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TMI Blog2014 (1) TMI 1739X X X X Extracts X X X X X X X X Extracts X X X X ..... etiring partners is their rightful shares in that Worth and Value of the firms and plainly speaking, there is no such additional payments as alleged by the Revenue towards profits. What is paid to the retiring partners are those amounts due to them. The only thing is that their shares in Worth and Value of business have been separately computed. Therefore, we find that the additional payments made to the retiring partners were not in the nature of any profit or income within the meaning of Section 28(va). As nontaxable capital receipts and in that way, the Commissioner of Income Tax (Appeals) is right in holding that the amounts are not taxable - Decided against revenue - ITA No. 1584(Mds)/2013, ITA No. 1585(Mds)/2013, ITA No. 1586(Mds) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The additional amount was thus brought to tax in the respective hands of the respondent-assessees. 2. The issue was taken up in first appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) held that this is in the nature of a family arrangement and therefore, there cannot be any levy of tax on amounts paid to the outgoing partners. The Commissioner of Income Tax (Appeals) relied on the decision of Hon ble High Court of Madras rendered in the case of Commissioner of Income Tax v. Kay Arr Enterprises Others (299 ITR 348). He accordingly allowed the appeal and held that the additional amounts are not taxable in the hands of the respondent-assessees. 3. The Revenue is aggrieved and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax v. Mohanbhai Pamabhai (165 ITR 166) has clearly declared the law by stating that the amount received by a partner on his retirement in respect of his share in partnership, including goodwill, does not involve transfer giving rise to capital gains. The Hon ble High Court of Gujarat in the case of Commissioner of Income Tax v. Anant Narhar Nimkar (HUF) (224 ITR 221) has held that receipt of any sum by a partner on his retirement from the firm as value of his share in the assets of the firm, does not involve any transfer of his capital asset resulting in accrual or receipt of income chargeable to tax as capital gain in the hands of recipient partner. The Hon ble High Court of Gujarat has taken the same view in another case Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny force in this proposition. There is no agreement entered into between the respondent-assessees with the business stating that they will not be carrying on any business activity. There is no agreement whatsoever including in the nature of non-competition. Here, in the present case, the respondentassessees 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 are 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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