9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (7) TMI 158 - AT - Income TaxCapital gain on relinquishment of rights in the assets of the firm - assessee paid amounts over and above the sum, standing to the credit of the capital account - amounts due to the assessee upon retirement from partnership - ascertained goodwill for the purposes of accounting and settlement - whether the amount received by the assessee in excess of the amount standing to the credit of the partnership firm which is paid towards the notional gain on revaluation of land held as stock in trade is goodwill as the and therefore not liable to tax? - contention of AR that difference between the total amount standing to the credit of the capital account, in the form of capital contribution, interest and accumulated profits and the final amount paid to the assessee at the time of retirement is goodwill - HELD THAT - We notice that, the revaluation of the inventory carried out by the firm was not accounted in the books by the firm, nor the same is reflected in the capital accounts of the partners. The computation of the gain is not disputed by the lower authorities, though the assessee has not produced any supporting document to show how the original cost of the land was arrived at. The important fact to be noted here is that, neither the stock in trade (land) is reflecting the revalued amount nor the capital account of the partners is credited with the gain on revaluation. When an Accounting Standard deals with a specific intangible asset, then AS-26 does not apply e.g., Valuation of Inventories. Also the internally generated goodwill arises when an enterprise incurs expenditure for future benefits e.g., Scientific Research, development of prototypes, etc., then the enterprise should not recognize any goodwill that may arise out of incurring of such expenditure at a future period as it is beyond the control of the enterprise. We are, therefore, of the view that the claim of the assessee for not routing the revaluation through the capital account of the partners stating it to be a practice as per AS-26 is not tenable. The Tribunal in the case of Savitri Kadur 2019 (7) TMI 593 - ITAT BANGALORE clearly stated that the goodwill to the extent of the amount recorded in the books is not taxable and the goodwill that is not substantiated by entries in the books of accounts of the assessee would become taxable. In assessee s case though the assessee claims that the difference in the amount as per capital account in the books and the amount settled to the assessee is goodwill, however, the same is not recorded in the books. Hence, respectfully following the above decision of the coordinate bench of the Tribunal, we hold that the amount being the amount paid in excess of what is standing to the credit of the partner s capital account is taxable in the hands of the assessee. Thus, the appeal of the assessee is dismissed.
Issues Involved:
1. Whether the amount received by the assessee in excess of the amount standing to the credit of the partnership firm, paid towards the notional gain on revaluation of land held as stock in trade, is 'goodwill' and therefore not liable to tax. Issue-wise Detailed Analysis: 1. Nature of the Amount Received: The primary issue was whether the amount received by the assessee over and above the capital account balance, termed as goodwill, is taxable. The assessee argued that the amount received is towards the share of goodwill arising from the revaluation of the property and should not be taxable. The assessee relied on various case laws to support this claim, including Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj) and others, arguing that the goodwill created by revaluation received by the retiring partner as part of reconstitution is not liable to tax. 2. Assessing Officer's (AO) Stand: The AO treated the amount as consideration for the transfer of a capital asset, resulting in income chargeable to tax under 'Capital Gains'. The AO held that there was a transfer by the assessee by way of relinquishment of rights in the assets of the firm and relied on the decision in J.K. Kashyap v ACIT (2008) 302 ITR 255 (Del), which held that relinquishing rights in the property for consideration amounts to transfer under section 2(47) of the Act and is liable to capital gains tax under section 45 of the Act. 3. Commissioner of Income Tax (Appeals) [CIT(A)] Decision: The CIT(A) upheld the AO's decision, noting that the assessee relinquished its share in the land held by Sobha City in favor of other partners, constituting a transfer of immovable property. Therefore, the amount was treated as income chargeable to tax under 'Capital Gains'. 4. Arguments by the Assessee: The assessee contended that the amount received over the capital account balance was goodwill from revaluation and should not be taxable. The assessee cited various judgments, including CIT v. Bankey Lal Vaidya (1971) 79 ITR 594 (SC) and Malabar Fisheries Co. v. CIT (1979) 120 ITR 49 (SC), to argue that such goodwill is not liable to tax. 5. Department's Rebuttal: The department argued that the amount received by the assessee was over and above the capital account balance and should be treated as capital gains. The department relied on the ITAT Mumbai decision in Sudhakar M. Shetty v. ACIT (2011) 130 ITD 17 (Mum), which held that when a retiring partner is paid more than the capital account balance, it amounts to capital gain. 6. Tribunal's Analysis: The Tribunal analyzed the relevant provisions of the Act, including Section 45(1) and Section 2(47), which define 'transfer' in relation to a capital asset. The Tribunal noted that the revaluation of inventory carried out by the firm was not accounted for in the books, nor was it reflected in the capital accounts of the partners. The Tribunal referred to Accounting Standard 26 (AS-26), which states that internally generated goodwill should not be recognized as an asset. The Tribunal concluded that the claim of the assessee for not routing the revaluation through the capital account was not tenable. 7. Tribunal's Conclusion: The Tribunal held that the amount paid to the assessee over and above the capital account balance is taxable. The Tribunal referred to the decision in Savitri Kadur v. DCIT (2019) 106 taxmann.com 314 (Bang. Trib.), which stated that goodwill not substantiated by entries in the books of accounts would become taxable. The Tribunal dismissed the appeal, holding that the amount of Rs. 12,84,06,525 paid in excess of the partner's capital account is taxable in the hands of the assessee. Final Judgment: The appeal of the assessee was dismissed, and the amount received over the capital account balance was held to be taxable as capital gains.
|
