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Case Law Details

Case Name : DCIT Vs Manish M. Chheda (ITAT Mumbai)
Appeal Number : Appeal No. ITA No. 2703/Mum/07
Date of Judgement/Order : 29/01/2009
Related Assessment Year : 1999- 2000


16. On the issue of applicability of section 28(iv) of the Act, we are however of the view that the same arises for consideration on the grounds raised in cross objection and accordingly, we proceed to adjudicate the same. We are of the view that provisions of section 28(iv) would not be attracted to a case of increase in capital of partners of a firm pursuant to revaluation of the assets of the firm. Under section 28 of the Act, the following income shall be chargeable to income tax under the head `profits and gains of business or profession:

(i) The profits and gains of any business or profession which was earned on by the assessee at any time during the previous year.

(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.

The following conditions are required to be satisfied for applicability of Sec.28(iv) of the Act,

1) That the appellant companies should have carried on any-business at any time during the previous year;

2) That there should be a benefit arising to the appellant-companies ;

3) That the benefit must be one arising from the business carried on by the appellant-companies .

4) That the benefit, if any, must be revenue in character; must be of income in nature;

5. That the benefit has arisen to the appellant-companies in a business transaction they had.

17. As can be seen from the above, one of the condition necessary for applicability of section 28(iv) is the benefit or perquisite sought to be taxed must be arising in the course of business carried on. In the case Chetnaben B. Seth 203 ITR 24(Guj), Hon’ble Gujarat High Court has held that amount received by an assessee partner of a firm towards valuation of goodwill and assets of a firm at the time of retirement from the firm does not attract provisions of section 28 (iv) of the Act, since, the same cannot be said to be a perquisite arising from the business and that even otherwise it would not partake the character of income. Besides the above, we are of the view that the increase in capital of partner as a result of revaluation of assets of the firm has no nexus with the business of the firm and therefore cannot be brought within the ambit of section 28(iv) of the Act. We therefore hold that provisions of section 28 (iv) cannot be applied to bring the sum in question to tax in the hands of the partners of the firm.


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