2018 (6) TMI 362 - AT - Income Tax

Exemption u/s.10(2A) - amount received by a retired partner from its earstwhile partnership firm - Held that - Said section 10(2A) makes the profit of a firm assessed as such exempt in the hands of its partners. In the present case, the assessee company was not at all partner in the said firm. It had retired from the firm with effect from 01.04.2009. Hence, the amount received by a retired partner from its earstwhile partnership firm cannot at all be claimed to be exempt u/s.10(2A). Hence, we are of the considered opinion that the action of the assessing officer is quite correct in holding that assessee is not eligible for exemption u/s.10(2A). Sum received as exempt as capital receipt - Held that - when the assessee company had not accounted for the revaluation reserve in the past when it had accrued and consciously left it in the hands of the firm, it cannot claim that the receipt in the present year relates to the above said revaluation despite the fact that assessee had retired duly relinquishing its rights and properties in the said firm. Hence, in our considered opinion, the ld. Commissioner of Income Tax (Appeals) has clearly erred in holding that this sum has been received upon retirement from the firm and it is a capital receipt. - Decided in favour of revenue

Summary

Issues:
1. Exemption under section 10(2A)
2. Capital gains
3. Computation of book profits under section 115JB

Analysis:
1. Exemption under section 10(2A):
The case involved cross-appeals by the Revenue and the assessee regarding the deletion of assessed capital gain and the treatment of an amount as capital receipt not chargeable to tax under section 45. The assessee claimed exemption under section 10(2A) for an amount received from a partnership firm upon retirement. The assessing officer rejected the claim, stating it was a case of capital gain tax liability. The Commissioner of Income Tax (Appeals) affirmed this decision. However, the Tribunal disagreed, holding that the amount received was not taxable under the Income Tax Act as it was related to a revaluation reserve and not a profit. The Tribunal concluded that the revaluation amount was a capital receipt exempt from tax, overturning the Commissioner's decision.

2. Capital gains:
The Tribunal analyzed the retirement deed and the nature of the payment received by the assessee from the partnership firm. It determined that the sum received was a capital receipt as the assessee had relinquished its rights in the firm's assets upon retirement. The Tribunal held that the amount was not taxable as capital gains, contrary to the Commissioner's view. It emphasized that the revaluation reserve was not accounted for in previous years and, therefore, the receipt in the current year could not be linked to that revaluation. The Tribunal upheld the assessing officer's decision on this issue, ruling in favor of the Revenue.

3. Computation of book profits under section 115JB:
Regarding the computation of book profits under section 115JB, the Tribunal found that the amount received by the assessee was neither a capital receipt nor related to the revaluation of the company's assets. Therefore, it set aside the Commissioner's order allowing a deduction in the computation of book profit. The Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal, deciding the issue in favor of the Revenue.