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TMI Blog2016 (4) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of partnership, or on dissolution of a partnership firm, or on his retirement from partnership to get the valuation of his interest in the partnership asset which remains after debts and liabilities of partnership. On retirement share is determined on taking accounts of notional sale of partnership assets and given to him what he received is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. No element of transfer of interest in partnership assets by the retiring partners to the continuing partner no extinguishment of his interest in partnership assets. No transfer of his interest in the goodwill of the firm. Thus, no capital gains is chargeable u/s.45 of the Act. This decision was confirmed by the Hon’ble Supreme Court in the case of Additional CIT Vs. Mohanbhai Pamabhai (1987 (2) TMI 59 - SUPREME Court ) Regarding the applicability of provisions of the section 28(iv), there is no receipt of any value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession by present assessee. It is only by retirement from the partnership firm, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff depreciation loss of other units against the income of the assessee from the export business, which runs several units. This issue is squarely covered by the Decision of Karnataka High Court in the case of CIT v. YOKOGAWA INDIA LTD. reported in [2011 (8) TMI 845 - Karnataka High Court ] held that exemption u/s.10A has to be allowed without setting off brought forward unabsorbed losses or depreciation from earlier assessment year or current assessment year either in the case of non STP or in the case of from some other undertakings, being so depreciation loss of other units cannot be set off against the income for the assessee from the export purpose. - Decided in favour of assessee Reduction of miscellaneous receipts from the eligible profits in the computation of deduction u/s.10B - Held that:- The facts of the case are that the assessee’s claim that the said amount of receipts were earned in the course of carrying on the business of 100% EOU i.e receipts from the sale of scrap will also qualify for deduction is unacceptable. Sec.10B(4) clearly states that profits derived from export of articles should alone be considered. Needless to say that the income attributable to an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .01.214 pertaining to the assessment year 2009-10. 2.1 The assessee challenged in its appeal with regard to the findings of the CIT(A) that the receipt of amount of ₹ 26.99 crores on retirement as a partner from the firm of M/s. S.J.M. Property Developers is taxable income in the hands of the assessee in view of the provisions of the section 45(4) of the Act. 2.2 The Revenue is in appeal before us for deletion of addition of ₹ 27 crores from book profit by placing reliance on the decision of the Hon ble Apex Court in the case of Apollo TyresVs CIT 255 ITR 273(SC) by Ld.CIT(A). 3.1 The brief facts of the case are that the assessee company is involved in the business of manufacture of terry towels and weaving of yarn products. The assessee-company has made adjustments to the profit and loss account as per books by adding back inadmissible and deducting admissible items under the Income-tax Act, thereby claimed deduction u/s.10B in respect of Unit-2 (100% ECU) and Unit- 3 (weaving division-100% ECU) amounting to ₹ 49.27,77,765/- and arrived at a loss of ₹ 5,67,51,537/- in the computation statement. Hence the assessee-company filed the Return of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M property Developers. A sum equal to company s capital and current account balance outstanding as on the date of revaluation was repaid to it at the time of retirement and the remaining partners continued in the firm for the assets and liabilities. Further, it was found that the assessee has taken a stand on the basis of the above note that there is no transfer of any property by the assessee-company at the time of retirement from the firm and so, compensation amount received cannot be taxed as income of the assessee-company. 3.2 In order to verify the claim of the assessee, further details like development agreement copies, retirement deed copies, account copy of the assessee-company in the firm SJM Properties were called for and obtained from the assessee company. On going through the settlement deed dated 0910312009, it was seen that there was an agreement dated 06/02/2007 entered into between SJM Property Developers and MIs Metro Corp for relinquishment of 99% of shares of the assessee-company in the firm, M/s S,JM Property Developers in favour of Metro Corp., a third party (not a partner in MIs SJM Property Developers) for a consideration of ₹ 52 crores. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.05.2005 to develop residential township in the said land. Later, M/s.Madhavi Assets Pvt. Ltd., entered into an agreement with M/s Metro Corp on 05.08.2015 wherein M/s.Madhavi Assets Pvt. Ltd.,has assigned all the rights and authority pertaining to the development of the scheduled land in favour of M/s Metro Corp, Bangalore. There is one more joint venture agreement entered by M/s. S.J.M. Property Developers with M/s Metro Corp (Developers) for development of the said land on 06.02.2007. Later on 06.02.2007 assessee s 99% share in the firm M/s. S.J.M. Property Developers was relinquished in favour of M/s Metro Corp, Bangalore. As per this agreement dated 06.02.2007, assessee transferred 99% of the share capital in M/s. S.J.M. Property Developers and for that assessee has to receive ₹ 99,000/-. In the same deed in clause-2 on page-4 of the agreement, the assessee company agreed to advance ₹ 25 crores to M/s. S.J.M. Property Developers. As per clause-3 of the agreement, M/s Metro Corp has agreed to compensate the assessee company a sum of ₹ 27 crores and issued a post dated cheque. There is a Retirement cum Reconstituted partnership deed dated 31.01.2009 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book profit u/s.115JB of the Act and added the same, though the assessee directly taken the same from General Reserve Account in balance sheet without routing through P L A/c, the CIT(A) observed that in view of the Supreme Court decision in the case of Appollo Tyres reported in 255 TR 273, he allowed the claim and observed that the AO cannot consider this amount for the purpose of determining book profit. Against this Revenue is in appeal before us. 4. Before us, ld.A.R submitted that the assets of the firm are revalued and the increased value of land shown in the assets in the balance sheet of M/s. S.J.M. Property Developers as on 05.03.2009. As a result, the increased value of the land owned by the firm was settled to the extent of the share held by the assessee and this amount was credited to the capital account of the assessee in the books of account of M/s. S.J.M. Property Developers. Consequently, the Deed of Retirement was executed on 06.03.2009 and the account was settled on retirement and firm was continued by the remaining partners. According to the ld.A.R, the amount credited to the capital account of the assessee company being partner of M/s. S.J.M. Property Develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners, but the managing agency itself was a transferable asset of A Co.; (iii) that the transaction involved both an exchange and transfer of capital assets, and had all the elements of a sale, and the sum of ₹ 1,00,000 received by the assessee was, therefore, assessable to income-tax as capital gains under section 12B of the Income-tax Act. 4.(b) According to the ld.A.R, the benefit derived by the assessee is a capital receipt and it cannot be liable to be taxed in the hands of assessee. According to the ld.A.R., Memorandum of Agreement on 06.02.2007 between the assessee, D.Srinivasan, S.Srinivasan and M/s Metro Corp, or agreement dated 07.03.2009 between M/s Metro Corp Infrastructure and the assessee to sell Villa in favour of Sharadha Terry Products Ltd., or Facility Agreement dated 07.03.2009 between M/s Metro Corp Infrastructure and assessee in favour of the assessee towards part of consideration of payment or Construction agreement dated 07.03.2009 between M/s Metro Corp Infrastructure and the assessee as part of consideration of payment or Settlement deed dated 09.03.2009 between the assessee and M/s Metro Corp, Deepak Krishnappa and Uday Reddy cannot have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. He relied on the following higher judiciary pronouncements:- (i) Vana Silk Mills (P) Ltd., Vs. CIT reported in 191 ITR 647(SC) (ii) Marybong Kyel Tea Industries reported in 224 ITR 589(SC) (iii) CIT vs. Dynamic Enterprise reported in 359 ITR 83-FB (Karnataka High Court) 5. On the other hand, ld.D.R submitted that the transaction entered by the assessee with M/s. S.J.M. Property Developers as well as M/s.Metro Crop is a colorable device so as to reduce tax liability. According to him, all the agreements entered by the assessee to be seen collectively and truly in its perspective and it has to be treated as one common transaction entered through various separate agreements, but the common principle evolving is that it is the benefit derived by the assessee in the field of revenue account for investing ₹ 25 crores in M/s. S.J.M. Property Developers by way of loan and it is to be brought to tax. Further, he submited that the approach of assessee in revaluation of asset is not consistent and when on 31.01.2009 three partners were retired, there is no revaluation of assets. On 06.03.2009, only when the assessee was retired, there is revaluation of assets. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business hours on that day. In other words, the partnership subsisted but with two partners and the business also continued. That would, therefore, not amount to dissolution of the firm. There was no denial that there were family disputes amongst the partners and the genesis of the family arrangement was not disputed. The arrangement by way of division of the assets and business interests was clearly defined and was not an isolated transaction in respect of the firms. The finding by the Income-tax Appellate Tribunal that the deed of reconstitution by inducting a partner in the assessee-firm was not a device to avoid tax had to be upheld. However, the transfer of assets of the partnership to the retiring partners would amount to the transfer of the capital assets in the nature of capital gains and business profits which were chargeable to tax under section 45(4) . 5(a)(iv) Further, he relied on the judgement of Delhi High Court in the case of Bishan Lal Kanodia Vs. CIT reported in [2002] 257 ITR 449 (Del) wherein it was held that: whether it was held to be a case of dissolution of the partnership or of retirement, having regard to the provisions contained in section 47(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Construction agreement between Metrocorp Infrastructure and Sharadha Terry Products Ltd in favour of Sharadha Terry Products Ltd as a part of consideration of payment. 12 09.03.2009 Settlement deed - Sharadha Terry Products Ltd and Metrocorp, Deepak Krishnappa and Uday Reddy along with Balance Sheet as on 06.03.2009 before and after retirement of Sharadha Terry Products Ltd. 13 31.03.2009 Annual Accounts for the year 2008 - 2009 6.2 At this point of time, it is appropriate to refer to certain provisions of the Act relevant to the facts of the present case. 6.2.1 Section 2(47) defines what is transfer and it reads as follows : '(47) transfer , in relation to a capital asset, includes, (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner up to 1st April, 1988 did not result in incidence of capital gain. It was so held by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509. The Hon'ble Supreme Court held that under the IT Act, 1961, where a partner of a firm makes over capital assets which are held by him to a firm as his contribution towards capital, there is a transfer of a capital asset within the terms of s. 45 of the Act, because an exclusive interest of the partner in personal assets is reduced, on their entry into the firm, into a share interest. On such introduction of capital the partner's capital account is credited with the market value of the property. Such entry does not represent the true value of consideration. It is a notional value only, intended to be taken into account at the time of determining the value of the partner's share in the net partnership assets on the date of dissolution or on his retirement, a share which will depend upon deduction of the liabilities and prior charges existing on the date of dissolution or retirement. It is not possible to predicate before hand what will be the position in terms of monetary value of a partner&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emain after satisfying the liabilities set out in cl. (a) and sub cls. (i), (ii) and (iii) of cl. (b) of s. 48. 6.2.3 The position was later explained in the same judgment as follows (p. 1304) : The whole concept of partnership is to entry upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a person. Now every dissolution must in point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. 6.2.6 To plug this loophole the Finance Act, 1987, brought on the statute book a new sub-s. (4) in s. 45 of the Act, w.e.f. 1st April, 1988, which reads as follows : The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other AOP or BOI (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s payable to him on retirement. This could be done either on the basis of settling amounts standing to the credit of his capital account or on a lump sum basis. There could be a second situation where the retiring partner is paid consideration in cash and he gives up his rights as partner including his rights over the assets of the partnership. This again can be done either on the basis of settling amounts standing to the credit of his capital account or on a lump sum basis. 6.2.12 In the first situation i.e., retirement of a partner from the firm and the firm continuing its existence and the retiring partner is given assets in lieu of amounts payable to him on retirement, it has been held by the Hon'ble Bombay High Court to be covered by the provisions of s. 45(4) of the Act viz., a transfer giving rise to a capital gain. The Hon'ble Bombay High Court in the case of CIT Vs.,A.N.Naik Associates (265 ITR 346)(bom.). In the case of A.N. Naik Associates (supra) was dealing with a case of reconstitution of firm and allotment of assets to retiring partners. The reconstitution had taken place pursuant to a family arrangement. The chargeability to capital gain tax in such circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a clear distinction exists between retirement of a partner from a firm and dissolution of the firm. In the case of retirement of a partner from the firm it is only that partner who goes out of the firm and the remaining partners continue to carry on the business of the partnership as a firm, while in the case of dissolution of the firm the firm as such no more exists and the dissolution is between all the partners of the firm. The above decision in the case of A.N. Naik Associates (supra) however, treats distribution of assets of the firm to partners on dissolution or on retirement as falling within the ambit of s. 45(4). 6.2.14 The situation with which, we are concerned in this appeal is a case where the retiring partner is paid consideration in cash and he gives up his rights as partner including his rights over the assets of the partnership. There is divergence of view on the question as to whether there is any transfer at all in such situation by the firm in favour of the retiring partner or by the retiring partner in favour of the firm and its continuing partners. 6.2.15 In CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 the question before the Hon'ble Gujarat High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res from the partnership and there would be no transfer of interest in the partnership assets. The Hon'ble Supreme Court confirmed the decision of the Hon'ble Gujarat High Court in Mohanbhai Pamabhai's case (supra). Similar view was also expressed by the Hon'ble Supreme Court in the case of R. Lingmallu Raghukuma following its decision in the case of Mohanbhai Pamabhai. In CIT v. Kunnamkulam Mill Board [2002] 257 ITR 544/ 125 Taxman 802, the Hon'ble Kerala High Court also expressed the view that where there is revaluation of assets of the firm on reconstitution of a firm consequent to retirement of some of the partners, it cannot be said that there was any transfer of any right in immovable property in favour of continuing partners and therefore there can be no capital gain which can be brought to tax. However, the Hon'ble Bombay High Court in the following cases: (a) Tribuvandas G. Patel's case (supra ); (b) CIT v. H.R. Aslot [1978] 115 ITR 255(Bom); (c) N.A. Modi's case [1986] (162 ITR 420). 6.2.16 After considering the decision in the case of Mohanbhai Pamabhai held as follows in the case of Tribhuvandas G. Patel (supra): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor other High Courts have disapproved the proposition laid down by the Hon'ble Bombay High Court having regard to the particular mode of retirement. The Pune Bench further found that on the contrary, the Hon'ble Delhi High Court in the case of Bishan Lal Kanodia's case (supra) had concurred with the said proposition propounded by the Hon'ble Bombay High Court in the case of N.A. Modi (supra). Thus the question whether a transaction would amount to an assignment or release of interest by the continuing partner in favour of the continuing partners or not would depend upon what particular mode of retirement is employed and as indicated earlier, if instead of quantifying his share by taking accounts on the footing of notional sale, parties agree to pay a lump sum in consideration of the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners, the transaction would amount to a transfer within the meaning of s. 2(47) of the Act. 6.2.18 We shall therefore examine the mode of retirement in the case of the assessee, to see if the same can be said to be a transfer or not on the principle laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Hon'ble Court held that where accounts are taken and the partner is paid the amount standing to the credit of his capital account there would be no transfer. If, on the other hand, the partner is paid a lump sum consideration for transferring or releasing his interest in the partnership assets to the continuing partners then there would be an element of transfer. This aspect we have already examined in the earlier paras. What we have to see now is whether the terms of the deed of retirement constitutes release of any assets of the firm in favour of the continuing partners. Thereafter the Court referred to the deed between the parties and the following clauses : (at pp. 117 and 118) And whereas the said sums of ₹ 1,00,000, ₹ 50,000 and ₹ 7,50,000 in all aggregating to a total sum of ₹ 9,00,000 thus became payable by the continuing partners to the retiring partner in full and final satisfaction of all his claims in respect of his undivided half share in the business of the said partnership firm of M/s Kumar Engineering Works and all assets thereof and whereas the continuing partners have taken over the said business carried on by the said old firm o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upon dissolution of a firm. 6.2.21 In the case of N.A. Modi (supra) and H.R. Aslot's case (supra) the facts and manner of retirement and payment of consideration were identical. 6.3 Now, we are concerned with receipt of ₹ 26.99 crores by the assessee from M/s. S.J.M. Property Developers on 6th day of March, 2009 vide retirement deed 06.03.2009. As per this retirement deed, the continuing partners settled a sum of ₹ 27.00 crores towards current account balance and ₹ 99,000/- in capital account lying for its account as on 06.03.2009. Out of this amount, ₹ 26.99 crores has been emanated on 06.02.2007 between Sharadha Terry Products Ltd, D.Srinivasan, S. Srinivasan and Merocrop for clarity, we reproducing relevant conditions of the agreement. NOW THIS MEMORANDUM OF AGREEMENT WITNESSETH AS FOLLOWS: The First Party opts to retire and Leave the Partnership entered Into between them before the Lapse of six months from the date of the registration of Landed properties (in favour of the firm S J M property developers) situated at IIlathore Village, Kasaba Hobli, Devanahalil Taluk, Bangalore Rural District, the Party of the First Part, hoLdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm S J M Property Developers, during the above said six months period. 5. The re-payrnent of the loan amount and the compensation sum along with the income tax component would be paid to the party of the first part by way of post dated cheques with a comfort Letter from MIs. Vijaya bank. The payments of the above shall take place on or before the following days from the Land registration date 61st day - Rs. 8,00,00,000 91st day- ₹ 12,00,00,000 121st day- ₹ 16,00,00,000 180th day - Rs, 16,00,00,000 The party of the second part shall take alt efforts to repay earlier than the days Indicated above. When the amount is paid earlier than the final dates, the post dated cheques related to the earlier payments shall be returned to the party of the second part. 6. The PARTIES OF THE FIRST PART who are the partners along with Si Deepak Knshnappa and Sri Uday Reddy of the firm SJM Property Developers hereby assure, covenant and confirm with the PARTY OF THE SECOND PART that they will come forward ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its assets in favour of the continuing partners. We are of the view that the receipt of this amount on retirement in this case cannot be regarded as relinquishment by the retiring partner of its share or in the partnership firm and its asset in favour of continuing partners. 6.5 Further in the case of CIT Vs.Dynamic Enterprise reported in 359 ITR 83(Kar.) held that when retiring partner takes only money, towards value of its share and when there is no distribution of capital asset among partners, there is no transfer of capital asset and consequently no profit or gain is payable u/s.45(4) of the Act. 6.6 The Hon ble Andhra Pradesh High Court in the case of CIT Vs. United Fish nets ( 372 ITR 67) held that the distribution must result in some tangible act of physical transfer of properties or intangible act of conferring exclusive rights vis-a-vis an item of property on the erstwhile partner. 6.7 In the case of CIT Vs. Vijayalakshmi Metal Industries (256 ITR 540) wherein held that s.45. (4) is concerned that the capital gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm. 6.8 The learned AR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal account and current account and not for relinquishing or extinguishing his rights over any assets of the firm. Furthermore, the amount also not credited to his account on the date of retirement on signing the retirement of partnership deed to hold that there is capital gain in the hands of the assessee. Further, in the judgement of Supreme Court in the case of Additional CIT Vs. Mohanbhai Pamabhai (165 ITR 166), Tribhuvan Das G.Patel Vs. CIT ( 236 ITR 515) and CIT Vs.R.Lingamallu Raghu Kumar (247 ITR 801) and Hon ble Bombay High Court in the case of CIT Vs.Riyaz A.Shikh in 1969 of 2011 dated 26.02.2013 held that amount received by the retiring partner standing to the credit of his account not chargeable to tax in the hands of the partners. 6.9.1 In the case of N.Prasad,Executive Chairman, Matrix Laboratories Ltd., in ITA No.1200/Hyd./ 2010 dated 27.01.2014 observed as under: 13. We have considered the submissions of the parties and perused the materials on record. We have also carefully applied our mind to the decisions cited before us. Undisputed facts are, the assessee along with two others was carrying on business in partnership in the name and style of Square Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tories limited. (supra) held that where there is a reconstitution of the firm consequent to the retirement of some of the partners it cannot be said that there was any transfer of any right in immovable property in favour of continuing partner. The larger bench of Karnatalca High Court in case of CIT vs. Dynamic Enterprises (supra) while interpreting section 45(4) of the IT Act held that in case of distribution of capital assets on the dissolution of the firm, there is a transfer of capital asset by the firm in favnur of the person and resulting profits or gains shall be chargeable to tax as the income of the The larger bench further went on to hold that when cash representing the value of the share in the partnership is given to the retiring partners, no capital asset was transferred by the firm to the partner. The Hon ble High Court held that to attract section 45(4) there should be a transfer of capital asset from the firm to the retiring partner by which the firm ceases to have any right in the property which is so transferred. In other words, its right to the property should stand extinguished and the retiring partner acquires absolute title to the property. If we apply the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, which are binding on us, we hold that the I.T.A.T. was not correct in confirming the orders passed by the C.I.T. (Appeals) and the respondent. When the appellant was paid ₹ 15.00 lakhs by Y. Kalyana Sundaram in full and final settlement towards his 50% share on the dissolution of the firm, there was no transfer as understood in law and consequently there cannot be tax on alleged capital gain. The appellant was correct in law in contending that the amount he received from Y. Kalyana Sundaram is towards the fufl and final settlement of his share and such adjustment of his right is not a transfer in the eye of law. It is a recognized method of making up the accounts of the dissolved firm and the receipt of money by him is nothing but a receipt of his share in the distributed asset of the firm. The appellant received the money value of his share in the assets of the firm. He did not agree to sell, exchange or transfer his share in the assets of the firm. Payment of the amount agreed to be paid to the appellant under the compromise was not in consequence of any share, exchange or transfer of assets to Y. Kalyana Sundaram. Moreover , as rightly contended by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mainly relied upon the following decisions. i) CIT vs. Tribhuvan Das G. Patel (115 ITR 95) ii) CIT vs. H.R. Aslot iii) N.A. Moody vs. CIT (supra) iv) Mumbai Tribunal in the case of Sudhakar M. Shetty vs. ACIT (130 ITO 197) v) Shevanti Bhai vs. ITO (4 SOT 94) 17. However, it appears the decision of Income-tax Appellate Thbunal , Hyderabad Bench in case of Doordana Khatoon vs. ITO (supra) was not placed before the Bench. That besides the aforesaid decision of the lncome-tax Appellate Tribunal in case of Smt. Girija Reddy was prior to the judgment of the Hon ble jurisdictional High Court in case of Chalasii Venkateswara Rao vs. ITO(supra). That apart, a reading of clause 4 of the deed of retirement makes it clear that the amount of ₹ 1.25 cores was paid to the assessee towards his share capital and not for relinquishing or extinguishing his rights over any assets of the firm. The term goodwill, in our view has been loosely used in the aforesaid clause. Furthermore, a plain reading of the clause 4 will not in any manner indicate that payment of ₹ 25 lakhs was towards transfer of goodwill as 1TA no.1200 of 2010 Shri N. Prasad, Executive Chairman, Matrix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of interest in the partnership assets. Interest of a partner in a partnership firm is not an interest in a specific item of partnership property. It is his right to obtain his share of profit from time to time during the subsistence of partnership, or on dissolution of a partnership firm, or on his retirement from partnership to get the valuation of his interest in the partnership asset which remains after debts and liabilities of partnership. On retirement share is determined on taking accounts of notional sale of partnership assets and given to him what he received is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. No element of transfer of interest in partnership assets by the retiring partners to the continuing partner no extinguishment of his interest in partnership assets. No transfer of his interest in the goodwill of the firm. Thus, no capital gains is chargeable u/s.45 of the Act. This decision was confirmed by the Hon ble Supreme Court in the case of Additional CIT Vs. Mohanbhai Pamabhai (165 ITR 166) 6.9.4 Now regarding the reliance placed by the ld.D.R in the judgement of Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come It was held that the Revenue contention that the amounts received by the respondent-assessees were for the purpose of not carrying out any activity in relation to any business cannot be accepted. There was no agreement entered into between the assessees with the business stating that they will not be carrying on any business activity. There was no agreement whatsoever including in the nature of non-competition. The assessees have received the amount not because of any particular agreement, but because of their retirement from the business. The retirement deeds executed by the parties were not in the nature of any agreement restraining the parties from carrying on business activities. Therefore, Section 28(va) is not applicable to the case of partners retiring from the business. That clause is more applicable to situations like non-competition agreement, etc. (Para 8, 9) There is no element of profit in such additional payments to the assessees. This is because the profit till the date of retirement has been worked out by the firms and the shares of the retiring partners have already been credited to their capital accounts. The capital accounts of the retiring partners r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year involved is 2008-09. How the transactions entered on 06.02.2007 would be brought to tax in the assessment year 2008-09, even it is admitted that income was accrued to the assessee on 06.02.2009 vide that Memorandum of agreement. More so, when the assessee is following Mercantile system of accounting as noted by the AO in its first page of assessment order at serial No.8, there is no force in the argument of the ld.D.R to hold that the said amount to be taxed in the assessment year 2008-09 8. The next ground in the assessee s appeal is that the Ld.CIT(A) erred in sustaining the re-computation of the deduction u/s.10B of the Act by setting off the depreciation loss of non-eligible units against the income of eligible units involved in the activity of export in the computation of taxable total income without assigning proper reasons and justification. 9. The facts are that in this ground the assessee wants not to set off depreciation loss of other units against the income of the assessee from the export business, which runs several units. This issue is squarely covered by the Decision of Karnataka High Court in the case of CIT v. YOKOGAWA INDIA LTD. reported in [2012] 341 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J . The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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