9911796707
TMI Blog1982 (7) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... d as revenue receipts in view of the decision of the Gangadhar Baijnath 1972 CTR (SC) 310 : (1972) 86 ITR 19 (SC). The AAC considered the submissions as raised before him by both the sides and set aside the matter and directed the ITO to remake the assessment in light of the observations set out in his order. Thereafter, the assessee filed an appeal before the Tribunal and the Tribunal in its order in ITA No. 298/Ahd/76-77 dt. 22nd April, 1977 upheld the decision of the AAC after making certain observations as set out in para 10 of order. 2. On restoration of these appeals, the ITO reconsidered the entire issue and proposed an addition of Rs. 2,15,806 for the asst. yr. 1972-73 and referred the matter to the IAC for approval as required under s. 144B of the Act and on receipt of the instructions from the IAC redetermined the income of the assessee at Rs. 2,74,700 which, inter alia, included a sum of Rs. 2,15,806, as aforesaid, as compensation money received on retirement and treated as business receipt. The ITO clarified that he was making the above assessment on a protective basis as the said compensation amount was found to be payable to the assessee as a result of arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158 of the Act, should only be included in the hands of the assessee. In this view of the matter, he directed the ITO to modify the assessment so far as the determination of the share of profit from the firm was concerned. 4. The CIT (A), however, took the view that the extra amount being the difference between Rs. 54,591 and Rs. 37,628, i.e. 21,363 was liable to be assessed in the hands of the assessee for the asst. yr. 1973-74 because this profit accrued to the assessee as a result of agreement between the partners as a result of arbitration award. Since the arbitration award was given in July, 1972 the extra payment being the share of tax borne by the firm was taxable as business profit in the hands of the assessee for the asst. yr. 1973-74. 5. The CIT (A) then took up for consideration the inclusion of Rs. 2,15,806 as business profit for the asst. yr. 1972-73. He first considered the basis adopted by the ITO to bring to tax the said amount as business profit. The CIT (A) observed that the ITO had applied the decision in case of Gangadhar Baijnath, cited supra, but this decision of the ITO was challenged on behalf of the assessee on the ground that the said decision had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 44,244 relating to share of depreciation reserve. In short, the conclusions reached by the CIT (A) were there: "(i) The profit for the previous year ending 31st Dec., 1971 as determined in assessment has to be included in the appellant's assessment for the asst. yr. 1972-73. (ii) The extra profit given to the appellant which represents only extinguishment of the appellant's liability for payment of his share in the firm's tax has to be included as business profit in the assessment for the year 1973-74. (iii) The value of goodwill amounting to Rs. 26,856 has to be left out of consideration as in the case of the appellant goodwill was a self-generated asset. (iv) The balance of Rs. 1,88,950 has to be included in the appellant's assessment for the asst. yr. 1973-74 as capital gains." He accordingly directed the ITO to modify the assessments for both years accordingly. 7. Being aggrieved, the assessee has come up in appeal for the asst.yrs. 1972-73 and 1973-74. The Revenue has come up in appeal against the order of the CIT (A) for the asst. yr. 1973-74 only. Shri Shah, after reiterating the facts which we have set out earlier, supported the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The reliance placed by the CIT (A) on two decisions of the Bombay High Court had no application in view of the decision in the case of CIT vs. Dilip Engg. Works (1981) 21 CTR (Guj) 213 : (1981) 129 ITR 688 (Guj). In accordance with the said decision, therefore, it was urged that the amount in question, viz., extra amount received towards the assessee's share in the firm tax as also the balance amount as per item No. (iv) were not exigible to capital gains. 8. The ld. Deptl. Rep. on the other hand, pointed out that the decision of the CIT (A) to include item Nos. (ii) and (iv) for the asst. yr. 1973-74 was justified. He, however, challenged the decision of the CIT (A) to include the said amount in determining the assessee's liability to capital gains on the ground that the entire compensation was assessable as business profit in view of the decision of Supreme Court in case of CIT vs. Gangadhar Baijnath 1972 CTR (SC) 310 : (1972) 86 ITR 19 (SC). In view of the above decision of the Supreme Court, therefore, the Revenue has challenged the decision of the CIT(A) in the appeal filed by the Revenue. Shri Harne next pointed that so far as item No. (ii) was concerned, if it was felt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was paid the gross amount as was determined as per books of the firm and has credits in the assessee's account with the firm. Ordinarily, the share of tax on the profits earned by the assessee would be required to be borne by the assessee himself. However, as a result of a settlement made, the continuing partners agreed to bear the said share of tax. As a consequence, the assessee was paid his entire share of profit without the burden of the tax liability attached there. Now the question is the character of the said amount. Now if the said amount is to be treated as extra profit and the character is the same as the share of profit earned by the assessee, then the source of the said profit was the share of profit from the firm and as such it could only be brought to tax for the asst. yr. 1972-73. However, it may be noted that the said amount could not be said to have been accrued to the assessee for the asst. yr. 1972-73, because it was only after the other partners agreed to bear the burden themselves, as a result of the arbitration award that the right to receive the said amount accrued to the assessee. Therefore, so far as the asst. yr. 1972-73 is concerned, the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is professional income, can be brought to tax only if it can be so done under the rules of computation laid down in s. 10. If it cannot be so brought to tax, it cannot be brought under the residual head 'income from other sources' and it will escape taxation even if it be included in the total income under section 4. (iv) The words 'if not included under any of the preceding head' in s. 12 refer to income and not to a head of income. Section 12, therefore, deals with income which is not included in any of the preceding heads. If the income is so included, it falls outside s. 12. Section 12 does not say that an income which escapes taxation under a preceding head will be computed under it for chargeability to tax." In coming to the above decision, their Lordships overruled the observations of Hon'ble Chagla J., (as he then was In re B.M. Kamdar (1946) 14 ITR 10 (Bom) (FB). In Kamdar's case we may add that it was held that if the receipt was in a nature of income it could be brought to tax under the head 'other sources' if it could not be assessed under the head business or profession'. Therefore the proposition canvassed by Shri Harne, which runs on the lines of decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the present case is concerned, we are not dealing with the question of any capital gains accruing to the retiring partner, wherein the wider definition of the term "transfer" under s. 2(47) of the Act may have its play, though we may mention that even such a wider question has been squarely answered against the Revenue by the Division Bench of this Court in Mohanbhai Pamabhai's case (1978) 91 ITR 393 (Guj), and hence the decision of the Bombay High Court in Tribhuvandas's case (1978) 115 ITR 95, in so far as it takes a contrary view, cannot be effectively availed of by the Revenue so far as this Court is concerned." In light of the above decision, therefore, we must agree with the contention raised on behalf of the assessee that the compensation received by the assessee on retirement from the firm is not exigible to tax as capital gains. The decision of the CIT(A) on this point is accordingly reversed. 11. Now this brings us to consider the only ground raised in the appeal filed by the Revenue regarding the assessability of the above compensation received by the assessee on retirement as income from business. As pointed out earlier, the ITO had proceeded to bring to tax th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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