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2015 (12) TMI 1750 - AT - Income TaxCompensation for giving up right to receive pension - nature of receipt - Held that - This Tribunal in the case of Mr. Ramkrishna Agarwal -vs.- ACIT 2014 (7) TMI 1265 - ITAT KOLKATA wherein a similar amount received by the assessee as compensation for giving up his right to receive pension was held to be capital receipt not chargeable to tax. As rightly pointed out by the ld. D.R., the amount in question received by the assessee was never claimed by the assessee but although this claim was made by the assessee for the first time before the ld. CIT(Appeals), the impugned order of the ld. CIT(Appeals) does not show that he has verified the same from the relevant documentary evidence, such as the relevant partnership deed giving the assessee his right to receive pension, agreement whereby the right to receive pension, if any, was given up by the assessee for the amount in question, etc. He has contended that this matter may, therefore, be sent back to the file of the Assessing Officer for verifying the claim of the assessee. Ground No. 1 of the assessee s appeal is accordingly treated as allowed for statistical purposes Addition on account of share of goodwill received by the assessee on his retirement from the partnership firm - Held that - As the issue involved in the present case as well as all the material facts relevant thereto are similar to the cases of Shri Amitabh Singh (2007 (6) TMI 304 - ITAT DELHI) decided by the Coordinate benches of this Tribunal, we respectfully follow the decision rendered in the said cases to hold that the amount in question received by the assessee as his share of goodwill on retirement from the firm is not chargeable to tax being capital receipt.
Issues Involved:
1. Taxability of Rs. 1,46,00,000/- received by the assessee upon cessation of employment. 2. Taxability of Rs. 22,56,250/- received by the assessee as share of goodwill on retirement from the partnership firm. Detailed Analysis: 1. Taxability of Rs. 1,46,00,000/- Received Upon Cessation of Employment: The primary issue was whether the amount of Rs. 1,46,00,000/- received by the assessee upon cessation of employment should be treated as a capital receipt exempt from tax or as income from salary. The assessee contended that the amount was received from Ernst & Young LLP through Accounting Partners Trust upon termination of employment and claimed it as a capital receipt, exempt from tax. The Assessing Officer (AO) rejected this claim, treating the amount as income from salary, citing the lack of clarity on the purpose of the trust and the nature of the payment. The AO argued that the payment was compensation for loss of income due to voluntary retirement and thus taxable as salary income. The CIT(Appeals) upheld the AO's decision, stating that the lumpsum payment for giving up pension rights was professional income and not a non-taxable capital receipt. The CIT(A) emphasized that pension is a revenue receipt, and converting it to a lumpsum payment does not change its taxable nature. The Tribunal, upon hearing both sides, noted that the issue was covered by the decision of the Coordinate Bench in the case of Mr. Ramkrishna Agarwal, where a similar amount received as compensation for giving up pension rights was held to be a capital receipt. However, since the claim was not verified by the CIT(A) from relevant documentary evidence, the Tribunal set aside the CIT(A)'s order and remitted the matter back to the AO for fresh verification and decision in light of the precedent. 2. Taxability of Rs. 22,56,250/- Received as Share of Goodwill on Retirement: The second issue was whether Rs. 22,56,250/- received by the assessee as his share of goodwill from the partnership firm upon retirement should be taxed. The assessee claimed this amount as a capital receipt exempt from tax, arguing that it did not involve any transfer of goodwill. The AO treated the amount as income from other sources, reasoning that the goodwill created by the firm was a distribution of accumulated income, not taxed in the firm's hands, and thus taxable in the hands of the partner receiving it. The CIT(A) confirmed the AO's decision but categorized the amount as long-term capital gain instead of income from other sources. The CIT(A) highlighted that the goodwill was created in the firm's books and credited to the partners' accounts, making it taxable as capital gain. The Tribunal, agreeing with the assessee, referred to various judicial pronouncements, including the decisions of Coordinate Benches in similar cases. It held that the amount received by the assessee as his share of goodwill on retirement was a capital receipt not chargeable to tax. The Tribunal noted that the goodwill remained with the firm, and the amount received by the retiring partner was his share in the firm's assets, not a transfer of goodwill. Conclusion: - The Tribunal remitted the issue of Rs. 1,46,00,000/- back to the AO for fresh verification and decision. - The Tribunal ruled that the amount of Rs. 22,56,250/- received as share of goodwill was a capital receipt and not taxable. Outcome: - Assessee's appeal was partly allowed. - Revenue's appeal was dismissed.
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