2013 (10) TMI 519 - AT - Income Tax

Validity of reopening assessment - Whether there was change of opinion - Held that - assessment was reopened by issuing notice u/s 148 of the Act on 21.3.2011. It is noticed that the assessment has been re-opened within four years from the end of the assessment year and hence the restrictions placed in the proviso to sec. 147 are not applicable to the instant case - assessing officer did not make any enquiry about the issue during the course of assessment proceeding and was satisfied with the reply given by the assessee in that regard. In the absence of any discussion in the assessment order and also in the absence of any enquiry relating thereto, it cannot be said that the Assessing Officer had formed an opinion with regard to the assessment of goodwill. In that case, it cannot be said that the view entertained by the Assessing Officer that the goodwill amount has to be assessed as revenue receipt was on account of mere change of opinion - Decided against assessee. Capital or Revenue receipt - Goodwill amount - Held that - Though the AO states that the partnership firm (purchaser) did not show the amount of Rs.24.00 lakhs as good will, yet AO did not make any enquiry in that regard with the partnership firm. Generally, the nature of payment could be determined by examining the agreement entered between two parties. In the instant case, there is no discussion about the existence of agreement, if any, towards payment of Rs.24.00 lakhs to the assessee - even if it is considered that the assessee did not receive the amount of Rs.24.00 lakhs towards good will, the said amount should be considered as having been received only towards transfer of land and building, in which case also, the above said amount of Rs.24.00 lakhs is liable to be taxed as Long term capital gain only - there is no reason to suspect the claim of the assessee that he received the amount of Rs.24.00 lakhs towards good will. - Decided in favour of assessee. Taxability of amount received towards transfer of Bar Licence - Held that - Even though the partnership deed states that all the assets of the erstwhile proprietary concern shall become the proprietary of the partnership firm, what is relevant for the purposes of taxation in the hands of the assessee herein is the nature and quantum of amount received by him towards compensation for transferring his business to the partnership firm. - the amount of Rs.18.00 lakhs received by the assessee has to be necessarily treated as received as compensation towards the advance licence fee paid by the assessee by March, 2006. - not liable to be taxed - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment.
2. Classification of the goodwill amount as revenue receipt or capital gain.
3. Taxability of the amount received towards bar license fee as reimbursement or business receipt.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee challenged the reopening of the assessment on the grounds of it being a mere change of opinion. The original assessment was completed under section 143(3) on 23-12-2008, and the reassessment notice was issued under section 148 on 21-03-2011. The reopening was within four years from the end of the assessment year, making the restrictions in the proviso to section 147 inapplicable. The reasons for reopening were the incorrect classification of the goodwill amount and the non-inclusion of the bar license fee in the income. The Tribunal found no evidence that the original assessment involved any discussion or inquiry about these issues, thus upholding the reopening as valid.

2. Classification of Goodwill Amount:
The assessee received Rs. 24.00 lakhs as goodwill on selling his proprietary business to a partnership firm and declared it as a long-term capital gain. The AO treated it as a revenue receipt, citing the absence of goodwill in the balance sheets of both the proprietary business and the partnership firm. The AO also referenced section 28(va)(a) of the Act, suggesting the amount was for not carrying out any business activity. The Tribunal disagreed with the AO, noting the absence of any agreement to support this claim and recognizing the goodwill generated over 25 years of business. Consequently, the Tribunal directed the AO to treat the amount as goodwill, taxable as a long-term capital gain.

3. Taxability of Bar License Fee:
The assessee received Rs. 18.00 lakhs as reimbursement for the bar license fee paid in advance for the financial year 2006-07. The AO considered it part of the compensation for converting the proprietary business into a partnership firm. The Tribunal upheld the CIT(A)'s decision that the amount was a reimbursement of expenses, not income, as it was shown as a current asset in the balance sheet and paid before the business transfer.

Conclusion:
The Tribunal allowed the assessee's appeal, treating the goodwill amount as a long-term capital gain, and dismissed the revenue's appeal, confirming the bar license fee as a non-taxable reimbursement. The decision was pronounced on 20-06-2013.