Shri James P. D’Silva Vs DCIT (ITAT Mumbai)
Conclusion: Amount paid to a partner upon retirement after taking accounts and upon deduction of liabilities did not involve an element of transfer within meaning of section 2(47) and not chargeable to income tax.
Held: Assessee was in the business of real estate and film production. Assessee conducting the business as a proprietary concern and various other concerns including the firm M/s. BC which was constituted with four partners. As the disputes arouse among the partners assessee was forced to retire from the firm accordingly the deed for release was signed and assessee retired from the partnership. Finally, assessee and the partners settled the dispute by entering into consent terms. AO concluded that there was a transfer of interest of the retiring partner over the assets of the partnership firm on her retirement and therefore there was a liability to tax on account of capital gains. Hence goodwill was assessed as capital gains in the hands of assessee. It was held following the decision in the case of Prashant S. Joshi v. ITO and the decision of CIT v. R. Lingamallu Rajkumar [247 ITR 801] wherein it was held that amount paid to a partner upon retirement after taking accounts and upon deduction of liabilities did not involve an element of transfer within meaning of section 2(47) and not chargeable to income tax. The Court also held, that the payment made to a partner in realization of his share in net value of assets upon his retirement from a firm was not liable to income tax.It was concluded amounts received on retirement by a partner was not subject to capital gain tax.
FULL TEXT OF THE ITAT JUDGEMENT
1. These two cross appeals are filed by the assessee and Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)–26 Mumbai [hereinafter in short “Ld.CIT(A)”] dated 31.12.2015 for the Assessment Year 2012-13 in allowing the appeal of the assessee partly.
2. Revenue in its appeal raised the following grounds: –
(i) “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 48,65,000/-made by the Assessing Officer on account of advances received even though the assessee had failed to produce any supporting documentation or confirmation as evidence that could support this claim despite granting number of opportunities to the assessee which resulted into addition on account of unexplained credit.”
(ii) “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by confirming only Rs.8,08,60,000/- out of addition on two grounds totaling to Rs. 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 Rs. 8,08,60,000/- out of addition on two grounds totaling to Rs. 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 Rs.8,08,60,000/- out of addition on two grounds totaling to Rs. 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 the assessee is following the due basis of accounting.”
(v) “On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law by reducing the quantum of addition from Rs. 23,14,63,126/- to Rs.19,27,00,000/- made by the Assessing Officer on account of amount received and/or receivable from M/s Blue Circle Infratech without appreciating the fact that during the year the assessee has received Rs.9,41,63,126/- and Rs. 12,73,00,000/- was received and or receivable from M/s Blue Circle Infratech which were over and above the introduced capital and share of profit.”
(vi). Without prejudice to above grounds, on the facts and in the circumstances of the case and in law, the learned CIT(A), has erred in holding that in the year under consideration only an amount of Rs.8,08,60,000/- was received from M/s Blue Circle Infratech without appreciating the fact that during the year assessee has received Rs.9,41,63,126/- through capital accounts and Rs.-4,47,68,663/- as investment in balance sheet.”
3. Revenue also filed amended grounds as under:
(i) Ground Nos. II, III & in view of the, the figure Rs. 8,08,60,000/- to be substituted by Rs. 8,33,93,334/-. Further, in Ground No. iv, “due basis of accounting” be substituted as “mercantile system of accounting”.
(ii) Ground No. vi, the figure Rs. 8,08,60,000/- to be substituted by Rs. 8,33,93,334/-.
4. The assessee raised following grounds in its appeal: –
“1 The learned CIT (A) erred in not appreciating that the learned AO had passed a high pitched assessment order and had created huge demand without giving the appellant reasonable and proper opportunity of being heard.
2 The learned CIT (A) erred in sustaining the addition of Rs.8,08,60,000/-without appreciating the facts of the case properly.
3 The learned CIT (A) erred in not adjudicating all the Grounds of Appeal raised by the appellant before him.
3.1 The learned CIT (A) erred in not adjudicating Ground No-3 raised by the appellant in which additions of Rs. 1,00,00,000/- on account of goodwill and Rs.12,73,00,000/- on account of brokerage and commission were contested.
3.2 The learned CIT (A) erred in not deciding specifically Ground No-4 in which the appellant had challenged the addition of Rs.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 Rs. 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 Rs. 8,08,60,000/- on receipt basis, but factually and actually amount received is of Rs. 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 and Developer, (2). M/s D’Silva Enterprises- Dealing in land and (3). M/s D’Silva Productions- Film Production and assessee is Partner in the four Partnership Firms namely (1). M/s Blue Circle Infratech, (2). M/s Ahinsa Gruh Nirman, (3). M/s D’Silva Realtors and (4). M/s New Style Shoes. For the present cross appeals, only M/s Blue Circle Infratech and M/s D’Silva Productions are relevant. M/s Blue Circle Infratech was constituted on 06.11.2006 with the following partners which is evident from and a copy of Partnership Deed placed at page 59 to 66 of Paper Book –
