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TMI Blog2014 (1) TMI 1681X X X X Extracts X X X X X X X X Extracts X X X X ..... d in favour of assessee. - ITA No.1200/Hyd/2010 - - - Dated:- 27-1-2014 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER Appellant by Shri SolgyJose T. Kottaram Respondent by Shri Y.R. Rao ORDER PER SAKTIJIT DEY, J.M: This appeal filed by the department is directed against the order dated 16-6-2010 of CIT (A)-V, Hyderabad passed in ITA No.292/DC- 16(2)/CIT(A)-V/2008-09 pertaining to assessment year 2006-07. 2. The only issue arising for consideration in the present appeal is whether the CIT (A) was correct in deleting the addition of ₹ 25 lakhs by holding that there is no transfer within the meaning of sec. 2(47) of the Act. 3. Briefly the facts are, the assessee is an individual. For the impugned assessment year the assessee filed his return of income on 31-10-2006 declaring income of ₹ 8,54,47,144/- During the scrutiny assessment proceeding it came to the notice of the Assessing Officer that the assessee during the previous year had retired as a partner from the partnership firm M/s Square Projects Associates on 20-4-2005. On retirement, the assessee apart from his share capital of ₹ 1 crore h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition made by the Assessing Officer is ordered to be deleted. 5. The learned DR submitted that since the assessee received the excess consideration of ₹ 25 lakhs towards transfer of goodwill, the Assessing Officer has rightly taxed it as short term capital gain. He further submitted that as goodwill is a capital asset, any consideration received towards transfer of goodwill is chargeable to capital gain tax. Therefore, CIT (A) was not correct in deleting the addition made by relying upon a decision which is factually distinguishable. 6. The learned AR in addition to submissions made at the time of hearing also filed a written submission. The learned AR contended that as per sec. 14 of the Partnership Act Goodwill is always the asset of the firm and there cannot be any transfer of goodwill by the assessee. The asset of the firm continues to be held by the firm itself, hence there is no provision to tax. The learned AR submitted, different High Courts as well as different benches of the Tribunal have held that excess amount by received cannot be taxed as transfer of goodwill and the excess amount received by partners on retirement or dissolution will not be liable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the surviving partners, and there is no transfer of ownership of the property in such cases. In light of above and catena of decisions it could be said that when a partnership is reconstituted by adding a new partner, there is no transfer of assets within the meaning of section 45(4). (Page 48 of Paper Book) 9. The learned AR submitted that though the Tribunal in some cases such as Girija Reddy vs. ITO (52 SOT 113), Shevanti Bhai vs. ITO (4 SOT 94), Sudhakar M. Setty vs. ACIT (130 ITD 197) has held that excess amount received in lump sum by a retiring partner is taxable but in all these decisions such conclusion was reached mostly on the basis of ratio laid down by the Mumbai High Court in the following cases:- i) CIT vs. Tribhuvandas G. Patel (115 ITR 95) ii) CIT vs. HR Ahot (115 ITRE 255) iii) W.A Moody vs. CIT (162 ITR 420 10. The learned AR submitted that decision of Mumbai High Court in case of Tribhuvandas G. Patel was reversed by the Apex Court in 236 ITR 515. Therefore, ratio laid down by the Mumbai High Court cannot be considered to be good law. He submitted that the jurisdictional High Court in case of CIT vs. P.H. Patel (171 ITR 128) dissented fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership w.e.f. 20-4-2005 by virtue of a deed of retirement executed on 20- 4-2005 and the other partners continued to carry on the partnership business. As per the terms of the deed of retirement, the assessee was to be paid a lump sum amount of ₹ 1,25,00,000/-. The relevant clause of the deed of retirement is extracted hereunder for convenience:- It is agreed between the parties a that after taking into account the capital investment made by the retiring partner, the goodwill of the partnership business with regard to the immovable properties purchased by the partnership firm and efforts made and time given by the retiring partner of the partnership business, the party of first part is entitled to receive a sum of ₹ 1,25,00,000/- ( Rupees one crore twenty five lakhs only) from the continuing partners towards full and final settlement and payment of his shares, right, title and interest and the claims of the partnership business and its assets including goodwill 14. While the Assessing Officer brought to tax the surplus amount of ₹ 25 lakhs by treating it as a transfer of goodwill, the CIT (A) deleted the addition by holding that there is no transfer whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hyderabad Bench in case of Durdana Khatoon vs. ITO (supra) held that when a partner receives her/his share in the assets of the partnership firm or when he receives anything in excess of her/his share in the assets of the partnership firm and even in a case a partner receives a share of profit either in case of retirement or in case of dissolution, the same cannot be brought to tax in view of the decision of Hon ble Supreme Court in case Tribhuvan Das G. Patel vs. CIT (236 ITR 515) and in case of CIT vs. R. Lingamallu Raghu Kumar (supra). While doing so, the Income-tax Appellate Tribunal, Hyderabad Bench also held that in view of the decisions of Hon ble Supreme Court, judgments of Hon ble Delhi High Court and Hon ble Bombay High Court (supra) are not applicable. The Hon ble jurisdictional High Court in case of Chalasani Venkateswara Rao vs. ITO (supra) held as under: 20. In L. Raghu Kumar (supra), a Division Bench of the Andhra Pradesh High Court followed the judgment of the Gujarat High Court in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj.) and held that no transfer is involved when a retiring partner receives at the time of retirement from the firm, his share in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a cooperative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. Thus it is clear that the legislature, even though it was aware of the above decisions, did not choose to amend the law by making the partner liable when it amended the I.T Act,1961 by introducing clause (4) to s.45 by the Finance Act,1987 w.e.f 1.4.1988 and made only the firm liable. Therefore the contention of the assessee has to be accepted and that of the Revenue is liable to be rejected. 16. A careful reading of the aforesaid decision of Hon ble Jurisdictional High Court would make it clear that they approved the view of their earlier decision holding that the amount received by the partner on the dissolution of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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