2015 (12) TMI 1174 - AT - Income Tax

Taxability of amount received on retirement from partnership firm - whether taxable under the head Capital Gains on the mistaken belief that retirement from partnership amounts to transfer within the meaning of section 2(47)? - Held that - The amount received by assessee on retirement from partnership firm is not taxable under the head capital gains . See Riyaz A. Sheikh 2013 (12) TMI 248 - BOMBAY HIGH COURT wherein held Amounts received on retirement by a partner is not subject to capital gains tax - Decided against Revenue.

Summary

Issues Involved:
1. Taxability of the amount received by the appellant on retirement from the partnership firm under the head "Capital Gains."
2. Application of judicial precedents and principles of judicial discipline in deciding the taxability issue.
3. Levy of penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Taxability of the Amount Received on Retirement:
The primary issue was whether the amount of Rs. 30,87,98,088 received by the appellant on retirement from the partnership firm M/s. D.S. Corporation is taxable under the head "Capital Gains." The CIT(A) upheld the AO's decision that the retirement amounts to a "transfer" within the meaning of Section 2(47) of the I.T. Act, thus subjecting it to capital gains tax.

The appellant contended that no transfer had taken place under the deed of retirement, and thus, no capital gains tax liability should arise. The CIT(A) failed to appreciate the facts and relevant law, including judgments from the Supreme Court and the jurisdictional High Court, which were not followed.

2. Application of Judicial Precedents:
The Tribunal noted that in a similar case involving the appellant's husband, Shri Sudhakar Shetty, the issue was decided against the assessee based on the jurisdictional High Court's decision. However, it was highlighted that the Department, after the decision in Sudhakar Shetty's case, reassessed the firm M/s. D.S. Corporation under Section 45(4) of the Act, realizing that it could not assess the partners individually for the income received on retirement.

The Tribunal emphasized the importance of judicial precedents and the doctrine of judicial discipline, noting that the law laid down by the High Court must be followed by all authorities and Tribunals within the state. The Tribunal referred to the case of R.F. Nangrani, HUF vs. DCIT, where the ITAT reversed its earlier decision in Sudhakar Shetty's case, following the jurisdictional High Court's ruling in CIT vs. Riyaz A. Shaikh (2014).

The Tribunal also cited the Supreme Court's decision in Palitana Sugar Mills P. Ltd. vs. State of Gujarat, which underscores the binding nature of higher court judgments on subordinate authorities and Tribunals.

3. Levy of Penalty under Section 271(1)(c):
The appeal also addressed the levy of penalty under Section 271(1)(c) of the I.T. Act. Since the primary appeal on the taxability of the retirement amount was decided in favor of the assessee, the issue of penalty became academic and was dismissed accordingly.

Conclusion:
The Tribunal concluded that the amount received by the assessee on retirement from the partnership firm is not taxable under the head "Capital Gains," following the jurisdictional High Court's decision in CIT vs. Riyaz A. Shaikh. Consequently, the appeal on merits was allowed, and the appeal regarding the penalty under Section 271(1)(c) was dismissed as academic.

Order Pronouncement:
The order was pronounced in the open court on 1st December 2015.