2019 (4) TMI 1041 - HC - Income Tax

Exemption under Section 10(2A) - receipt on retirement from partnership firm - chargeability of the receipt as capital gain - question of applicability of the judgments of the Supreme Court - HELD THAT - In view of the facts on record, which do not seem to be in any manner disputed, the question of applicability of the judgments of the Supreme Court would arise. The applicability of the decision of the Gujarat High Court in case of CIT Vs. Mohanbhai Pamabhai 1971 (9) TMI 56 - GUJARAT HIGH COURT as confirmed by the Supreme Court in case of CIT Vs. Mohanbhai Pamabhai 1987 (2) TMI 59 - SUPREME COURT the decision of the Supreme Court in case of Sunil Siddharthbhai Vs. CIT 1985 (9) TMI 7 - SUPREME COURT as also the decision of the Supreme Court in case of CIT Vs. R. Lingmallu Raghukumar 1997 (1) TMI 74 - SUPREME COURT would have to be examined. Since this has not been done at the level of the Tribunal, we are of the opinion that it would be a better option that the Tribunal at first instance undertakes such exercise. Only on this ground, the impugned judgment of the Tribunal is set aside. Tribunal is requested to decide the appeals afresh on merits after considering the contentions of both sides

Summary

Issues:
Challenge to ITAT judgment rejecting assessee's appeal and allowing Revenue's cross-appeal.

Detailed Analysis:
1. The appeal was filed to challenge the ITAT judgment dated 1.6.2018, which rejected the assessee's appeal and allowed the Revenue's cross-appeal arising from the common judgment of the Income Tax Appellate Commissioner.
2. The case involved an assessee who was a partner in a firm engaged in investment and financing. The firm revalued its assets in 2007, resulting in appreciation of ?262.12 Crores. The assessee retired from the partnership in 2009 and was entitled to receive its share, including the revaluation amount. The assessee claimed this amount as exempt under Section 10(2A) of the Income Tax Act, but the Assessing Officer taxed it as capital gain.
3. The Commissioner (Appeals) held that the amount did not give rise to capital gain but made adverse observations. This led to cross-appeals by both the Revenue and the assessee. The Tribunal rejected the assessee's claim of exemption under Section 10(2A) and observed that the sum received was not a capital receipt upon retirement from the firm.
4. The High Court noted that the Tribunal did not consider the applicability of certain Supreme Court judgments. Therefore, the High Court set aside the Tribunal's judgment and requested a fresh consideration of the appeals on merits, emphasizing the need to examine the relevant legal precedents. The High Court clarified that it had not expressed any opinion on the arguments presented by both sides.

In conclusion, the High Court disposed of the appeal with the direction for the Tribunal to reexamine the appeals considering the relevant legal precedents and arguments presented by both parties.