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TMI Blog2017 (12) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. Accordingly, Ground Nos. 2 to 7 by the assessee are allowed. - ITA No. 161/PUN/2015 - - - Dated:- 13-12-2017 - SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Sunil Pathak For The Revenue : Shri Rajeev Kumar, CIT ORDER PER D. KARUNAKARA RAO, AM : This appeal is filed by the assessee against the order of CIT(A)-2, Nashik, dated 29-12-2014 for the Assessment Year 2008-09. 2. Grounds raised by the assessee in the appeal are extracted as under : The following grounds are taken without prejudice to each other- On facts and in law, 1. The learned CIT(A) erred in confirming the validity of reasst. proceedings without appreciating that the reopening u/s 148 was bad in law and consequently, the reasst. u/s 147 be declared null and void. 2. The learned CIT(A) erred in holding that the amount received of ₹ 21,52,73,777/- at the of retirement from the firm is taxable as income from other sources u/s 56(2)(vi). 3. The learned CIT(A) erred in holding that the amount received of ₹ 21,52,73,777/- by the assessee at the time of her retirement from the partnership firm M/s. Deepak Food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,73,777/-. 4. At the relevant point of time, the assessee has capital balance of ₹ 13,78,223/- with the said M/s. Deepak Foods and on the eve of retirement, assessee and another partner (Smt. Shakuntala S. Sanghavi), received an equal amounts of ₹ 21,53,73,777/- each for relinquishing their rights in the firm. The taxation of the said amount received by the assessee is the subject matter of the present dispute. AO held the same as taxable under the income from capital gains . Alternatively, the said amount was taxed as income from other sources . Contents of Para Nos. 8 to 16 of the assessment order are relevant. 5. Similar addition was made in the assessment of Smt. Shakuntala S. Sanghavi, who is the other retiring partner of M/s. Deepak Foods in respect of her receipt of ₹ 21,53,73,777/-. Other relevant facts relating to the taxation of the said amount in the hands of Smt. Shakuntala S. Sanghavi and the subsequent legal developments include that assessee is an individual and was a partner along with Smt. Shakuntala S. Sanghavi in M/s. Deepak Foods. In the return of income, both the partners furnished a note stating that the credit balance in capital acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Smt. Shakuntala S. Sanghavi. 9. Thus, as the things stand, the receipts received by the retiring partner, Smt. Shakuntala S. Sanghavi was the subject matter of revision proceedings by the CIT as well as the fresh assessment proceedings and the Tribunal decided the issue against the Revenue. The decision of the Tribunal in the case of Smt. Shakuntala S. Sanghavi Vs. ACIT in ITA No. 956/PN/2013 relating to A.Y. 2008-09, order dated 21-03-2014 is relevant. Further, Ld. Counsel for the assessee submitted that the said order of the Tribunal was not available at the time of reassessment proceedings in the case of the present assessee. 10. During the First Appellate proceedings, on the appeal against the reassessment order in the present assessee s case, the facts about the finality of the issue by the Tribunal on the taxability of the said receipts was placed before the First Appellate authority. The CIT(A) considered the said decision of the Tribunal in the case of Smt. Shakuntala S. Sanghavi Vs. ACIT (supra) and observed that the Tribunal did not go into various aspects relating to the application of provisions of section 56(2)(vi) of the Act. Accordingly, the CIT(A) he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foods. Similar amount was received from the said company by Smt. Shakuntala S. Sanghavi. This issue of taxation of the said amount u/s. 48 and alternatively u/s.56 of the Act was subject matter of the proceedings u/s.263 r.w.s. 143(3) of the Act and the Tribunal deleted the addition. Therefore, attempting to tax the similar amount in the hands of the present assessee is duplication of the same futile exercise by the Revenue. In this regard, Ld. Counsel for the assessee brought our attention to the decision of the Tribunal in the case of Smt. Shakuntala S. Sanghavi (supra) in general and the contents of Para Nos. 6.5 and 6.8 in particular for demonstrating the reasons for not taxing the said amount in the said section 48 and 56 of the Act respectively. For the sake of completeness, we proceed to extract the said paragraphs as under : 6.5 With regard to the issue whether the amount received is taxable as long term capital gains. We find that ITAT, Pune in the case of Rajnish Bhandari [ITA No. 469/PN/11] has held that the amount received over and above the capital account balance at the time of retirement is not taxable. While arriving at above decision, ITAT had relied upon a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that the amount of ₹ 21.52 Crs. is taxable as income from other sources, simply in case the amount received on retirement is not taxable as capital gain. The amount received could not be taxed as income from other sources, simply because a receipt is not a capital gain chargeable to tax u/s.45. One should not jump to the conclusion that the receipt in question is not a capital receipt at all. There can be capital receipts which are not chargeable to tax u/s.45 of Act. Merely because the receipt in question is not taxable as a capital gain it could not be concluded that the impugned receipt is a revenue receipt chargeable to tax as income from other sources. This view is fortified by the decisions Mumbai Bench in the case of Niyati B Yodh [4 SOT 941 (Mum)], wherein, the payment received by legal heir of tenant under a tripartite agreement between such legal heirs, landlord and purchaser for handing over peaceful possession to the purchaser being capital receipt could not be brought to tax as income from other sources. The similar view has been expressed in the case of CIT Vs. Smt. T.P. Sidhwa (1982) 133 ITR 840 (Bom), wherein it was held that the income from house prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of interest in the partnership assets by the retired partner to the continuing partners and the amount received by the retiring partner is not 'capital gain' under section 45 of the Act. Further, the learned counsel for the appellant has correctly pointed out that the decision of the Hon'ble Bombay High Court in Tribhuvandas G Patil (supra) followed in the case of NA Mody (supra) has been reversed by the Hon 'ble Supreme court in the case of Tribhuvandas G Patel reported in 236 ITR 515 (SC) on this aspect of the matter. In fact, the Hon'ble Bombay High Court in a recent decision in the case of Prashant S Joshi (supra) has noted the aforesaid legal position. In this circumstances the reliance placed by the authorities below on the judgment of the Hon 'ble Bombay High Court in the case of Prashant S Joshi (supra) has also noted the omission of section 47(ii) of the Act and insertion of section 45(4) of the Act with effect from 1.4.1988. Considering the entirety of the legal position, it has been affirmed by the Hon'ble High Court that amounts received by the partner on his retirement, are exempt from capital gains tax. In this view of the matter, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2001] 247 ITR 801, wherein it has been held that amounts received on retirement by a parnter is not subject to capital gains tax. In the above circumstances, we see no reason to entertain the proposed question of law'' Again, nothing contrary was brought to our knowledge on behalf of revenue with regard to development on the issue. We find that the claim made by the assessee is correct. The CIT has relied upon the decision in the case of Shevantibhai C. Mehta (supra) which was considered in the case of Rajnish Bhandari (supra) inter alia held that the amount received on retirement from partnership is not taxable. Secondly, the Hon ble Bombay High Court in the case of Riyaz Shaikh (supra) has also affirmed that the amount received by a partner at the time of retirement is not taxable. Thus, considering the recent decisions of Jurisdictional Bombay High Court and ITAT, Pune as discussed above, the order of Assessing Officer cannot be said to be erroneous as to be prejudicial to the interest of revenue to invoke the provisions of section 263 of Act. 6.7 Regarding the contention of CIT that the entire transaction was an arranged transaction. According to him, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extracts from the order of the Pune Bench of the Tribunal in the case of Smt. Shakuntala S. Sanghavi (supra), and the order of the Tribunal in the case of ITO Vs. Shri Rajnish M. Bhandari in ITA No.469/PN/11, order dated 17-07-2012 and the judgment of Hon ble Bombay High Court CIT Vs. Mr. Riyaz Sheikh vide Income Tax Appeal No.1909 of 2011 judgment dated 26-02-2013 goes to suggest that the receipts of this kind are not to be taxed under the head income from capital gains as well as under the head income from other sources in general. 16. So far we have discussed the background facts by which assessee as well as Smt. Shakuntala S. Sanghavi received identical amounts of ₹ 21,52,73,777/-. The facts relating to taxation of the same in the hands of Smt. Shakuntala S. Sanghavi by virtue of the provisions of section 263 r.w.s. 143(3) of the Act were also discussed. The said orders of the Revenue were not approved by the order of the Tribunal which is evident from the orders of the Tribunal in the case of Smt. Shakuntala S. Sanghavi (supra). Thus, the non-taxability of the said receipt under the head capital gains as well as under the provisions of section 56 of the Act, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds on 17.03.2008. At the time of retirement, the assessee received total amount of ₹ 21,66,52,000/-. In the return filed by the assessee for A.Y. 2008 - 09, the assessee did not offer any amount to tax which was received by her at the time of retirement from the partnership firm. 2. The assessee and Mrs. Shakuntala Sanghavi were partners in M/s. Deepak Foods having share of 49.8% each in the profits and losses of the firm. One foreign company called Lesma Ltd. acquired 50% of the interest in Sanghavi Group which is manufacturing pickles, sauces, Tutifruti, etc. under the brand name Nilon . Accordingly, M/s. Lesma Ltd., invested ₹ 67.09 Crs. in a company of the assessee group called Sanghavi Foods Pvt. Ltd. with the understanding that they would have 50% of the share in the assessee group. Later on, Sanghavi Foods Pvt. Ltd. invested ₹ 52.42 Crs. in Deepak Foods and out of the said amount ₹ 21.52 Crs. was paid to the assessee on her retirement from M/s. Deepak Foods. Similarly, an equal amount was paid to Mrs. Shakuntala Sanghavi and she also retired from the firm. Thus, Lesma acquired 50% interest in Sanghavi businesses. 3. The A.O. taxed the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Once, the nature of income is classified under a particular head, one had to look only to the corresponding computing section for the purposes of chargeability to tax. Accordingly, the assessee submits that Hon'ble Tribunal in the case of Shakuntala Sanghavi has considered the aspects as to whether the income could be taxed as income from other sources or not and the CIT(A) has clearly erred in holding that ITAT has not considered this aspect. 7. After all, the addition u/s 56(2)(vi) would come within the purview of income from other sources only. ITAT in the case of Shakuntala Sanghavi has clearly held that the additional amount on retirement cannot be taxed as income from other sources. Thus, it has considered the various clauses of section 56 and then only it has given the above decision. Just because, ITAT has not referred to the specific sub section i.e. section 56(2)(vi), it does not mean that ITAT has not considered it. Accordingly, CIT(A) is not justified in holding that ITAT has not considered the taxability of u/s 56(2)(vi). 8. Further, the CIT(A) has grossly erred in holding that the receipt on retirement from the firm in the hands of the assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied validly. 26. In the light of the above facts as well as the legal position, we heard the Ld. DR for the Revenue as well on this specific issue relating to the applicability of provisions of section 56(2)(vi) of the Act qua the without consideration . It is the case of the Ld. DR for the Revenue that the order of the CIT(A) is heavily relied, i.e. the operational paras (Para No.9.1 to 9.3 of the order) which are already extracted in Para No.10 of this order. Further, it is the case of the CIT(A) that assessee received the said amount of ₹ 21,52,73,777/-, as is the case with Smt. Shakuntala S. Sanghavi and the same is received without consideration. As such, the order of the CIT(A) is deficient on reasons for not treating the rights surrendered by the partners, i.e. assessee and Smt. Shakuntala S. Sanghavi to the firm, as the adequate consideration for receiving the said amount. Therefore, in our view, the said finding of the CIT(A) as given in Para Nos. 9.1 to 9.3 suffers from major setback on this issue of surrender of rights/share in the firm for receipt of said consideration by the partners. As such, it is not the case of the Revenue that the assessee continues ..... X X X X Extracts X X X X X X X X Extracts X X X X
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