2017 (1) TMI 1731 - AT - Income Tax

Sum received at the time of retirement from the said firm - assessee partner has received a sum being transferred / relinquishment of right by the assessee in the firm M/s Deccan Enterprises Bangalore - alternative submission to treat the alleged addition received at the time of retirement as the income of the firm - addition u/s 68 as assessee has not maintained books of accounts - HELD THAT - This is a clear cut case of assessee receiving a sum of money on retirement from the firm.Admittedly in the present case the assessee has not taken any property while relinquishing her share in the partnership firm rather she has taken equllant amount on retirement. The assets and firm is retained by the surviving partners. In such situation respectfully following the judgment in the case of Prashant S. Joshi 2010 (2) TMI 271 - BOMBAY HIGH COURT and Riyaz A. Sheikh 2010 (2) TMI 271 - BOMBAY HIGH COURT we hold that the retirement funds received are not subject to tax and not in the nature of goodwill also. Accordingly we reverse the orders of the lower authorities and allow the appeal of the assessee.

Summary

Issues Involved:
1. Ex-parte assessment under Section 144 of the Income Tax Act.
2. Addition of ?5,00,000/- under Section 68 of the Income Tax Act.
3. Addition of ?36,42,860/- received from a firm at the time of retirement.

Issue-wise Detailed Analysis:

1. Ex-parte assessment under Section 144 of the Income Tax Act:
The learned Counsel for the assessee stated that he was not interested in prosecuting the ground regarding the ex-parte assessment under Section 144 of the Act. Consequently, this ground was dismissed as not pressed.

2. Addition of ?5,00,000/- under Section 68 of the Income Tax Act:
Similarly, the assessee's counsel did not pursue the ground concerning the addition of ?5,00,000/- under Section 68 of the Act. Therefore, this ground was also dismissed as not pressed.

3. Addition of ?36,42,860/- received from a firm at the time of retirement:
The primary issue in this appeal was the addition of ?36,42,860/- received by the assessee from M/s Deccan Enterprises at the time of retirement. The facts revealed that the assessee was a partner in the firm along with her family members. During a survey conducted under Section 133A of the Act, it was found that the assessee received ?36,42,860/- as consideration for relinquishing her share in the firm. The Assessing Officer (AO) treated this amount as income from undisclosed sources under Section 68 of the Act, as it was not declared in the return of income filed on 31-10-2004.

The CIT(A) confirmed the AO's action but held that the amount received was in the nature of goodwill and liable to be taxed as such. Upon appeal, the Tribunal referred to the judgments of the Hon'ble Bombay High Court in CIT Vs. Riyaz A. Sheikh and Prashant S. Joshi v. ITO. The Tribunal noted that amounts received by a partner upon retirement do not constitute a transfer within the meaning of Section 2(47) and are not subject to capital gains tax. The Tribunal emphasized that the amount received by the assessee was her share in the partnership, worked out by taking accounts, and did not involve a transfer of interest in the partnership assets.

The Tribunal concluded that the retirement funds received by the assessee were not subject to tax and reversed the orders of the lower authorities, allowing the appeal of the assessee.

Conclusion:
In summary, the Tribunal dismissed the grounds related to the ex-parte assessment and the addition of ?5,00,000/- as not pressed. It allowed the appeal concerning the addition of ?36,42,860/- received at the time of retirement, holding that such amounts are not taxable as they do not constitute a transfer of interest in the partnership assets. The appeal of the assessee was thus allowed.