ANANT B. TAWADE, MUMBAI V. ITO 17(3)(1), MUMBAI

ITA 6362/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3331 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Question of law; Fair market value; Capital receipt
• Section: 143(3); 142(1); 133(6); 147; 148; 132

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 6362 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) SHRI ANAND B. TAWADE, 106, ROOP RAYON MILL COMPOUND, NEAR DATT MANDIR, JIJAMATA NAGAR, KALACHOWKI, MUMBAI 400 033. / V. ITO 17(3)(1), PIRAMAL CHAMBERS, LALBAUG, MUMBAI. ./ PAN : ACDPT 9937A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI SATISH R. MODY REVENUE BY : SHRI GANESH BARE ( SR. DR) / DATE OF HEARING : 18-01-2016 / DATE OF PRONOUNCEMENT : 16-03-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 6362/MUM/2012, IS DIRECTED AGAINST THE ORDER DATED 02-08-2012 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (HEREINAFTER CALLED THE CI T(A) ), FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THE MEMO O F APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- ITA 6362 /MUM/2012 2 1. THE CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO TREATING RS.75,53,858/ -, BEING AMOUNT RECEIVED TOWARDS SHAR E OF CAPITAL ON RETIREMENT OF PARTNERSHIP FIRM AS LONG TERM CAPI TAL GAINS & TAXED ACCORDINGLY, ON THE GROUND THAT: - IF CONTINUING PARTNERS AGREE TO PAY A LUMPSUM CONSIDERATION OF THE RETIRING PARTNER ASSIGNING OR RELINQUISHING HIS SHARE & RIGHT IN PARTNERSHIP AND ITS ASSETS IN FAVOUR OF CONTINUING PARTNERS, THE TRANSACTION WOULD AMOUNT TO TRANSFER WITHIN THE MEANING OF SEC. 2(47) OF THE INCOME TAX ACT, 1961. - FURTHER, 'INTEREST' IN A FIRM IS AN ASSET AS ANY OTHER ASSET AS RECOGNIZED BY THE ACT THAT DEFINED A CAPIT AL ASSET TO INCLUDE EXTINGUISHMENT OF INTEREST AND THE PARTNERS HAVING SURRENDERED/EXTINGUISHED THEIR RIGHTS IN SUCH ASSET ON RETIREMENT FROM THE FIRM, THERE WAS A TRANSFER WITHIN THE MEANING OF SECTION 2(47) GIVING RISE TO CAPITAL GAINS EXIGIBLE TO TAX. - THE DECISION OF APEX COURT IN THE CASE OF CIT VS. MOHANBHAI PAMABHAI IS DISTINGUISHABLE ON FACTS, AS IN THIS CASE, THERE IS NO TRANSFER OF INTEREST OF T HE PARTNER. - IN VIEW OF THE ABOVE, THE GOODWILL OF RS.75,53,85 8/- RECEIVED BY THE ASSESSEE IS TREATED AS LONG TERM CAPITAL GAINS AND TAXED ACCORDINGLY. 2. THE CIT (A) ERRED IN NOT CONSIDERING THE FACTS O F THE CASE REPRESENTED BY THE ASSESSEE AS UNDER: - YOUR ASSESSEE HAS RECEIVED A SUM OF RS. 75,53,858 /-, BEING HIS SHARE OF CAPITAL ON RETIREMENT FROM PARTNERSHIP FIRM M/ S. GURUKRIPA REALTORS & THERE I S NO DISTRIBUTION OF ASSETS. - THE CASE OF YOUR ASSESSEE SQUARELY FALLS WITHIN T HE AMBIT OF THE DECISION OF APEX COURT IN THE CASE OF CIT VS. MOHANBHAI PAMABHAI WHICH IS BASED ON THE SAME FACTS. ITA 6362 /MUM/2012 3 - FURTHER, THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE LEARNED AO WERE DELIVERED PRIOR TO THE DECISION OF THE APEX COURT REFERRED SUPRA. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND ASSESSEES CASE WAS REOPENED U/S 147/148 OF THE INC OME TAX ACT, 1961(HEREINAFTER CALLED THE ACT ) AFTER DULY RECO RDING THE REASONS FOR REOPENING BY ISSUE OF NOTICE U/S 148 OF THE ACT DAT ED 21-12-2010 WHICH WAS DULY SERVED ON THE ASSESSEE. IT WAS OBSERVED BY TH E LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) THAT THE ASSESSEE WA S A PARTNER IN M/S. GURUKRIPA REALTORS AND HE RETIRED FROM THE SAID PAR TNERSHIP FIRM VIDE DEED OF RETIREMENT DATED 10.12.2007. THE ASSESSMENT WAS REO PENED BASED ON THE INFORMATION RECEIVED FROM THE ADDL.CIT, RANGE-25(2) , MUMBAI VIDE LETTER DATED 16.12.2010 AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE C ASE OF M/S OM GURUKRIPA REALTORS FOR A.Y. 2008-09, IT WAS NOTICED TH AT THIS FIRM HAS PAID AN AMOUNT OF RS. 75,53,858/ - TO SHRI ANANT B TAW ADE AS PAYMENT FOR GOODWILL ON RETIREMENT. INFORMATION WAS OBTAINED FROM SHRI ANANT B TAWADE U/S. 133(6) OF THE I. T. ACT, 1961. TH E COPY OF I.T. ACKNOWLEDGEMENT, CAPITAL ACCOUNT, COMPUTATION OF INCO ME AND COPY OF LEDGER ACCOUNT OF M/S. OM GURUKRIPA REALTORS SUBMITTED BY SHRI ANANT B TAWADE ARE ENCLOSED. THE COPY OF RETIREMENT D EED IS ALSO ENCLOSED. IT IS SEEN THAT THE AMOUNT OF GOODWILL PAYMEN T RECEIVED BY SHRI TAWADE HAS NOT BEEN INCLUDED IN HIS INCOME. TH E TAXABILITY OF THIS AMOUNT IN HIS HANDS AS CAPITAL GAINS REQUIRES TO BE SE EN. THIS INFORMATION IS BEING SENT TO YOU FOR NECESSARY ACTION AT YOUR END.' AS THE ASSESSEE HAS NOT OFFERED THE RECEIPT OF SAID GOODWILL AMOUNT OF RS.75,53,858/- ON RETIREMENT FROM THE PARTNERSHIP F IRM FOR TAXATION, THE ASSESSEE WAS SHOW CAUSED BY THE AO THAT AS TO WHY THE SAID RECEIPT OF GOODWILL SHOULD NOT BE TREATED AS INCOME FOR THE YE AR UNDER CONSIDERATION. THE ASSESSEE SUBMITTED THAT HE HAS RECEIVED AS SHAR E OF CAPITAL ON RETIREMENT FROM M/S GURUKRIPA REALTORS A SUM OF RS. 75,53,858/ -. THE ASSESSEE SUBMITTED THAT THE SAME MUST NOT BE TREATED AS INCO ME IN HIS HANDS AND SHOULD NOT BE TAXED IN HIS HANDS AS IT IS NOT A REC EIPT LIABLE TO TAX AS THERE IS ITA 6362 /MUM/2012 4 NO ELEMENT OF TRANSFER INVOLVED IN THE SAME. IN THE TRANSACTION OF RETIREMENT OF A PARTNER, JUST AS IN THE CASE OF DISSOLUTION OF PARTNERSHIP, THERE IS NO ELEMENT OF TRANSFER OF A CAPITAL ASSET, WHICH ATTRA CTS THE PROVISIONS OF SEC.45 AND 47(II) OF THE ACT IS INVOLVED, NO CAPITAL GAINS IS CHARGEABLE ON THE PROFIT, IF ANY, ARISING TO THE RETIRING PARTNER FROM RECEIPT O F SUCH MONEY. IT WAS SUBMITTED THAT THERE WAS NO DISTRIBUTION OF ASSETS, BUT ONLY PAYMENT OF MONEY. THE ASSESSEE RELIED ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT V. MOHANBHAI PAMABHAI (1987) 165 ITR 16 6 (SC), CIT V. LENGMALLY RAGHUKUMAR (2001) 247 ITR 801 (SC). THE ASSESSEE ALSO RELIED UPON THE FOLLOWING JUDICIAL DECISIONS:- 1) ADDL. CIT V. SNT MAHENDERPAL BHASIN (1979) 117 I TR 26 (ALL). 2) CIT V. BHUPINDER SINGH ATWAL (1981) 128 ITR 67 ( CAL). 3) CIT V. MADANLAL BHARQAVA (1980) 122 ITR 545 (ALL ). 4) CIT V. PATE P H (1988) 171 ITR 128 (AP). 5) CIT V. RAGHUKUMAR (1983) 141 ITR 674 (AP) 6) PRASHANT S JOSHI V. ITO (2010) 189 TAXMAN 1 (BOM ) THE A.O. OBSERVED THAT THE ASSESSEE HAS RECEIVED GO ODWILL OF RS.75,53,858/- IT WAS CLAIMED AS SHARE OF CAPITAL ON RETIREMENT OF PARTNERSHIP FIRM M/S GURUKRIPA REALTORS. THE AO ISSUED NOTICE U/S 133(6) OF THE ACT TO M/S GURUKRIPA REALTORS AND THE SAID FIRM CONFIRMED THAT FIRM HAS PAID TO THE ASSESSEE HIS SHARE OF GOODWILL OF RS.75,53,858/-. T HE A.O. ALSO OBSERVED THAT IF CONTINUING PARTNERS AGREES TO PAY A LUMP-SUM CON SIDERATION TO THE RETIRING PARTNER ASSIGNING OR RELINQUISHING HIS SHARE AND RI GHT IN PARTNERSHIP AND ITS ASSETS IN FAVOUR OF CONTINUING PARTNERS, THE TRANSA CTION WOULD AMOUNT TO TRANSFER WITHIN THE MEANING OF SEC.2(47) OF THE ACT . THE AO REFERRED TO CLAUSE (2) OF THE DEED OF RETIREMENT DATED 10.12.2007 WHIC H CLEARLY STATED THAT THE ASSESSEE BEING A RETIRING PARTNER RELINQUISHED HIS SHARE AND RIGHT IN FAVOUR OF CONTINUING PARTNERS. IT WAS ALSO HELD BY THE A.O. THAT INTEREST IN A FIRM IS AN ITA 6362 /MUM/2012 5 ASSET AS ANY OTHER ASSET AS RECOGNIZED BY THE ACT T HAT DEFINED A CAPITAL ASSET TO INCLUDE EXTINGUISHMENT OF INTEREST AND THE PARTN ERS HAVING SURRENDERED/EXTINGUISHED THEIR RIGHTS IN SUCH ASSET ON RETIREMENT FROM THE FIRM, THERE WAS A TRANSFER WITHIN THE MEANING OF SE CTION 2(47) OF THE ACT GIVING RISE TO CAPITAL GAIN EXIGIBLE TO TAX AS LONG TERM C APITAL GAIN IN THE HANDS OF THE ASSESSEE. THE A.O. ALSO OBSERVED THAT THE POSI TION OF A RETIRING PARTNER, FOR CAPITAL GAINS TAX PURPOSES, COULD NOT BE EQUATE D WITH THAT OF A PARTNER UPON GENERAL DISSOLUTION SINCE A CLEAR DISTINCTION EXISTED BETWEEN THE TWO CONCEPTS IN AS MUCH AS CONSEQUENCES FOLLOWING FROM EACH WERE ENTIRELY DIFFERENT. IN THE CASE OF RETIREMENT OF PARTNERS, I T IS ONLY THAT PARTNER WHO GOES OUT OF THE FIRM AND REMAINING PARTNERS CONTINUE TO CARRY ON THE BUSINESS OF A PARTNERSHIP, WHEREAS IN THE CASE OF DISSOLUTION, TH E FIRM AS SUCH NO MORE EXISTS AND THE DISSOLUTION IS BETWEEN ALL THE PARTN ERS OF THE FIRM. HENCE, THE ASSESSEE'S POSITION BEING A RETIRING PARTNER CANNOT BE EQUATED WITH DISSOLUTION OF PARTNERSHIP. THE A.O. ALSO DISTINGUI SHED THE DECISION OF HONBLE APEX COURT IN THE CASE OF MOHANBHAI PAMABHAI (SUPRA ) WHEREIN IT WAS HELD THAT THERE IS NO TRANSFER OF INTEREST OF THE PARTNE R, BUT WHEREAS IN THE PRESENT CASE, THE RETIRING PARTNER I.E. THE ASSESSEE HAS RE LINQUISHED HIS SHARE AND RIGHT IN FAVOUR OF CONTINUING PARTNERS VIDE DEED OF RETIREMENT DATED 10-12- 2007. THE A.O. ALSO DISTINGUISHED THE CASE RELIED UPON BY THE ASSESSEE IN THE CASE OF LENGMALLU RAGHUKUMAR (SUPRA) AS IN THIS CAS E THERE IS GENERAL DISSOLUTION AND WHEREAS IN THE PRESENT CASE THERE I S RETIREMENT OF A PARTNER AND THE SAME COULD NOT BE EQUATED WITH THAT OF GENE RAL DISSOLUTION. THE A.O. ALSO OBSERVED THAT THE PRONOUNCEMENTS RELIED UPON B Y THE ASSESSEE ARE NOT APPLICABLE IN THE PRESENT CASE AS THE ASSESSEE RELI NQUISHED HIS SHARE AND RIGHT IN FAVOUR OF THE CONTINUING PARTNERS AND MORE OVER IN ALL THESE CASES PERTAIN TO THE PERIOD WHEN PROVISIONS OF SECTION CO NTAINED IN CLAUSE (II) OF SECTION 47 OF THE ACT EXISTED IN THE STATUTE WHICH WAS OMITTED W.E.F. 1.4.1988. THUS THE A.O. OBSERVED THAT THERE WAS A TRANSFER WI THIN THE MEANING OF ITA 6362 /MUM/2012 6 SECTION 2(47) OF THE ACT GIVING RISE TO CAPITAL GAI N EXIGIBLE TO TAX. THE AO RELIED UPON FOLLOWING JUDGMENTS :- 1. CIT V. TRIBHUVANDAS G PATEL (1978) 115 ITR 95(BOM. ) 2. CIT V. H R ASLOT (1978) 115 ITR 255(BOM.) 3. N A MODY V. CIT (1986) 162 ITR 420(BOM.) 4. SHEVANTIBHAI C. MEHTA V. ITO, PUNE-TIBUNAL. THUS, THE GOODWILL AMOUNT OF RS. 75,53,858/- RECEI VED BY THE ASSESSEE IS TREATED AS LONG TERM CAPITAL GAIN AND CHARGED TO TA X BY THE A.O., VIDE ASSESSMENT ORDER DATED 29-12-2011 PASSED BY THE AO U/S 147 R.W.S. 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-2011 PASSED BY THE A.O. U/S 147 R.W.S. 143(3) OF THE ACT , THE ASSESSEE PREFERR ED FIRST APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN SUBMI SSION AND RELIED UPON THE FOLLOWING DECISIONS:- 1. CIT V. MOHANBHAI PANNABHAI, 165 ITR 166 (SC) 2. LINGAMALLI RAGHUKUMAR, 247 ITR 801 (SC) 3. MAHINDERPAL BHASIN, 117 ITR 26 (ALLH.) 4. BHUPINDERSINGH BHATWAL, 128 ITR 67 (CAL) IT WAS CONTENDED BY THE ASSESSEE THAT PAYMENT TO RE TIRING PARTNER DOES NOT LEAD TO LEVY OF CAPITAL GAIN AS THERE IS NO TRANSFE R OF ASSET. THE CIT(A) HELD THAT THE RELINQUISHMENT OF RIGHTS O N RETIREMENT FROM A PARTNERSHIP IS NOT LISTED AS ONE OF THE SITUATIONS WHICH WILL NOT BE REGARDED AS A TRANSFER. THE CIT(A) RELIED UPON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SUDHAKAR M. SHETTY, 130 ITD 197, WHICH IS SIMILAR TO ITA 6362 /MUM/2012 7 THE ASSESSEES CASE WHEREIN IT WAS STATED THAT A LU MP-SUM CONSIDERATION PAID IN CONSIDERATION OF THE RETIRING PARTNER ASSIGNING OR RELINQUISHING HIS SHARE OR RIGHT IN THE PARTNERSHIP AND ITS ASSETS IN FAVOUR O F THE CONTINUING PARTNER WILL LEAD TO LEVY OF CAPITAL GAIN. TO DECIDE THE CASE, THE TRIBUNAL HAS RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF TRIBHUWANDAS G. PATEL, 115 ITR 95 (BOM), HR ASLOT, 115 ITR 255 (BOM ) AND N.A. MODI, 52 CTR (BOM) 149. THE CASE OF CIT V. MOHANBHAI PANNABHAI ,165 ITR 166 (SC) WAS ALSO CONSIDERED BY THE TRIBUNAL TO ARRIVE AT THE DE CISION IN THE CASE OF SUDHAKAR M SHETTY(SUPRA). THUS, THE CIT(A), IN NUT SHELL HELD THAT THERE IS A TRANSFER OF INTEREST FROM THE RETIRING PARTNER TO T HE CONTINUING PARTNERS AS PER THE RETIREMENT DEED WITHIN THE MEANING OF SECTION 2 (47) OF THE ACT AND CONSEQUENTLY COMPENSATION TO THE RETIRING PARTNER H AS BEEN PAID FOR THE TRANSFER OF THE INTEREST OF THE RETIRING PARTNER AN D HENCE, THE CAPITAL GAIN HAS TO BE LEVIED, THE CIT(A) UPHELD THE ORDERS OF THE A .O., VIDE ORDERS DATED 02-08- 2012. 6.AGGRIEVED BY THE ORDERS DATED 02-08-2012 PASSED B Y THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7.THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAS RECEIVED RS. 1 CRORE FROM M/S GURUKRIPA REALTORS ,OUT OF WHI CH AN AMOUNT OF RS. 23,96,142/- WAS TOWARDS HIS SHARE IN PROFIT AND THE BALANCE OF RS. 75,53.858/- WAS PAID TOWARDS HIS SHARE IN GOODWILL ON HIS RETIREMENT AS PARTNER FROM THE PARTNERSHIP FIRM. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF PRASHANT S. JOSHI V. ITO & ANR., (2010) 324 ITR 154 AND SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON RETIREMENT FROM THE PARTNERSHIP FIRM BEING THE GOODWILL AMOUNT CANNOT BE BROUGHT TO TAX. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON SECTION 45(4) OF THE ACT AND S UBMITTED THAT THE SAID AMOUNT IS EXIGIBLE TO TAX IN THE HANDS OF THE FIRM AND NOT IN THE HANDS OF THE ITA 6362 /MUM/2012 8 ASSESSEE. HE ALSO RELIED UPON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF THE CIT V. SHRI RAJNISH MANIKLAL BHANDA RI IN INCOME TAX APPEAL (LOD) NO. 2058 OF 2012 , DATED 8 TH MARCH, 2013 AND CIT V. RIYAZ A.SHEIKH IN ITA NO 1969 OF 2011, DATED 26 TH FEBRUARY 2013. 8. THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE AUTHORITIES BELOW HAVE RIGHTLY BROUGHT TO TAX AS LONG TERM CAPITAL GAIN THE SAID AMOUNT TO TAX RECEI VED BY THE ASSESSEE ON RETIREMENT FROM THE PARTNERSHIP FIRM. THE LD. DR R ELIED UPON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SUDHAKA R M. SHETTY V. ACIT, [2011] 130 ITD 197 (MUM.-TRIB) AND THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SMT. GIRIJA REDDY V. ITO IN ITA NO. 297 (HYD.) OF 2012 DATED MAY, 25, 2012. 9. IN THE REJOINDER, THE LD. COUNSEL SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RIYAZ A. SHEIKH IN I.T. A PPEAL NO. 1969 OF 2011 ORDER DATED 26 TH FEBRUARY, 2013 HAS REVERSED THE DECISION IN THE CA SE OF SUDHAKAR M. SHETTY. THE LD. AR RELIED UPON DECISION OF IN THE CASE OF CIT V. R LINGERMALLU RAGHUKUMAR (2001) 247 ITR 801(SC), TRIB HUVANDAS G PATEL 236 ITR 515(SC) . THE LD. COUNSEL SUBMITTED THAT THE IN VIEW OF PROVISIONS OF SECTION 45(4) OF THE ACT , THE SAID AMOUNT RECEIVED BY THE ASSESSEE CAN BE TAXED IN THE HANDS OF THE PARTNERSHIP FIRM BUT NOT IN THE HANDS OF THE ASSESSEE, 10. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY BOTH THE SIDES. WE HAVE OBSERVED THAT THE ASSESSEE WAS A PARTNER IN A PARTNERSHIP FIRM M/S GURUKRIPA REALTORS. THE ASSESSEE RETIRED FROM THE SAID FIRM VIDE DEED OF RETIREMENT DATED 10.12.2007 AND HE RECEIVED SHARE O F PROFIT AS WELL AS GOODWILL AMOUNT FROM THE FIRM, TOTALING RS.1,00,00, 000.00 FOR EXTINGUISHMENT ITA 6362 /MUM/2012 9 OF HIS RIGHTS IN THE PARTNERSHIP FIRM GURUKRIPA REA LTORS IN FAVOUR OF THE CONTINUING PARTNERS . WE HAVE OBSERVED THAT THE I SSUE WITH RESPECT TO TAXABILITY OF THE AMOUNT RECEIVED BY THE PARTNER ON RETIREMENT FROM THE PARTNERSHIP FIRM FOR EXTINGUISHMENT OF HIS RIGHTS IN THE PARTNERSHIP FIRM IN FAVOUR OF THE CONTINUING PARTNERS HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SHRI RAJNISH MANIK LAL BHANDARI, IT APPEAL NO. 2058 OF 2012, VIDE JUDGMENT DATED 9 TH MARCH, 2013 AND IN THE CASE OF CIT V. MR. RIYAZ A. SHEIKH IN I.T. APPEAL NO. 1969 OF 2 011 VIDE JUDGMENT DATED 26 TH FEBRUARY, 2013, WHEREBY THE HONBLE BOMBAY HIGH CO URT HAS HELD THAT THE SAID AMOUNT RECEIVED BY PARTNER ON RETIREMENT F ROM THE PARTNERSHIP FIRM IS NOT TAXABLE IN THE HANDS OF THE PARTNER. THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF RIYAZ A SHEIKH REPORTED IN (2014) 41 TA XMANN.COM 455(BOM.) HELD AS UNDER : 2. WE FIND THAT BY THE IMPUGNED ORDER, THE TRIBUNAL W HILE HOLDING THAT AMOUNTS RECEIVED BY A PARTNER ON HIS RETIREMENT FRO M PARTNERSHIP FIRM ARE EXEMPT FROM CAPITAL GAINS TAX RELIED UPON THE D ECISION OF THIS COURT IN THE MATTER OF PRASHANT S. JOSHI V. ITO [2010] 324 ITR 154/189 TAXMAN 1 (BOM) . COUNSEL FOR THE REVENUE IS UNABLE TO POINT OUT AS TO HOW THE DECISION IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) INTER ALIA HOLDING THAT NO CAPITAL GAINS ARE PAYABLE BY AN ERSTWHILE PARTNE R ON AMOUNTS RECEIVED ON RETIREMENT WOULD NOT BE APPLICABLE TO T HE PRESENT CASE. THE ONLY SUBMISSION ON BEHALF OF THE REVENUE IS THAT TH ERE WAS AN EARLIER DECISION OF THIS COURT IN THE MATTER OF N.A. MODI V . CIT [1986] 162 ITR 420/24 TAXMAN 219 (BOM.) AND IT HAS NOT BEEN CONSIDERED IN THE DECISION RENDERED IN THE MATTER OF PRASHANT S. JOHS I (SUPRA). 3. IN THE IMPUGNED ORDER, THE TRIBUNAL DOES REFER TO THE THIS COURT IN THE MATTER OF N.A. MODI (SUPRA) AND STATES THAT IT FOLL OWS THE DECISION OF THIS COURT IN THE MATTER OF CIT V. TRIBHUVANDAS G. PATEL [1978] 115 ITR 95 ITA 6362 /MUM/2012 10 (BOM.) AND THE SAME HAS BEEN REVERSED BY THE APEX COURT IN TRIBHUVANDAS G. PATEL V. CIT [1999] 236 ITR 515 . THIS COURT IN THE MATTER OF PRASHANT S. JOSHI (SUPRA) HAS ALSO REFERR ED TO THE DECISION OF TRIBUVANDAS G. PATEL (SUPRA) RENDERED BY THIS CO URT AND ITS REVERSAL BY THE APEX COURT. MOREOVER, THE DECISION OF THIS C OURT IN THE CASE OF PRASHANT S. JOSHI (SUPRA) PLACED RELIANCE UPON T HE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. R. LINGAMALLU R AJKUMAR [2001] 247 ITR 801/[2002] 124 TAXMAN 127 WHEREIN IT HAS BEEN HELD THAT AMOUNTS RECEIVED ON RETIREMENT BY A PARTNER IS NOT SUBJECT TO CAPITAL GAINS TAX. IN THE ABOVE CIRCUMSTANCES, WE SEE NO REASON TO ENTERT AIN THE PROPOSED QUESTION OF LAW. THE ISSUE OF TAXABILITY OF AMOUNT RECEIVED BY THE PARTNER ON RETIREMENT FROM THE PARTNERSHIP FIRM FOR EXTINGUISHMENT OF HIS RIGH TS IN THE PARTNERSHIP FIRM IN FAVOUR OF THE CONTINUING PARTNERS WAS ALSO DISCU SSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRASHANT S JOSHI V . ITO REPORTED IN (2010) 324 ITR 154(BOM.) AFTER CONSIDERING THE OMISSION OF SECTION 47(II) FROM THE STATUTE W.E.F 01-04-1988 AS REPRODUCED HERE-UNDER: 12. THE ONLY REASON THAT HAS BEEN RECORDED BY THE ASSE SSING OFFICER IS THAT THE COMMISSIONER OF INCOME-TAX (APP EALS) BY HIS ORDER DATED 17-9-2008, IN THE CASE OF THE PARTNERSH IP FIRM FOR ASSESSMENT YEAR 2005-06 ALLOWED A CLAIM FOR TREATIN G THE PAYMENT OF RS. 1 CRORE TO THE TWO RETIRING PARTNERS AS REVE NUE EXPENDITURE. SINCE THE ASSESSEE CLAIMED THE PAYMENT TO BE EXEMPT BY TREATING IT AS A CAPITAL RECEIPT, IT IS STATED THAT THERE WAS R EASON TO BELIEVE THAT THE RECEIPTS UNDER THE DEED OF RETIREMENT HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147. ITA 6362 /MUM/2012 11 13. DURING THE SUBSISTENCE OF A PARTNERSHIP, A PARTNER DOES NOT POSSESS AN INTEREST IN SPECIE IN ANY PARTICULAR ASS ET OF THE PARTNERSHIP. DURING THE SUBSISTENCE OF A PARTNERSHI P, A PARTNER HAS A RIGHT TO OBTAIN A SHARE IN PROFITS. ON A DISSOLUT ION OF A PARTNERSHIP OR UPON RETIREMENT, A PARTNER IS ENTITL ED TO A VALUATION OF HIS SHARE IN THE NET ASSETS OF THE PARTNERSHIP W HICH REMAIN AFTER MEETING THE DEBTS AND LIABILITIES. AN AMOUNT PAID T O A PARTNER UPON RETIREMENT, AFTER TAKING ACCOUNTS AND UPON DEDUCTIO N OF LIABILITIES DOES NOT INVOLVE AN ELEMENT OF TRANSFER WITHIN THE MEANING OF SECTION 2(47). CHIEF JUSTICE P.N. BHAGWATI (AS THE LEARNED JUDGE THEN WAS) SPEAKING FOR A DIVISION BENCH OF THE GUJA RAT HIGH COURT IN CIT V. MOHANBHAI PAMABHAI [1973] 91 ITR 393 DEALT WITH THE ISSUE IN THE FOLLOWING OBSERVATIONS: '...WHEN, THEREFORE, A PARTNER RETIRES FROM A PARTN ERSHIP AND THE AMOUNT OF HIS SHARE IN THE NET PARTNERSHIP ASSE TS AFTER DEDUCTION OF LIABILITIES AND PRIOR CHARGES IS DETER MINED ON TAKING ACCOUNTS ON THE FOOTING OF NOTIONAL SALE OF THE PARTNERSHIP ASSETS AND GIVEN TO HIM, WHAT HE RECEIV ES IS HIS SHARE IN THE PARTNERSHIP AND NOT ANY CONSIDERATION FOR TRANSFER OF HIS INTEREST IN THE PARTNERSHIP TO THE CONTINUING PARTNERS. HIS SHARE IN THE PARTNERSHIP IS WORKED OU T BY TAKING ACCOUNTS IN THE MANNER PRESCRIBED BY THE REL EVANT PROVISIONS OF THE PARTNERSHIP LAW AND IT IS THIS AN D THIS ONLY, NAMELY, HIS SHARE IN THE PARTNERSHIP WHICH HE RECEI VES IN TERMS OF MONEY. THERE IS IN THIS TRANSACTION NO ELE MENT OF TRANSFER OF INTEREST IN THE PARTNERSHIP ASSETS BY T HE RETIRING PARTNER TO THE CONTINUING PARTNERS : VIDE ALSO THE RECENT DECISION OF THE SUPREME COURT IN CIT V. BANKEY LAL VAIDYA. IT IS TRUE THAT SECTION 2(47 ) DEFINES 'TRA NSFER' IN ITA 6362 /MUM/2012 12 RELATION TO A CAPITAL ASSET AND THIS DEFINITION GIV ES AN ARTIFICIALLY EXTENDED MEANING TO THE TERM 'TRANSFER ' BY INCLUDING WITHIN ITS SCOPE AND AMBIT TWO KINDS OF TRANSACTIONS WHICH WOULD NOT ORDINARILY CONSTITUTE 'TRANSFER' IN THE ACCEPTED CONNOTATION OF THAT WORD, NAMELY, RELINQUISHMENT OF THE CAPITAL ASSET AND EXTINGUISHM ENT OF ANY RIGHTS IN IT. BUT EVEN IN THIS ARTIFICIALLY EXT ENDED SENSE, THERE IS NO TRANSFER OF INTEREST IN THE PARTNERSHIP ASSETS INVOLVED WHEN A PARTNER RETIRES FROM THE PARTNERSHI P.' THE GUJARAT HIGH COURT HELD THAT THERE IS, IN SUCH A SITUATION, NO TRANSFER OF INTEREST IN THE ASSETS OF THE PARTNERSH IP WITHIN THE MEANING OF SECTION 2(47). WHEN A PARTNER RETIRES FR OM A PARTNERSHIP, WHAT THE PARTNER RECEIVES IS HIS SHARE IN THE PARTNERSHIP WHICH IS WORKED OUT BY TAKING ACCOUNTS AND THIS DOES NOT AMOUNT TO A CONSIDERATION FOR THE TRANSFER OF H IS INTEREST TO THE CONTINUING PARTNERS. THE RATIONALE FOR THIS IS EXPL AINED AS FOLLOWS IN THE JUDGMENT OF THE GUJARAT HIGH COURT : '...WHAT THE RETIRING PARTNER IS ENTITLED TO GET IS NOT MERELY A SHARE IN THE PARTNERSHIP ASSETS; HE HAS ALSO TO BEA R HIS SHARE OF THE DEBTS AND LIABILITIES AND IT IS ONLY H IS SHARE IN THE NET PARTNERSHIP ASSETS AFTER SATISFYING THE DEB TS AND LIABILITIES THAT HE IS ENTITLED TO GET ON RETIREMEN T. THE DEBTS AND LIABILITIES HAVE TO BE DEDUCTED FROM THE VALUE OF THE PARTNERSHIP ASSETS AND IT IS ONLY IN THE SURPLUS TH AT THE RETIRING PARTNER IS ENTITLED TO CLAIM A SHARE. IT I S, THEREFORE, NOT POSSIBLE TO PREDICATE THAT A PARTICULAR AMOUNT IS RECEIVED BY THE RETIRING PARTNER IN RESPECT OF HIS SHARE IN A PARTICULAR PARTNERSHIP ASSET OR THAT A PARTICULAR AMOUNT REPRE SENTS ITA 6362 /MUM/2012 13 CONSIDERATION RECEIVED BY THE RETIRING PARTNER FOR EXTINGUISHMENT OF HIS INTEREST IN A PARTICULAR ASSE T.' 14. THE APPEAL AGAINST THE JUDGMENT OF THE GUJARAT HIG H COURT WAS DISMISSED BY A BENCH OF THREE LEARNED JUDGES OF THE SUPREME COURT IN ADDL. CIT V. MOHANBHAI PAMABHAI [1987] 165 ITR 166 . THE SUPREME COURT RELIED UPON ITS JUDGMENT IN SUNIL SIDDHARTHBHAI V.CIT [1985] 156 ITR 509 . THE SUPREME COURT REITERATED THE SAME PRINCIPLE BY RELYING UPON THE J UDGMENT IN ADDANKI NARAYANAPPA V. BHASKARA KRISHNAPPA AIR 1 966 SC 1300. THE SUPREME COURT HELD THAT WHAT IS ENVISAGED ON THE RETIREMENT OF A PARTNER IS MERELY HIS RIGHT TO REAL ISE HIS INTEREST AND TO RECEIVE ITS VALUE. WHAT IS REALISED IS THE INTER EST WHICH THE PARTNER ENJOYS IN THE ASSETS DURING THE SUBSISTENCE OF THE PARTNERSHIP BY VIRTUE OF HIS STATUS AS A PARTNER AN D IN TERMS OF THE PARTNERSHIP AGREEMENT. CONSEQUENTLY, WHAT THE PARTN ER GETS UPON DISSOLUTION OR UPON RETIREMENT IS THE REALISATION O F A PRE-EXISTING RIGHT OR INTEREST. THE SUPREME COURT HELD THAT THER E WAS NOTHING STRANGE IN THE LAW THAT A RIGHT OR INTEREST SHOULD EXIST IN PRAESENTI BUT ITS REALISATION OR EXERCISE SHOULD BE POSTPONED. THE SUPREME COURT INTER ALIA CITED WITH APPROVAL THE JU DGMENT OF THE GUJARAT HIGH COURT IN MOHANBHAI PAMABHAI'S CASE (SU PRA) AND HELD THAT THERE IS NO TRANSFER UPON THE RETIREMENT OF A PARTNER UPON THE DISTRIBUTION OF HIS SHARE IN THE NET ASSETS OF THE FIRM. IN CIT V. R. LINGMALLU RAGHUKUMAR [2001] 247 ITR 801 , THE SUPREME COURT HELD, WHILE AFFIRMING THE PRINCIPLE L AID DOWN IN MOHANBHAI PAMABHAI THAT WHEN A PARTNER RETIRES F ROM A PARTNERSHIP AND THE AMOUNT OF HIS SHARE IN THE NET PARTNERSHIP ASSETS AFTER DEDUCTION OF LIABILITIES AND PRIOR CHA RGES IS DETERMINED ON TAKING ACCOUNTS, THERE IS NO ELEMENT OF TRANSFER OF INTEREST IN THE ITA 6362 /MUM/2012 14 PARTNERSHIP ASSETS BY THE RETIRED PARTNER TO THE CO NTINUING PARTNERS. 15. AT THIS STAGE, IT MAY BE NOTED THAT IN CIT V. TRIB HUVANDAS G. PATEL [1978] 115 ITR 95 (BOM.), WHICH WAS DECIDED BY A DIVISION BENCH OF THIS COURT, UNDER A DEED OF PARTNERSHIP, T HE ASSESSEE RETIRED FROM THE PARTNERSHIP FIRM AND WAS INTER ALI A PAID AN AMOUNT OF RS. 4,77,941 AS HIS SHARE IN THE REMAININ G ASSETS OF THE FIRM. THE DIVISION BENCH OF THIS COURT HAD HELD THA T THE TRANSACTION WOULD HAVE TO BE REGARDED AS AMOUNTING TO A TRANSFE R WITHIN THE MEANING OF SECTION 2(47) INASMUCH AS THE ASSESSEE H AD ASSIGNED, RELEASED AND RELINQUISHED HIS SHARE IN THE PARTNERS HIP AND ITS ASSETS IN FAVOUR OF THE CONTINUING PARTNERS. THIS P ART OF THE JUDGMENT WAS REVERSED IN APPEAL BY THE SUPREME COUR T IN TRIBHUVANDAS G. PATEL V. CIT [1999] 236 ITR 515 . FOLLOWING THE JUDGMENT OF THE SUPREME COURT INSUNIL SIDDHARTHBHAI 'S CASE (SUPRA), THE SUPREME COURT HELD THAT EVEN WHEN A PA RTNER RETIRES AND SOME AMOUNT IS PAID TO HIM TOWARDS HIS SHARE IN THE ASSETS, IT SHOULD BE TREATED AS FALLING UNDER CLAUSE (II) OF S ECTION 47. THEREFORE, THE QUESTION WAS ANSWERED IN FAVOUR OF T HE ASSESSEE AND AGAINST THE REVENUE. SECTION 47(II) WHICH HELD THE FIELD AT THE MATERIAL TIME PROVIDED THAT NOTHING CONTAINED IN SE CTION 45 WAS APPLICABLE TO CERTAIN TRANSACTIONS SPECIFIED THEREI N AND ONE OF THE TRANSACTIONS SPECIFIED IN CLAUSE (II) WAS DISTRIBUT ION OF THE CAPITAL ASSETS ON A DISSOLUTION OF A FIRM. SECTION 47(II) W AS SUBSEQUENTLY OMITTED BY THE FINANCE ACT OF 1987 WITH EFFECT FROM 1-4-1988. SIMULTANEOUSLY, SUB-SECTION (4) OF SECTION 45 CAME TO BE INSERTED BY THE SAME FINANCE ACT. SUB-SECTION (4) OF SECTION 45 PROVIDES THAT PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOL UTION OF A FIRM OR ITA 6362 /MUM/2012 15 OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE, SH ALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM, ASSOCI ATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE. THE FAIR MARKET VALUE OF THE ASSETS ON THE DATE OF SUCH TRAN SFER SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER FOR THE PURPOS E OF SECTION 48. EX FACIE SUB-SECTION (4) OF SECTION 45 DEALS WITH A SI TUATION WHERE THERE IS A TRANSFER OF A CAPITAL ASSET BY WAY OF A DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF A FIRM OR OTHE RWISE. EVIDENTLY, ON THE ADMITTED POSITION BEFORE THE COURT, THERE IS NO TRANSFER OF A CAPITAL ASSET BY WAY OF A DISTRIBUTION OF THE CAPIT AL ASSETS, ON A DISSOLUTION OF THE FIRM OR OTHERWISE IN THE FACTS O F THIS CASE. WHAT IS TO BE NOTED IS THAT EVEN IN A SITUATION WHERE SUB-S ECTION (4) OF SECTION 45 APPLIES, PROFITS OR GAINS ARISING FROM T HE TRANSFER ARE CHARGEABLE TO TAX AS INCOME OF THE FIRM. WE HAVE ALSO OBSERVED THAT IN A RECENT JUDGMENT DE LIVERED BY THE MUMBAI- TRIBUNAL IN THE CASE OF SMT. HEMALATA S. SHETTY V. ACIT IN ITA NO. 1514/MUM/2010 FOR THE ASSESSMENT YEAR 2006-07 VIDE ORDERS DATED 1ST DECEMBER, 2015 . THE MUMBAI-TRIBUNAL HELD THAT THE SAID AMOUNT RECEIVED BY THE PARTNER ON RETIREMENT FROM THE PARTNERSHIP I S NOT TAXABLE IN THE HANDS OF THE RETIRING PARTNER. SIMILAR VIEW HAS BEEN TAKE N BY THE CHENNAI-TRIBUNAL IN THE CASE OF VIKAS ACADEMY V. ITO [2015] 154 ITD 693 (CHENNAI-TRIB.) . THE REVENUE HAS RELIED UPON DECISION OF SUDHAKAR M SHET TY(SUPRA) AND THE MUMBAI-TRIBUNAL IN THE CASE OF MRS. HEMLATA S. SHET TY (SUPRA), WIFE OF MR. SUDHAKAR M SHETTY(SUPRA) VIDE ORDERS DATED 01.12.20 15 WITH RESPECT TO RECEIPT BY THE PARTNER ON RETIREMENT FROM THE PARTN ERSHIP FIRM AFTER CONSIDERING THE DECISION OF MR SUDHAKAR M SHETTY(SU PRA) WHICH WAS DELIVERED ON 09-09-2010 AND THE DECISION OF THE COURTS SUBSEQ UENT TO THE DECISION OF ITA 6362 /MUM/2012 16 SUDHAKAR M SHETTY(SUPRA) HAS HELD THAT THE RECEIPT ON RETIREMENT FROM PARTNERSHIP FIRM IS NOT TAXABLE IN THE HANDS OF THE RETIRING PARTNER. THE DECISION OF THE MUMBAI-TRIBUNAL IN THE CASE OF MRS HEMLATA S SHETTY(SUPRA ) IN ITA NO. 1514/MUM/2010 DELIVERED ON 01.12.2015 I S REPRODUCED BELOW : THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT(A) FOR A.Y. 2006-07. IN ITA NO. 1514/MUM/2010 ASSESSEE RAISED THE FOLLOWING GROUNDS: - 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDI NG THE ACTION OF THE AO THAT THE AMOUNT RECEIVED BY THE APPELLANT ON RETIREMENT FROM PARTNERSHIP FIRM M/S. D.S. CORPORATION IS TAXA BLE UNDER THE HEAD CAPITAL GAINS ON THE MISTAKEN BELIEF THAT R ETIREMENT FROM PARTNERSHIP AMOUNTS TO TRANSFER WITHIN THE MEANI NG OF SECTION 2(47) OF THE I.T. ACT. 2. THE CIT(A) FAILED TO APPRECIATE THE FACTS OF THE CASE AND THE RELEVANT LAW ON THE SUBJECT. 3. THE CIT(A) ERRED IN NOT FOLLOWING THE JUDGEMENT OF THE SUPREME COURT AND OF THE JURISDICTIONAL COURT. 4. THE CIT(A) ERRED IN CONSTRUING THE DEED OF RETIR EMENT, UNDER WHICH NO TRANSFER HAD TAKEN PLACE, AND WITHOUT TRAN SFER THERE CAN BE NO CAPITAL GAINS TAX LIABILITY. 2. ASSESSEE IS AN INDIVIDUAL AND SHE JOINED ON 16.0 9.2005 A PARTNERSHIP FIRM M/S. D.S. CORPORATION AS A PARTNER HAVING 20% PROFIT SHARING RATIO THEREIN. SHE RETIRED FROM THE SAID PARTNERSHIP FIRM M/S. D.S. CORPORATION ON 27.03.2006. AT THE TIME OF RETIREMENT SHE RECEIV ED A SUM OF ITA 6362 /MUM/2012 17 RS.30,87,98,088/- FROM THE SAID FIRM M/S. D.S. CORP ORATION. HOWEVER, AS OBSERVED BY THE LEARNED ASSESSING OFFICER, THE ASSE SSEE DID NOT DISCLOSE THE AFORESAID RECEIPT OF RS.30,87,98,088/- AS HER I NCOME IN THE RELEVANT ASSESSMENT YEAR 2006-07. SEARCH & SEIZURE ACTION U/ S. 132 OF THE ACT WERE CARRIED OUT IN ASSESSEES PREMISES ON 18.01.2 007. NOTICES U/S. 153A, UNDER SECTION 143(2) AND 142(1) OF THE ACT WE RE ISSUED AND DULY SERVED UPON THE ASSESSEE. ASSESSEE WAS CONFRONTED A ND REQUESTED TO EXPLAIN AS TO WHY THE AMOUNT RECEIVED IN EXCESS OF PRINCIPAL CAPITAL CONTRIBUTION AMOUNTING TO RS.30,87,98,088/- FROM TH E SAID FIRM M/S. D.S. CORPORATION SHOULD NOT BE TREATED AS SHORT TERM CAP ITAL GAIN AND BROUGHT TO TAX. THE CONCERNED ASSESSING OFFICER HAS CONSIDE RED THE SUBMISSION ON BEHALF OF ASSESSEE BUT DID NOT ACCEPT THE PLEA O F THE ASSESSEE FOR THE REASONS GIVEN IN THE ASSESSMENT ORDER, WHICH IS REP RODUCED HEREUNDER. THE EXPLANATION OF SMT. HEMLATA SHETTY IS NOT ACC EPTABLE. THE SCHEME OF THINGS IS DETAILED HEREINAFTER I. A PARTNERSHIP FIRM WAS FORMED BETWEEN 2 PERSONS SHR I SUDHAKAR SHETTY - 40% AND SHRI RAKESH KUMAR WADHAWAN - 60% O N 01.08.2005. II. THE ORIGINAL CAPITAL CONTRIBUTIONS BEING RS.3,20,50 ,000/-. III. THEREAFTER, THE LAND BEING UNITY COMPOUND WAS PURCH ASED IN THE YEAR 2006, ON A TOTAL CONSIDERATION OF RS.6.50 CROR ES. IV. SMT. HEMLATA SHETTY BECOMES A PARTNER IN M/S. D.S. CORPORATION ON 16.09.2005. THE PROFIT SHARING RATIO IS DIVIDED INTO SHRI RAKESH KUMAR WADHWAN - 60%, SHRI SUDHAKAR SHETTY - 20% AND SMT.. ITA 6362 /MUM/2012 18 HEMLATA SHETTY - 20%. THE CAPITAL CONTRIBUTION RS.1 ,24,50,000/- AND RS.52,50,000/- RESPECTIVELY. V. 3 NEW MEMBERS WERE INTRODUCED ON 23.09.2005 AND THE PROFIT SHARING RATIOS WERE REVISED AS FOLLOWS MR. RAKESH KUMAR WADHAWAN - 35%, MR. SUDHAKAR SHETT Y - 20%, MRS. HEMLATA SHETTY - 20%, PRITHVI REALTORS & CAPIT AL PVT. LTD. - 20% (NEW), MR. SARANG RAKESH KUMAR WADHAWAN - 5% (N EW). ALL THE NEW MEMBERS WERE RELATED TO/CONNECTED/CONTROLLE D BY SHRI RAKESH KUMAR WADHAWAN. VI. THIS LAND WAS VALUED IN THE BALANCE SHEET OF M/S. D .S. CORPORATION ON 2006 AND THE LAND WAS REVALUED AT RS. 194. 78 CR ORES. VII. THE SUM OF RS.194.78 CRORES WAS RECEIVED BY M/S. D. S. CORPORATION FROMM/S.HDIIL. VIII. A SUM OF RS.30.88 CRORES GAVE TO SHRI SUDHAKA R SHETTY AND RS.30.88 CRORES TO MS. HEMLATA SHETTY, UPON THEIR R ECEIPT FROM THE FIRM M/S. D.S. CORPORATION. VIII. THE REVALUATION OF LAND RESULTED IN A NOTIONAL PROF IT OF RS.154.40 CRORES, RESULTING IN 20% SHARE EACH OF SHRI SUDHAKA R SHETTY AND HIS WIFE, AT RS.30.88 CRORES EACH RESPECTIVELY. THE SE AMOUNTS WERE RECEIVED BY THE SHETTY'S AND WERE DULY CREDITED IN THEIR BANK ACCOUNTS. ITA 6362 /MUM/2012 19 IX. NO TAX WAS PAID ON THESE REVALUED PROFITS ON THE PL EA THAT THESE WERE AMOUNTS EXEMPT AS PER PROVISIONS OF SECTION 10 (2A) OF THE I.T. ACT, 1961.' 3. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF THE AS SESSEE AND HAVING CONSIDERED THE SAME CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER. SAME HAS BEEN OPPOSED BEFORE US, INTER ALIA, SUBMIT TING THAT CIT(A) SHOULD HAVE ALLOWED THE APPEAL OF ASSESSEE. FOR THE SAME ASSESSEE RAISED VARIOUS LEGAL AND FACTUAL SUBMISSIONS AND RE QUESTED TO ALLOW THE CLAIM OF ASSESSEE PRAYED. ON THE OTHER HAND THE LEA RNED D.R. SUPPORTED THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT T HE ORDER OF ITAT IN THE CASE OF SHRI SUDHAKAR SHETTY SHOULD BE FOLLOWED BEC AUSE IT IS BASED ON THE SIMILAR FACTS. 4.AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIA L ON RECORD WE FIND THAT THE TRIBUNAL IN THE CASE OF HUSBAND SHRI SUDHA KAR SHETTY HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING AS UNDER: - 2.5 IN THE LIGHT OF THE ABOVE, MORE SPECIFICALLY, WHEN THE ISSUE HAS BEEN SETTLED BY THE HON'BLE JURISDICTIONAL HIGH COU RT, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. THE HON'BLE APEX COU RT AS DISCUSSED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID CASE ALSO, IN CIT VS. R. LINGAMALLU RAJKUMAR (2001) 247 ITR 801 HELD THAT AMOUNTS RECEIVED ON RETIREMENT BY A PARTN ER IS NOT SUBJECT TO CAPITAL GAINS TAX. OUR VIEW IS ALSO FORT IFIED BY THE DECISION BY THE COORDINATE BENCH IN ACIT VS. SHRI N . PRASAD, EXECUTIVE CHAIRMAN SECUNDERABAD (ITA NO. 1200/HYD/2 010) ORDER DATED 27/10/2014. ITA 6362 /MUM/2012 20 5. IN THIS REGARD THE LEARNED AUTHORIZED REPRESENTA TIVE FOR THE ASSESSEE REQUESTED THAT AFTER THE DECISION WAS TAKEN IN THE CASE OF SHRI SUDHAKAR SHETTY, THE DEPARTMENT, FOLLOWING DECISION IN CASE OF SHRI SUDHAKAR SHETTYS CASE REOPENED THE CASE OF THE FIRM, M/S. D .S. CORPORATION WHEREIN SHRI SUDHAKAR SHETTY AND MRS. HEMLATA SHETT Y, ASSESSEE WERE PARTNERS. THE DEPARTMENT UNDER PROVISIONS OF SECTIO N 45(4) OF THE INCOME TAX ACT HAS ASSESSED THE SAME INCOME IN THE HANDS O F THE FIRM. THUS, ACCORDING TO THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THE DEPARTMENT HAS REALIZED THE MISTAKE THAT IT CANNOT ASSESS THE PARTNERS ON ACCOUNT OF INCOME RECEIVED ON RETIREMENT UNDER S ECTION 45(4) OF THE ACT. THIS FACT WAS NOT BEFORE THE ITAT AT THE RELEV ANT POINT OF TIME WHEN THE CASE OF SHRI SUDHAKAR SHETTY WAS DECIDED. SO TH E DECISION OF ITAT IN THE CASE OF SHRI SUDHAKAR SHETTY SHOULD NOT BE FOLL OWED BECAUSE IT WAS DECIDED IN DIFFERENT FACTS AND CIRCUMSTANCES WHICH HAVE CHANGED BECAUSE OF SUBSEQUENT DEVELOPMENTS AS DISCUSSED ABO VE. 6.THE DOCTRINE OF JUDICIAL PRECEDENTS; JUDICIAL DIS CIPLINE AND RES JUDICATA HAVE BEEN EVOLVED TO ENSURE STABILITY AND CERTAINTY IN LAW OTHERWISE ANY JUDGE COULD TAKE ANY VIEW ON THE INTERPRETATION OF THE LAW RESULTING IN CHAOS. THE JUDGEMENT OF THE HIGH COURT IN THE STATE IS BINDING AS A JUDICIAL PRECEDENT IN THAT STATE IS RATIO DECIDEND I. THE EXPRESSION RATIO DECIDENDI MEANS THE UNDERLYING PRINCIPLE, VIZ., THE GENERAL REASONS UPON THE DECISION HAS BEEN RENDERED. IT HAS TO BE ASCERT AINED BY ANALYSIS OF THE FACTS OF THE CASE AND THE PROCESS OF REASONING INVOLVING MAJOR PREMISE CONSISTING OF RULE OF LAW, EITHER STATUTORY OR JUDGE MADE AND A MAJOR PREMISE CONSISTING OF MATERIAL FACTS OF THE C ASE UNDER CONSIDERATION. THERE CANNOT BE A JUDICIAL PRECEDENT ON A QUESTION OF FACT. IT IS ONLY THE LEGAL PRINCIPLE LAID DOWN ON THE BAS IS OF FACT AND THE LAW THAT BECOMES JUDICIAL PRECEDENT. THE PRECEDENT MAY NOT BE BINDING WHEN ITA 6362 /MUM/2012 21 THE JUDGEMENT IS PER INCURIUM I.E. IN IGNORANCE OF THE LAW OR CONTRARY TO THE LAW OR ITS OWN EARLIER DECISIONS OF OWN OR BY I NADVERTENCE. SOMETIMES, THERE ARE CONFLICTING JUDGEMENTS OF THE SAME COURT AND THE QUESTION ARISES WHETHER LATTER JUDGEMENT OR EARLIER JUDGEMENT BECOMES A BINDING PRECEDENT. IN SUCH A SITUATION, IF THE TWO DECISIONS ARE DELIVERED BY A BENCH OF EQUAL STRENGTH, LATTER JUDGEMENT MAY BE FOLLOWED SPECIALLY WHEN THE EARLIER JUDGEMENT IS REFERRED WHILE DECIDI NG THE MATTER IN LATTER JUDGEMENT. THE SAME HAS HAPPENED IN ASSESSEES CASE . AFTER THE JUDGEMENT IN THE CASE OF SHRI SUDHAKAR SHETTY DECID ED ON 9TH SEPTEMBER, 2010 BY E BENCH, THE SIMILAR MATTER WA S DECIDED BY THE E BENCH IN THE CASE OF R.F. NANGRANI, HUF VS. DCI T IN ITA NO. 6124/MUM/2012 ON 10TH DECEMBER, 2014 WHEREIN THE DE CISION IN THE CASE OF SHRI SUDHAKAR SHETTY WAS ALSO REFERRED. IN THE SAID CASE THE ISSUE BEFORE THE TRIBUNAL WAS WHETHER THE AMOUNT OF RS.14,15,61,370/- RECEIVED FROM PARTNERSHIP FIRM LANDMARK DEVELOPMENT S ON RETIREMENT IS A CAPITAL GAIN CHARGEABLE TO TAX? THIS ISSUE WAS VE RY SIMILAR TO THE ISSUE IN THE CASE BEFORE US. WHILE DECIDING THE SAME ITAT E BENCH, MUMBAI IN R.F. NANGRANI, HUF (SUPRA) REVERSED ITS OWN DECI SION TAKEN IN THE CASE OF SHRI SUDHAKAR SHETTY AND DECIDED THE MATTER IN F AVOUR OF THE ASSESSEE. WHILE DECIDING THE MATTER ITAT OBSERVED A S UNDER: - 2.5 IN THE LIGHT OF THE ABOVE, MORE SPECIFICALLY, WHEN THE ISSUE HAS BEEN SETTLED BY THE HON'BLE JURISDICTIONAL HIGH COU RT, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. THE HON'BLE APEX COU RT AS DISCUSSED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID CASE ALSO, IN CIT VS. R. LINGAMALLU RAJKUMAR (2001) 247 ITR 801 HELD THAT AMOUNTS RECEIVED ON RETIREMENT BY A PARTN ER IS NOT SUBJECT TO CAPITAL GAINS TAX. OUR VIEW IS ALSO FORT IFIED BY THE DECISION BY THE COORDINATE BENCH IN ACIT VS. SHRI N . PRASAD, ITA 6362 /MUM/2012 22 EXECUTIVE CHAIRMAN SECUNDERABAD (ITA NO. 1200/HYD/2 010) ORDER DATED 27/10/2014. IT WAS FURTHER BROUGHT TO OUR KNOWLEDGE BY THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE HON'BLE ME MBER WHO DELIVERED THE DECISION IN THE CASE OF ACIT VS. N. PRASAD, EXE CUTIVE CHAIRMAN, SECUNDERABAD WAS THE SAME MEMBER WHO DELIVERED THE JUDGEMENT IN THE CASE OF SHRI SUDHAKAR SHETTY. WHILE DECIDING THE CA SE OF SHRI N. PRASAD (SUPRA) THE MEMBER CLEARLY MENTIONED THAT THEY ARE BOUND BY THE DECISION OF THE JURISDICTIONAL HIGH COURT. IT IS PE RTINENT TO MENTION THAT IN THE CASE OF R.F. NAGRANI, HUF THE ITAT E BENCH DE CIDED THE MATTER ON THE BASIS OF LATER JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. RIYAZ A. SHAIKH (2014) 41 TAXMAN.COM 455 (B OM) WAS NOT AVAILABLE WHEN THE MATTER OF SHRI SUDHAKAR SHETTY W AS DECIDED. 7.WE FIND THAT IN PALITANA SUGAR MILLS P. LTD. VS. STATE OF GUJARAT (AIR 2007 SC 1701 IT WAS OBSERVED AS UNDER: - IT IS WELL SETTLED THAT THE JUDGMENTS OF THIS COUR T ARE BINDING ON ALL THE AUTHORITIES UNDER ARTICLE 141 OF THE CONSTITUTI ON AND IT IS NOT OPEN TO ANY AUTHORITY TO IGNORE A BINDING JUDGMENT OF TH IS COURT ON THE GROUND THAT THE FULL FACTS HAD NOT BEEN PLACED BEFO RE THIS COURT AND/OR THE JUDGMENT OF THIS COURT IN THE EARLIER PR OCEEDINGS HAD ONLY COLLATERALLY OR INCIDENTALLY DECIDED THE ISSUES RAI SED IN THE SHOW CAUSE NOTICES. SUCH AN ATTEMPT TO BELITTLE THE JUDG MENTS AND THE ORDERS OF THIS COURT TO SAY THE LEAST IS PLAINLY PE RVERSE AND AMOUNTS TO GROSS CONTEMPT OF THIS COURT... COURTS HAVE HELD IN A CATENA OF DECISIONS THAT WHERE IN VIOLATION OF AN ORDER OF TH IS COURT, SOMETHING HAS BEEN DONE IN DISOBEDIENCE, IT WILL BE THE DUTY OF THIS COURT AS A POLICY TO SET THE WRONG RIGHT AND NOT TO ALLOW THE PERPETUATION OF THE ITA 6362 /MUM/2012 23 WRONG DOING. IN OUR OPINION, THE INHERENT POWER WIL L NOT BE AVAILABLE UNDER SECTION 151, CPC AS AVAILABLE TO US IN SUCH A CASE BUT IT IS BOUND TO BE EXERCISED IN THAT MANNER IN THE INTERES T OF JUSTICE AND PUBLIC INTEREST.' FROM THE ABOVE DECISION OF THE HON'BLE SUPREME COUR T THE FOLLOWING PROPOSITION EMERGES: - (A) IT IS IMMATERIAL THAT IN A PREVIOUS LITIGATION THE PARTICULAR PETITIONER BEFORE THE COURT WAS OR WAS NOT A PARTY, BUT IF LAW ON A PARTICULAR POINT HAS BEEN LAID DOWN BY THE HIGH COURT, IT MUST BE FOLLOWED BY ALL AUTHORITIES AND TRIBUNALS IN THE STATE. (B) THE LAW LAID DOWN BY THE HIGH COURT MUST BE FOL LOWED BY ALL AUTHORITIES AND TRIBUNALS WHEN IT HAS BEEN DECLARED BY THE HIGHEST COURT IN THE STATE AND THEY CANNOT IGNORE IT EITHER IN INITIATING PROCEEDINGS OR DECISION ON THE RIGHTS INVOLVED IN S UCH A PROCEEDING. 8. IN THIS REGARD, WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SIEMENS INDIA LTD. & ANR VS. K. SUBRAMANIAN , INCOME TAX OFFICER (1983) 34 CTR 23 OBSERVED IN PARA 24 OF THE IR ORDER AS UNDER: 24. IN EAST INDIA COMMERCIAL CO. LTD. VS. COLL ECTOR OF CUSTOMS, CALCUTTA, AIR 1962 SC 1893, THE SUPREME CO URT HELD THAT AN ADMINISTRATIVE AUTHORITY OR TRIBUNAL CANNOT IGNORE THE LAW DECLARED BY THE HIGHEST COURT IN THE STATE. THE SUP REME COURT POINTED OUT THAT TAKING INTO CONSIDERATION THE PROV ISIONS OF ARTS. 215, 226 AND 227 OF THE CONSTITUTION IT WOULD BE AN OMALOUS TO SUGGEST THAT A TRIBUNAL OVER WHICH THE HIGH COURT H AD SUPERINTENDENCE CAN IGNORE THE LAW DECLARED BY THAT COURT AND