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TMI Blog2019 (7) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the Partnership Deed dated 01.04.2001 are also in line with the old agreement except that the amount to be paid to the retiring partners and legal heirs have been quantified in the new agreement. Thus, when the fact situation remains the same, we do not find any reason for not following the decision of the Hon ble Bombay High Court in assessee s own case [ 1990 (9) TMI 32 - BOMBAY HIGH COURT] . Since the Hon ble High Court has already considered the decision of CIT v. Sitaldas Tirathdas [ 1960 (11) TMI 17 - SUPREME COURT] , we are not discussing the applicability of the said case to the facts of the present case; and, it would suffice to note that the Assessing Officer has erred in placing reliance on the aforesaid decision. New agreement clearly spells out that the liability to pay income tax on amount received by the retiring partners or beneficiary will be on them and not on the assessee-firm. Thus, liability to pay tax, if at all, in terms of the agreement also, is upon the partner or the beneficiary receiving such payment. As such, it is the partners or beneficiaries receiving such payment who should be taxed and not the assessee. Further, it is also observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid grounds, the CIT(A) erred in holding that the amount of ₹ 19,58,337 is not allowable as an expenditure under section 37 of the Act as incurred for the business of the Appellant . 4. On the facts and in the circumstance of the case and in law the CIT (A) ought to have allowed the amount of ₹ 19,58,337/- as a loss. 5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in charging interest u/s.234A, 234B and 234C of the Income Tax Act. 6. On the facts and in the circumstances of the case the CIT(A) erred in permitting penalty proceedings u/s.271(1)(c) of the Act to continue. The Appellant craves leave to add any further grounds on or before the date of hearing . 4. Briefly put, the relevant facts are that the assessee is a partnership firm of practicing Advocates, Solicitors and Notaries. It filed its return of income for Assessment Year2008-09 on 27.09.2008 wherein, inter alia, it claimed deduction of ₹ 19,58,337/- on account of payment made to retiring partners and legal heirs of the deceased partners. In the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 30,00,000/- 5.1. The aforesaid payments were made under clause 4 read with clause 5(b) of the aforesaid Partnership Deed. Apart from above, as per clause 13 read with clause 14 of the Partnership Deed, legal heirs of Mr. S. D. Colabawala were also to be paid ₹ 20,00,000/- in 48 equal monthly instalments. During the year under consideration, last 12 instalments were paid in respect to the retirement / death of the aforesaid four partners amounting to ₹ 19,58,337/-. The instalments paid in the earlier years to the very same partners were allowed and accepted by the Assessing Officer to be not chargeable to tax in the hands of the assessee. Thus, the ld. Representative submitted that as the earlier instalments of the payments made under the same Deed of Partnership has been accepted by the department to be not taxable in the hands of the assessee firm, the same view should be followed in this year as well. 6. The ld.Representative for the assessee pointed out that the above issue is covered in favour of the assessee by the decision of Hon ble Bombay High Court in assessee s own case for Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 198 (supra). 10. The ld.Representative for the assessee further pointed to the contents of Partnership Deed of earlier year for which the Hon ble High Court has decided the issue in favour of the assessee ; the payment made to retiring partner and legal heirs of the deceased was covered by the Clause No. 16 of the Partnership Deed and the corresponding clause in the present Deed is Clause No. 14. It was further pointed out that even in earlier year s Partnership Deed there was scope for determination of amount which needs to be quantified in future whereas in the present Partnership Deed, the amount is already quantified in the Partnership Deed itself. Apart from this, there is no difference in the old Partnership Deed and new Partnership Deed. As such, ratio laid by the Hon ble Bombay High in assessee s own case still holds good and the issue is squarely covered by the said decision. 11. On the other hand ld. DR relied on the decision of Coordinate bench in the case of S. B. Billimoria Co. Vs. ACIT [2010] 125 ITD 122 (Mum.), to say that payment made by the assessee was gratuitous in nature and therefore not allowable. The ld. DR further relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduce the clause 16 of the earlier Partnership Deed which reads as under: 16. In the event of the retirement or death of any of them the parties hereto the retiring partner or the estate of the deceased partners, as the case may be, shall be entitled to the share of profits of the firm (in cases where the share is quantified, the quantified share) for all the work done by the Firm upto the date of his retirement or death, as the case may be, and all necessary apportionment shall be made for the purpose PROVIDED ALWAYS and it has been hereby expressly agreed between the parties hereto that notwithstanding any-thing otherwise contained in these presents. ( a) it shall be lawful for the surviving or continuing agreement partners of the first to the eighth parts in agreement with the retiring partner or partners or the heirs, executors or administrators of any deceased partner or partners to quantify the share of the profits of the partner who has retired or died in respect of the work done upto the date of his retirement or death and also to arrive at any agreement for paying such share of profits of the retired or deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share even though such receipts may relates to work done prior to the date of death retirement, insolvency or determination of the share, as the case may be. On such death, retirement or insolvency of any Partner or determination of the share of any Partner, the Outgoing Partner shall be entitled to such amount as may be payable to such Partner as per the Books of Account of the firm upto the date of death, retirement, insolvency, or termination of share of such Partner, as the case may be, after taking into consideration the profits of the firm upto the date of his death, retirement, insolvency, or termination of share, as the case may be. Such profits shall be determined on proportionate time basis hereto of the First to the Ninth Parts or of the survivors of them. The amount so found shall be payable in one or more lumpsum or by periodical instalments as may be decided by the majority of the Parties hereto of the First to the Ninth Parts or the survivors of them, but so that the same shall be paid within a period of not more than three years from the date of his death, retirement, insolvency or termination of share as the case may be. If, on the other hand, on making accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in this Clause 14 of this Agreement shall be construed as obliging any Partner to retire as a Partner of the said Firm, it being clearly understood that this clause is intended only to provide an option to any such Partner to retire should he so think fit. ( Underlined for emphasis by us) From a perusal of clause No.16 of the old agreement and clause nos. 13 and 14 of the new agreement, it is amply clear that in sum and substance the only difference is that in old agreement amounts payable to the retiring partners and legal heirs were not quantified and it only prescribed a method for quantification of amount, whereas in the new agreement the amount to be paid to the partners on retirement and otherwise is duly quantified. Apart from the aforesaid, we do not find difference in the terms and conditions prescribed in the two agreements. 12.3. The Hon ble Bombay High Court, after carefully considering the terms of the old agreement, decided the issue in favour of the assessee in [1991] 190 ITR 0198, and the relevant extract of the said judgment is reproduced hereunder: 6. We have alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athdas [1961] 41 ITR 367 and the Madras High Court decision in the case of V.N.V. Devarajulu Chetty Co. (supra). 8. In the present case also the assessee-firm was under a legal obligation in terms of the deed of partnership dated 1-9-1967 and the clauses in the two subsequent partnership deeds to pay outstanding fees for the work done up to and during the period when the deceased partners were partners. This was also an instance of the source of income being subject to an obligation. We are in agreement with the Calcutta High Court decision and hold that the amounts so paid by the assesseefirm to the heirs of the deceased partners cannot be assessed as the income of the firm. ( Underlined for emphasis by us) 12.4. In our view, the terms of the Partnership Deed dated 01.04.2001 are also in line with the old agreement except that the amount to be paid to the retiring partners and legal heirs have been quantified in the new agreement. Thus, when the fact situation remains the same, we do not find any reason for not following the decision of the Hon ble Bombay High Court in assessee s own case. The Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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