2018 (4) TMI 1212 - HC - Income Tax

Addition u/s 45(1) under the head long term capital gains - Whether right of partner in the partnership firm is a capital asset u/s 2(14) and retirement of partner lead to extinguishment of such right in the firm amounting to transfer u/s 2(47) giving rise to capital gains exigible to tax? - amount received as goodwill on retirement is taxable in the hands of the retiring partner as capital gain - Held that - There is nothing on record to indicate that it was a Revenue s contention before the authorities that the amount received by the respondent was not goodwill. In fact, the submission that in the absence of goodwill being indicated in the balance sheet of the partnership firm, there could not be no goodwill available to the firm is an issue being urged for the first time before this Court. Therefore, in the absence of this issue being raised before the authorities under the Act, it will not be question arising from the case. There is nothing on record on facts to indicate that the amount received by the respondent is not goodwill. Therefore, the decision of this Court in Riyaz A. Sheikh (2013 (12) TMI 248 - BOMBAY HIGH COURT) will apply wherein held amounts received on retirement by a partner is not subject to capital gains tax - Decided against Revenue.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Year 2009-10 under Section 260A of the Income Tax Act, 1961.
2. Questions raised by the Revenue regarding the deletion of addition under long term capital gains, retirement of a partner in a partnership firm, transaction amounting to transfer, consideration of goodwill, and fulfillment of conditions under Section 54F of the Act.

Analysis:

Regarding questions (i) to (iv):
- The Tribunal allowed the respondent's appeal on the issues raised by the Revenue concerning the addition under long term capital gains and retirement of a partner in a partnership firm. The Tribunal's decision was based on previous rulings and upheld by the High Court in similar cases. The Revenue contended that the amount received as goodwill on retirement should be taxable, but the Court found no evidence to support this claim. The Court dismissed the appeal, stating that the decision in previous cases applies in the absence of new evidence.

- The issue of the cost of acquisition of goodwill was deemed irrelevant in this case as previous rulings had already established that amounts received on account of goodwill on retirement are not subject to capital gains tax. The Court rejected the argument that the law was not properly appreciated in previous decisions, stating that the decisions were binding unless appealed to a higher court. The Court emphasized the importance of following decisions of a coordinate bench in the absence of new evidence or distinctions on facts.

- The Court noted that the decision in a previous case was not appealed to the Apex Court due to low tax effect and explained that non-filing of an appeal does not diminish the status of a decision as a binding precedent. The Court reiterated the rule of law requiring adherence to decisions of a coordinate bench unless overturned by a higher forum.

Regarding questions (v) and (vi):
- The Court found that these questions were dependent on the admission of questions (i) to (iv) and thus were considered academic. Since questions (i) to (iv) were not entertained, questions (v) and (vi) were also dismissed.

- In conclusion, the appeal was dismissed, and no costs were awarded. The Court's decision was based on the application of previous rulings and the lack of new evidence or substantial questions of law arising from the case.

This detailed analysis covers the issues raised in the judgment, providing a comprehensive overview of the Court's decision and the legal reasoning behind it.