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TMI Blog2016 (10) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... by a partner on retirement cannot be taxed as long term capital gain on transfer of goodwill. When a partner retires from the firm and receives share of amount calculated on the value of partnership asset including goodwill of the firm, there is no transfer of interest of the partner in the goodwill and no part of the amount received is exigible as capital gain under section 45 of the Act. - Decided in favour of assessee - ITA No.1288/PN/2014 - - - Dated:- 26-8-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Kishor Phadke For The Respondent : Shri P. L. Kureel ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal filed by the assessee is against the order of CIT(A)-I, Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / alter / delete all / any of the grounds of appeal. 3. Briefly stated, the assessee is engaged in erection and supply of parts of sugar industries. The return of income filed by the assessee was subjected to scrutiny proceedings. In the course scrutiny proceedings, the Assessing Officer found that the assessee has inter-alia declared long term capital gains amounting to ₹ 1,35,43,452/- on relinquishment of right on retirement from partnership firm namely M/s Tushar Properties, Pune in terms of Deed of Modification (Deed), Retirement and Introduction of partner dated 05th October, 2006. As per the aforesaid Deed, the assessee has relinquished his right, title and interest in partnership and all other partnership properties, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat mode of computation of capital gain is given in section 48 and since the cost of acquisition of the rights in the partnership firm is Nil, the full value of the consideration received or accruing as a result of the transfer of the rights in the partnership firm i.e. ₹ 1,49,35,424/- is the income chargeable under the head capital gains as against ₹ 1,35,43,452/- declared by the assessee in the return of income. He accordingly denied the benefit of indexation claimed to the tune of ₹ 13,91,972/- while determining the assessed income of the assessee. 4. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A). 5. Before the CIT(A), the assessee raised the grievance in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant facts are already on record. 6. On the merits of the claim, the assessee referred to section 45(4) of the Act and contended that capital gain tax liability rests on the partnership and not on the partners per se. The assessee also contended that any sum received on retirement from a firm is capital rights in the hands of the outgoing partners. The other contention of the assessee before the CIT(A) was that the cost of acquisition of rights in the firm is not ascertainable and hence cannot be considered as Nil as done by the Assessing Officer. Since the cost of interest on firm is not ascertainable, the assessee is not chargeable to capital gain tax at all. The CIT(A), however, was not impressed by the various arguments advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r held that amount received by the assessee on retirement from the partnership firm is not taxable under the head capital gains . He accordingly submitted that decision of the CIT(A) in holding the aforesaid surplus as taxable suffers from an error of law which requires to be reversed. 9. The Ld. Departmental Representative (DR), on the other hand, relied upon the order of the CIT(A) and submitted in furtherance that the assessee was having a right and interest in the partnership firm which right has been relinquished and therefore there is a transfer of capital asset within the meaning of section 2(47) of the Act which requires to be taxed under section 45 of the Act. The Ld. DR contended that the amount received by the assessee does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm and receives share of amount calculated on the value of partnership asset including goodwill of the firm, there is no transfer of interest of the partner in the goodwill and no part of the amount received is exigible as capital gain under section 45 of the Act. It was also observed in the ITAT decision that the decision of the Bombay High Court in the case of CIT vs. Tribhuvandas G. Patel, 115 ITR 95 followed in N. A. Mody vs. CIT, 162 ITR 420 has been reversed by the Hon ble Supreme Court in the case of Tribhuvandas G. Patel vs. CIT, 236 ITR 515 and that this legal position has been noted in the case of Prashant S. Joshi vs. ITO, 324 ITR 154 (Bom.). We notice at this stage that the decision of the Co-ordinate Bench of the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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