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TMI Blog2018 (4) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... to the appellant in terms of the arbitration award, the Assessing Officer was justified in forming a belief that income has escaped assessment and that the issue as to whether the benefit is in the nature of income was to be determined in the course of the assessment proceedings. As regards addition of Rs. 28,00,00,000 u/s 28(iv) 4. The Commissioner (Appeals) was not justified in upholding the view of the assessing officer that the sum of Rs. 28 crore receivable by the appellant from P N Writer & Co. under the arbitration award dated 25th September 2009 was taxable as her income. 5. The Commissioner (Appeals) erred in holding that the sum of Rs. 28 crore was taxable as Income from other sources u/s 56(1) of the Act. 6. The Commissioner (Appeals) failed to appreciate the fact that the amount awarded to the appellant in terms of the arbitration award was in substance for her retirement from and in settlement of her rights, interest and share as a partner of the firm of P N Writer & Co., having regard to the claim made by her in the arbitration proceedings. 7. The Commissioner (Appeals) ought to have held that the assessment was vitiated as the principles of natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be paid to the assessee as settlement through Arbitration Award by M/s, P.N. Writer & Co. out of which an amount of Rs. 7,05,04,72/- was paid to the assessee in the A.Y. 2010-11. The Assessing Officer called for the case records of M/s. P.N. Writer & Co. from ITO - 17(3)(3), Mumbai, and after going through them it was observed by the Assessing Officer that prima facie there was material on record which showed that income had escaped assessment. Therefore, after recording reasons, a notice u/s.148 of the Act was issued on 19.03.2014 which was duly served on the assessee. Subsequently, notices u/s 143(2) and 142(1) dated 18.06.2014 were also issued and served on the assessee. The assessee had filed objections against the reopening of assessment which were disposed off vide order dated 21,08.2014. The assessee had filed a writ petition against this order dated 21.08.2014 which was treated as dismissed by the Hon'ble Bombay High Court as the same was withdrawn. Thereafter, notice u/s 142(1) was again issued on 23.02.2015 requesting the assessee to provide various details. After considering the various submissions made by the assessee, the re-assessment was completed u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of existing partners. This condition had no reference with the retirement of the appellant from the partnership firm. (vi) As per condition no.12, the appellant's husband was also required to sign the Consent Terms in acceptance of his obligations as set out in the Consent Terms. Though her husband had no relation to M/s P.N.Writer & Co., it was agreed that the husband shall also sign Consent Terms and shall also transfer back assets mentioned in condition no.9 which was in the name of the appellant as well as in the name of her husband. 6. The Assessing Officer was of the view that all the above facts showed that the arbitration award of Rs. 28 crores was not awarded only with reference to the retirement of the assessee from the partnership firm. The assessee was asked to provide details of basis on which arbitration award was claimed and awarded. No specific basis could be given by the assessee , but from the details submitted by the assessee it could be inferred that the market value of assets held by the firm could be the basis. The assessee submitted that she had provided list of assets held by M/s P.N.Writer & Co. before the Arbitrator and on the basis of market value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king the assessee to explain as to why the arbitration award of Rs. 28 crores should not be taxed u/s 28 (iv) and also alternatively as capital gains. This show cause notice has been scanned and reproduced by the Assessing Officer at pages 27 to 38 of the assessment order. The assessee submitted her replies vide letters dated 24.03.2015 and 26.03.2015 wherein she reiterated her stand that the arbitration award of Rs. 28 crores was received on account of her retirement from M/s P.N.Writer & Co. which was not taxable. The assessee also did not agree with the statement given by Shri Denzil Dsouza. 10. The submissions filed by the assessee were duly considered by the Assessing Officer but were not found tenable. Besides the observations mentioned earlier, the Assessing Officer further observed that as per the records of Registrar of Partnership of Firm, the assessee's name appeared in the records as a partner till the year in which the Arbitration Award was passed. Even after receipt of the Arbitration Award, the name of the assessee was not removed from the record of Registrar of Partnership Firm. The AO was of the view that till such date the assessee's name appeared as a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the assessing officer. The ld. Commissioner of Income Tax (Appeals) upheld the validity of reopening by observing as under: 4.3 I have considered the facts of the case and the appellant's submissions. The appellant had filed return of income for the assessment year 2010-11 on 16.07.2010 declaring total return of income of Rs. 18,91,859 /-. The return was processed u/s 143(1) on 20.03.2012. Subsequently, information was received by the Assessing Officer that as per the settlement in arbitration proceedings which concluded on 25.09.2009, the appellant had received Rs. 7,00,00,000 /- during F.Y. 2009-10 corresponding to A.Y. 2010-11 which was not offered for tax in her return of income. On the basis of this information and the fact of the amount of Rs. 7,00,00,000/- not being offered for tax in her return of income, the Assessing Officer formed a reason to believe that income chargeable to tax had escaped assessment and had accordingly re-opened the assessment by issuing notice u/s 148 after duly recording reasons. I find that the primary condition for re-opening of assessment, therefore, stands fulfilled. Such reopening of assessment also cannot be said to be on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction". In the light of the foregoing discussion, I am of the considered opinion that the re-opening of assessment and issue of notice u/s 148 by the Assessing Officer is valid and the same is upheld. The assessee's grounds of appeal are dismissed. 13. The ld. Commissioner of Income Tax (Appeals) also upheld the addition upon merits. Relevant portion of his order in this regard may be gainfully referred as under: 7. I have considered the facts of the case, the appellant's submissions, A.O.'s remand report and further comments of the appellant thereon. Regarding admission of additional evidence, the appellant has submitted that owing to the short span of time during which the effective re-assessment proceedings were concluded, she was not was not able to retrieve all the relevant documents at such short notice as they pertained to documents submitted in proceedings in 2009 or earlier, but filed whatever relevant documents that could be readily traced. That the additional evidence being submitted went to the root of the matter under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awarded to the appellant as consideration for giving up her various rights and interests as mentioned in the Consent Terms. Perusal of the Will of the late Mr. Charles D'Souza shows that the bequests made by him to the appellant included a share in fixed deposits besides the additional 5% share in the firm. Such forfeiture of her share in fixed deposits as bequeathed to her by her late father has no connection whatsoever with her interest in the firm or the assets of the firm. 7.3 In para 9 of the Consent Terms, it is mentioned that the appellant and her husband who had nothing to do with the said firm in any capacity are to execute all necessary documents to facilitate transfer of properties ( listed at a. to f. under para 9 of Consent Terms) presently standing in their names either to the Respondents and/or to persons nominated by them. During appellate proceedings, I had called for details of the properties mentioned in para 9 of the Consent Terms. Perusal of the details provided by the appellant shows that the properties/assets included inter alia the following; i. 55 equity shares of Rs. 1,000 each fully paid up in Ocean air Transport and Investment Company Pvt. Ltd. h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver given. Had it been the way the appellant has argued, then the Arbitration Award and the Consent Terms would have been explicit in stating that the appellant has retired from the firm and was entitled to her share in the firm to be computed as per accepted norms for an outgoing/retiring partner. The retirement of a partner from a firm is an evident fact and is not required to be indirectly inferred or to be guessed in substance. As observed by the Assessing Officer in the assessment order, it is seen that in the Consent Terms it is nowhere mentioned that the amount of Rs. 28 crores was given on account of the appellant's retirement from the firm. I find that the consideration was given to the appellant in lieu of a composite bundle of conditions which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdrawal of all suits/legal proceedings filed by her against the respondents and against firms and entities owned or controlled by them. The Assessing Officer had also stated in the assessment order that even after the Arbitration Award was granted, the appellant's name continued to appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or controlled by them. The consideration received, therefore, constitutes income of the appellant. It is judicially settled that the expression 'income' must be construed in its widest sense. The definition of 'income' is an inclusive one having a wide amplitude and, hence, it has been held that even if a receipt does not fall within any of the sub-clauses of section 2(24) of the Act, it may yet constitute "income". Section 56(1) of the Act provides that "Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to incometax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E". I, therefore, hold that the Arbitration Award of Rs. 28 crores is taxable as "Income from other sources" u/s 56(1) of the Act. 7.9 Regarding the Assessing Officer's stand that the Arbitration Award was alternatively taxable as capital gains as per provisions of section 2(47) and 45(4) of the Act, the appellant has referred to the provisions of section 45(4) and contended that under section 45(4),it is only the firm which can be taxed on the distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation that there is an escapement of income. In this regard, the ld. Counsel of the assessee placed reliance upon several case laws in support of his proposition. 16. As regards the merits of the case, the ld. Counsel of the assessee reiterated that it was receipt upon the retirement from the firm, hence not chargeable to tax. Alternatively, he pleaded that it was a receipt pursuant to family arrangement and, hence, also not chargeable to tax. In this regard, he placed reliance upon the several case laws. 17. Per contra, the ld. Departmental Representative submitted that the reopening in this case is perfectly valid. He submitted that earlier the return was processed u/s. 143(1) and the reopening was done within 4 years. The ld. Departmental Representative placed reliance upon the ld. Commissioner of Income Tax (Appeals) and the Hon'ble Apex Court decision relied upon by him in support of the validity of the reopening. As regards the merits of the case, the ld. Departmental Representative relied upon the orders of the authorities below. 18. Upon careful consideration, we find that the information was received by the Assessing Officer from the ITO - 17(3)(3), Mumbai, that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brokers P. Ltd. reported in (2007) 291 ITR 500 are germane and duly support the case of the Revenue. The decisions referred by the ld. Counsel of the assessee are distinguishable on facts and moreover, since the reopening has to be found to be valid on the touchstone of the above Hon'ble Apex Court decisions, the decisions referred by the ld. Counsel of the assessee do not oxygenate the case of the assessee. Hence, in the above factual scenario and the case law of the Hon'ble Apex Court, we are of the considered opinion that the ld. Commissioner of Income Tax (Appeals) has passed a reasonable order upholding the validity of the reopening. Hence, we do not find any infirmity in the same. Hence, the assessee's challenge to the reopening fails. 20. As regards the merits of the case, we find that the assessee has received an arbitration award for Rs. 28 crores, upon relinquishment of her rights in the partnership of M/s. P. N. Writer & Co. Here it may be gainful to recount the brief history of the case which leads to the arbitration ward. The assessee was a partner in M/s P.N.Writer & Co. A fresh partnership deed was executed in 1997 wherein the name of the assessee was excluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the name of her husband. 22. When the above facts are viewed in the light of the fact that there are no positive balance of the capital account of the assessee with M/s. P. N. Writer & Co., the question of the balance in her capital account being returned back to her certainly does not arise. The above facts clearly indicate that the arbitration award was received by the assessee not for retirement from partnership firm but was in lieu of relinquishment of all her rights, claim and demand of any nature whatsoever against the partnership firm M/s P.N.Writer & Co. and all other entities owned and controlled by the firm and partners and for withdrawing all the Suits against all the entities. It is further to be noted here that as per para 9 of the concerned terms, the assessee and her husband who had nothing to do with the said firm in any capacity are to execute all necessary documents to facilitate transfer of properties (listed at a. to f. under para 9 of Consent Terms) presently standing in their names either to the other partners of the firm and/or to persons nominated by them. The ld. Commissioner of Income Tax (Appeals) has further found that this property and assets in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) that the retirement of a partner from the firm has to be an evident fact and is not required to be indirectly inferred or to be guessed in substance. The assessee has received a consideration in lieu of a composite bundle of conditions which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdrawal of all suits/legal proceedings filed by her against the other persons and against firms and entities owned or controlled by them. 25. As rightly held by the ld. Commissioner of Income Tax (Appeals) since the Arbitration Award is in cash on the touch stone of the Hon'ble jurisdictional High Court decision in the case of Mahindra & Mahindra Limited v CIT 261 ITR 501, section 28(iv) cannot be invoked. However, the ld. Commissioner of Income Tax (Appeals) is very correct in holding that the same is taxable u/s. 56(1) as income from other sources. The fact remains that the assessee has received benefit of Arbitration Award for conditions, which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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