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TMI Blog2019 (3) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... n retiring partner took cash towards value of his share in partnership firm, there was no distribution of capital assets among the partners and there was no transfer of capital asset and therefore no profits or gains are chargeable to tax u/s. 45(4). We observe that the decision relied on by the Assessing Officer in the case of A.N. Naik Associates [2003 (7) TMI 46 - BOMBAY HIGH COURT] is distinguishable on facts and has no application to the assessee's case. Therefore, in view of our above discussion, the share of capital along with accrued profit, goodwill and brokerage / commission which were received / receivable in terms of consent deed entered among the partners on account of retirement of the assessee from the partnership firm and the payment made to the assessee in realisation of his share in the net value of the assets of the firm on his retirement are not liable to be taxed as capital gains and also u/s. 28(v) in view of the judicial pronouncements. Thus, we direct the Assessing Officer to delete the additions made towards, goodwill, share capital and share of profit and the brokerage/commission and recompute the income for the year under consideration. Grounds raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred on facts and in law by confirming only ₹ 8,08,60,000/- out of addition on two grounds totaling to ₹ 22,14,63,126/- made by the Assessing Officer on account of amount received and/or receivable from M/s Blue Circle Infratech even though the assessee had failed to produce any supporting documentation or confirmation as evidence that could support that these are capital receipts/ (iii) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by confirming only ₹ 8,08,60,000/- out of addition on two grounds totaling to ₹ 22,14,63,126/- made by the Assessing Officer on account of amount received and/or receivable from M/s Blue Circle Infratech without appreciating the facts that whatever assessee had received through capital account and as advance was over and above the share of profit and capital introduced. (iv) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by confirming only ₹ 8,08,60,000/- out of addition on two grounds totaling to ₹ 22,14,63,126/- made by the Assessing Officer on account of amount received and/or receivable from M/s B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of ₹ 9,41,63,126/- which was made without giving the assessee opportunity of being heard. 4 The above Grounds of Appeal are without prejudice to one another. 5 The Appellant craves leave to amend or alter any of the above grounds or to add new grounds during the course of appeal proceedings. 6 The learned CIT (APPEAL) erred in making on addition of ₹ 2,21,93,334/- on account of amount received in A.Y. 2013-14 only on the pretext that the assessee has received the amount from Partnership firm. 7 The learned CIT (A) has calculated the amount received at ₹ 8,08,60,000/- on receipt basis, but factually and actually amount received is of ₹ 4,47,68,663/-. 5. In the form of additional ground, the assessee raised following ground: - (i) On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in not considering the provisions of section 28(iv) and section 45(4) of the I.T. Act, 1961. 6. Briefly stated the facts are that, the assessee, an individual, is engaged in business of real estate and film production. He is proprietor of three concerns namely- (1). M/s D'Silva Corporation- Builder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ₹ 5,34,00,000/- towards Share Capital and Accrued profit, (ii) ₹ 1,00,00,000/- Goodwill of the firm, (iii) ₹ 12,73,00,000/- towards brokerage and commission. Total ₹ 19,07,00,000/- 9. As per the Consent Terms, payments of ₹ 3,16,66,666/- towards Amount debited to retiring partner's account for Income Tax payable as on 31.03.2011 and 04.05.2011 and ₹ 3,50,00,000/- made by Cheque/ RTGS totaling to ₹ 6,66,66,666/-. Assessee was issued following Cheques: - Date Cheque No. Amount (Rs.) Bank 26.05.2012 427081 2,21,93,334/- Citibank, Vashi Branch 26.06.2012 427082 2,54,60,000/- Citibank, Vashi Branch 26.07.2012 427085 2,54,60,000/- Citibank, Vashi Branch 26.08.2012 427087 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and deleted an amount of ₹ 10,18,40,000/-, vide order dated 31.12.2015. He held that the amount which was actually received only was liable to tax and amount which was not received and was subject matter of further litigation and there was no certainty about receipt of the same was not to be taxed. The Ld.CIT(A) also held that the amounts received by the assessee were of revenue nature. The Ld. CIT(A) passed an Order of Rectification dated 18.01.2016, pursuant to the assessee's letter dated 16.01.2016, whereby he modified his observations made in his order dated 31.12.2015. He held that the addition sustained was ₹ 8,33,93,334/- and not ₹ 8,08,00,000/- and the amount of relief granted was ₹ 14,80,69,792/- and not ₹ 10,18,40,000/-. 13. Ld. Counsel for the assessee with respect to the additions made towards goodwill and brokerage/commission, it is submitted that addition of ₹ 1,00,00,000/- on account of Goodwill and ₹ 12,73,00,000/- on account of brokerage and commission was made by the Ld. AO. It is submitted that the order regarding Consent Terms was passed on 04.04.2012, and therefore if the income accrued to the assessee on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset within the meaning of section 2(47). Reliance was placed on the judgment of Bombay High Court in the case of Prashant S Joshi v. ITO [2010] 324 ITR 154. In this case the Bombay High Court held that what is realized is the interest which the partner enjoys in the assets during the subsistence of the partnership by virtue of his status as a partner and in terms of the partnership agreement.~Consequently, what the partner gets upon dissolution or upon retirement is the realization of a pre-existing right or interest and there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners. It is submitted that the Hon'ble High Court relied on the judgments of Hon'ble Apex court in Mohanbhai Pamabhai (supra), Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC) and CIT v. R. Lingamallu Raghukumar [2001] 247 ITR 801 (SC). 17. Ld. DR vehemently supported the orders of the Assessing Officer. 18. Coming to the ground No. 3.2, the capital and share of profits of ₹ 9,41,63,126/- which was added u/s. 68 of the Act by the Assessing Officer, Learned Counsel for the assessee argued that this amount is total of ₹ 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,67,00,000/- is credited to the capital account of D'Silva Enterprises. This amount has been taxed u/s 68 of the I T Act without looking into facts of the case. This amount was received in M/s D'Silva Enterprises, assessee's proprietary concern. This was on account of withdrawal of assessee's capital from M/s. Blue Circle Infratech. Since this amount was on account of withdrawal of own capital from the firm it was not chargeable to tax. In any case, amount received from a partnership firm on the assessee's retirement from the firm was not chargeable to income tax. Reliance was placed on Prashant S Joshi (supra), Mohanbhai Pamabhai (supra), Sunil Siddharthbhai (supra), Lingamallu Raghukumar (supra). 20. Ld. DR vehemently supported the orders of the Assessing Officer. 21. With respect to Ground No. 4 to 6 i.e. addition sustained by the Ld.CIT(A) based on the receipt by the assessee, it is submitted that the Ld. CIT(A) erred in confirming the addition of ₹ 8,08,60,000/- on the ground that this amount was received by the assessee on revenue account. The Ld. CIT(A) held that the amount received/receivable by the assessee from M/s Blue Circle Infratech w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources. The Tribunal also held that such amount cannot be said to be amount received without consideration and could not be brought to tax as income from other sources u/s 56(2)(vi). The Tribunal relied on their earlier judgment dated 29.10.2010 in the case of Riyaz Shaikh v. ITO, ITA No. 352/Pn/2006, which was confirmed by the Jurisdictional High Court. 22. Ld. Counsel for the assessee further submits that the Ld. CIT(A) erred in not considering the specific provisions of section 45(4) of the I T Act. According to this section profits or gains arising from transfer of a capital asset by way of distribution of capital asset on the dissolution of the firm or otherwise shall be chargeable to tax as income of the firm. Evidently no addition was to be made in the hands of assessee in respect of the amount received by him on his retirement from the firm, M/s Blue Circle Infratech. The Ld AO and the Ld CIT(A) ignored these provisions and made addition in the hands of the assessee without appreciating properly the facts and circumstances of the case and the provisions of the Act. The amounts received by the assessee on retirement from the firm were also not chargeable to tax under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totally aggregating to ₹ 6,34,00,000/- (Rupees Six Crore Thirty Four Lakh Only) the payment has been made to the Applicant as under: Description Cheques /RTGS No. Bank Date Amount Amount Debited to the Retiring Partner towards the Income Tax Payable as on March 31, 2011 and May 4, 2011. 3,16,66,666 Payment Made 005777 Axis 31.01.2012 50,00,000 Payment Made RTGS Axis 22.02.2012 50,00,000 Payment Made 427069 26.03.2012 1,00,00,000 Payment Made 427086 31.03.2012 1,50,00,000 TOTAL 6,66,66,666/- An amount of ₹ 6,66,66,666/- (Rupees Six Crores Sixty-Six Lakh S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , imputations, claims and counter claims of whatsoever nature vis-a-vis Partnership Business and his retirement thereof. 25. The Assessing Officer while completing the assessment rejected the submissions of the assessee that the amounts received from the firm M/s Blue Circle Infratech are not taxable as they are only advances and not accrued to the assessee. The Assessing Officer held that assessee retired as partner from the BCI during the year under consideration and as part of settlement an amount of ₹ 1,00,00,000/- was quantified as goodwill to be received by the assessee and the partners shares and rights in the firm is a capital asset within the section 2(14) of the Act and extinguishment of such right would amount to transfer as per Clause (i) and (ii) of Section 2(47) of the Act. He placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. A.N. Naik Associates [2004] 265 ITR 346. He further observed that under section 47(ii) of the IT. Act any distribution of capital assets on the dissolution of a firm would not be considered as transfer for the purposes of section 45 of the Act. He observed that these clauses were omitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner prescribed by the relevant provisions of the partnership law and it is this and this only, namely, his share in the partnership which he receives in terms of money. There is in this transaction no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners : vide also the recent decision of the Supreme Court in Commissioner of Income-tax v. Bankey Lal Vaidya. It is true that section 2(47) defines transfer in relation to a capital asset and this definition gives an artificially extended meaning to the term transfer by including within its scope and ambit two kinds of transactions which would not ordinarily constitute transfer in the accepted connotation of that word, namely, relinquishment of the capital asset and extinguishment of any rights in it. But even in this artificially extended sense, there is no transfer of interest in the partnership assets involved when a partner retires from the partnership. The Gujarat High Court held that there is, in such a situation, no transfer of interest in the assets of the partnership within the meaning of section 2(47). When a partner retires from a partnership, what the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution of his share in the net assets of the firm. In Commissioner of Income-Tax v. R. Lingmallu Raghukumar5, the Supreme Court held, while affirming the principle laid down in Mohanbhai Pamabhai that when a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts, there is no element of transfer of interest in the partnership assets by the retired partner to the continuing partners. 27. Similarly, in the case of Riyaz A. Sheikh (supra) the following question was sought to be raised by the Revenue in its appeal.- Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in reversing the decision of CIT(A) and deleting the addition of ₹ 66,20,005/- made by the assessing officer towards long term capital gain on transfer of goodwill? The Hon'ble Jurisdictional High Court following its decision in the case of Prashant S. Joshi (supra) and the decision of the Hon'ble Supreme Court in the case of R. Lingamallu Rajkumar (supra) reiterated its decision that the amounts received on retirement by a partner is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that major part of these amounts have been received as part of settlement in terms of consent terms entered into by the assessee for withdrawing his share of capital / profits from the firm BCI. These amounts represent ₹ 4.67 Crores credited to capital account of M/s. D'Silva Enterprise and ₹ 4.79 Crores withdrawn from BCI as share of profit by the assessee as stated in Para 18 above. Therefore, these amounts cannot be taxed as undisclosed income u/s. 68 of the Act. 30. We further observe that the Hon'ble Bombay High Court in the case of Prashant S. Joshi (supra) held as under: - 17. Learned counsel appearing on behalf of the revenue has sought to urge that the amount received by the assessee is chargeable to tax under clauses (iv) and (\v) of section 28. As already noted earlier, reliance on the provisions of section 28(iv) (v) has been placed in the order passed by the Assessing Officer on 16th November, 2009 in the companion petition, while disposing of the objections of the assessee. Section 28 provides certain categories of income which shall be chargeable to income-tax under the head profits and gains of business of profession . Clause (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement from the firm at ₹ 19.07 crores comprising of ₹ 5.34 crores towards share capital and accrued profit, ₹ 1,00,00,000/- towards goodwill and ₹ 12.73 Crores towards brokerage/commission. Though it was settled in the consent deed that ₹ 12.73 crore was paid towards brokerage and commission in effect these amounts was paid to the assessee in realisation of his share in the net value of assets upon his retirement from the firm BCI. The firm continued with the existing partners and the assessee on his retirement from the firm was entitled to the sums as specified in the consent terms. However, the Assessing Officer brought to tax the amounts settled through settlement deed i.e. share of capital and share in profits, commission/brokerage and goodwill on assessee retirement from BCI. 32. The full bench decision of the Hon'ble Karnataka High Court in the case of CIT v. Dynamic Enterprises [2013] 359 ITR 83 has taken a similar view that when retiring partner took cash towards value of his share in partnership firm, there was no distribution of capital assets among the partners and there was no transfer of capital asset and therefore no profits or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as observation of the Ld.CIT(A) in concluding that there shall not be any addition of ₹ 37.40 lakhs which was received as advances in the business of film production in the earlier Assessment Years, as unexplained cash credit u/s. 68 of the Act in the current Assessment Year which is under consideration. Thus to this extent the addition is directed to be deleted. However, with respect ₹ 11.25 Lakhs which was received by the assessee in the current Assessment Year, since no proper explanation was given by the assessee, we restore this issue of explaining the source for ₹ 11.25 lakhs to the Assessing Officer for fresh adjudication. Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee. This ground is partly allowed. 35. The other grounds in the appeal of the Revenue are directed against the relief granted by the Ld.CIT(A) in respect of the additions made by the Assessing Officer towards goodwill, share capital and share of profit, brokerage/commission received by the assessee on retirement from BCI. Since, we have deleted the addition made by the Assessing Officer which were treated as income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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