET IREMENT WAS ASSESSABLE UNDER SECTION 28(IV) AS THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER 4 ITA NO. 6332 / M UM/2012 (A.Y. 2002 - 03 ) MR. BAHRAM N. VAKIL VS. ACIT CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION. ON A WRITE PETITION: HELD, ALLOWING THE PETITION THAT CLAUSE 35 HAD NO APPL ICATION WHATSOEVER TO A SITUATION WHERE A PARTNER RETURNED MANDATORILY UPON ATTAINING THE AGE OF SUPERANNUATION OF SEVENTY YEARS. THEREFORE, THERE WAS NO TANGIBLE MATERIAL BEFORE THE ASSESSING OFFICER TO FORM A CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT . SINCE NO ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) THE JURISDICTIONAL CONDITION PRECEDENT PRIOR TO THE EXERCISE OF THE POWER TO REOPENING THE ASSESSMENT UNDER SEC TION 147 HAD NOT BEEN FULFILLED 6. AS THE FACTS AND CIRCU MSTANCES IN THE INSTANT C ASE OF ASSESSEE ARE SAME AS DISCUSSED BY THE JURISDICTIONAL HIGH COURT IN CASE OF OTHER PARTNERS OF THE VERY SAME FIRM M/S LITTLE AND COMPANY, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT WE DO NOT FIND ANY MERIT IN THE REOPENING OF THE ASSESSMENT WITHOUT HAVING COGENT R EASON TO B ELIEVE THAT INCOME IS ESCAPABLE . 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOU NCED IN THE OPEN COURT ON 22 JULY , 201 6 SD/ - SD/ - ( RAM LAL NEGI ) ( R.C. SHARMA) / JUD I C I AL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 22 . 0 7 .201 6 PS. ASHWINI 5 ITA NO. 6332 / M UM/2012 (A.Y. 2002 - 03 ) MR. BAHRAM N. VAKIL VS. ACIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBA I.