Case Law Details
Wadia Ghandy & Co. Vs ACIT (ITAT Mumbai)
The assessee is a Solicitor Firm and was initially constituted by three partners who were eminent Lawyers. He submitted, all the three partners had created huge goodwill which was definitely exploited by the firm. He submitted, for use of goodwill, the firm was required to pay 5% of the net profit to the concerned partners or their legal heirs, as provided in the partnership deed. He submitted, such payment made by the firm for use of goodwill is an allowable expenditure. Further, he submitted, since the partnership deed specifically provided for payment to legal heirs of the deceased partners, a charge is created to that extent and the income to the extent of goodwill falling to the share of legal heirs of deceased partners is diverted at source by overriding title, hence, does not form part of the income of the assessee. In support of such submissions, the learned Counsel for the assessee relied upon a number of judicial precedents. Without prejudice, he submitted, the issue has been decided in favour of the assessee in the preceding assessment years and there being no change in facts, the decisions of the Tribunal in the preceding assessment years would squarely apply. In this context, he drew our attention to the latest order of the Tribunal passed for the assessment year 2011–12 in ITA no.3400/ Mum./2016, dated 1st March 2018.
We have considered rival submissions and perused the material on record. It is evident, the allowability of payment made to the legal heirs of deceased partners towards share in goodwill is a recurring issue between the parties continuing from the preceding assessment years. Though, the Assessing Officer in the preceding assessment years has made similar disallowance, however, when the issue came up for consideration before the Tribunal, it was held that the payment made to the legal heirs of the deceased partners is allowable as deduction. In the latest order passed for the assessment year 2011–12 cited supra, the Tribunal following its earlier orders has upheld the decision of learned Commissioner (Appeals) in allowing assessee’s claim of deduction. Facts being identical, respectfully following the consistent view of the Tribunal in assessee’s own case as referred to above, we uphold the decision of learned Commissioner (Appeals) on this issue. Grounds raised are dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
Captioned cross appeals arise out of order dated 5th July 2016, passed by the learned Commissioner of Income Tax (Appeals)–7, Mumbai, for the assessment year 2012–13.
ITA no.5328/Mum./2016
Assessee’s Appeal
2. The only ground raised by the assessee relates to the disallowance of ` 4,83,690, on account of depreciation of tenancy rights.
3. Brief facts are, the assessee is a partnership firm of Advocates, Solicitors and Notary. For the year under consideration, the assessee filed its return of income on 30th November 2012, declaring total income of ` 27,38,79,640. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed depreciation of ` 4,83,690, on tenancy rights by treating it as an intangible asset. When called upon to justify the claim, the assessee furnished a written submission stating that tenancy right is a intangible asset eligible for depreciation. However, the Assessing Officer did not accept assessee’s claim considering the fact that in assessee’s own case, the Tribunal has held that tenancy right is not a depreciable asset. Accordingly, he disallowed assessee’s claim of depreciation.
4. Learned Commissioner (Appeals) also sustained the disallowance made by the Assessing Officer.
5. Shri Hiro Rai, the learned Counsel for the assessee fairly submitted that the issue has been consistently decided against the assessee by the Tribunal in the earlier assessment years. In this context, he drew our attention to the latest order of the Tribunal passed for the assessment year 2011–12 in ITA no.2835/Mum./2016, dated 1st March 2018.
6. The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
7. We have considered rival submissions and perused the material on record. It is seen from record, the dispute relating to assessee’s claim of depreciation on tenancy right is a recurring issue from the earlier assessment years. While deciding the issue in earlier assessment years, the Tribunal has consistently held that the tenancy right is not an intangible asset eligible for deprecation under section 32 of the Act. In fact, in the latest order passed for the assessment year 2011–12 cited supra, the Tribunal, following its earlier view has disallowed assessee’s claim of depreciation on tenancy rights. Facts being identical, respectfully following the consistent view of the Tribunal in assessee’s own case in the preceding assessment years, we uphold the decision of learned Commissioner (Appeals) on the issue. Grounds raised are dismissed.
8. In the result, assessee’s appeal is dismissed.
ITA no.6183/Mum./2016
Revenue’s Appeal
9. The effective grounds raised by the Revenue are on the common issue of deletion of disallowance of payments made to the legal heirs of the deceased partners amounting to ` 1,57,32,275.
10. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction of an amount of ` 1,57,32,275, towards payment made to legal heirs of deceased partners called upon the assessee to explain why the deduction claimed should not be disallowed. In response, it was submitted that as per the terms of the partnership deed, assessee has to pay 5% of the net profit to the retired partners or the legal heirs of the deceased partners on account of goodwill of the partners. It was submitted, since the payment made was for the purpose of business it has to be allowed as expenditure. The Assessing Officer, however, did not find merit in the submissions of the assessee and disallowed the deduction claimed. The assessee challenged the aforesaid disallowance before the first appellate authority.
11. Learned Commissioner (Appeals) after considering the submissions of the assessee in the context of the facts and material on record, found that in assessee’s own case, the first appellate authority has decided the issue in its favour while disposing of the appeal for the assessment year 2011–12. Following the said decision, he allowed assessee’s claim.
12. The learned Departmental Representative strongly relied upon the observations of the Assessing Officer.
13. The learned Counsel for the assessee relied upon the decision of the first appellate authority and reiterating the submissions made before him submitted, the assessee is a Solicitor Firm and was initially constituted by three partners who were eminent Lawyers. He submitted, all the three partners had created huge goodwill which was definitely exploited by the firm. He submitted, for use of goodwill, the firm was required to pay 5% of the net profit to the concerned partners or their legal heirs, as provided in the partnership deed. He submitted, such payment made by the firm for use of goodwill is an allowable expenditure. Further, he submitted, since the partnership deed specifically provided for payment to legal heirs of the deceased partners, a charge is created to that extent and the income to the extent of goodwill falling to the share of legal heirs of deceased partners is diverted at source by overriding title, hence, does not form part of the income of the assessee. In support of such submissions, the learned Counsel for the assessee relied upon a number of judicial precedents. Without prejudice, he submitted, the issue has been decided in favour of the assessee in the preceding assessment years and there being no change in facts, the decisions of the Tribunal in the preceding assessment years would squarely apply. In this context, he drew our attention to the latest order of the Tribunal passed for the assessment year 2011–12 in ITA no.3400/ Mum./2016, dated 1st March 2018.
14. We have considered rival submissions and perused the material on record. It is evident, the allowability of payment made to the legal heirs of deceased partners towards share in goodwill is a recurring issue between the parties continuing from the preceding assessment years. Though, the Assessing Officer in the preceding assessment years has made similar disallowance, however, when the issue came up for consideration before the Tribunal, it was held that the payment made to the legal heirs of the deceased partners is allowable as deduction. In the latest order passed for the assessment year 2011–12 cited supra, the Tribunal following its earlier orders has upheld the decision of learned Commissioner (Appeals) in allowing assessee’s claim of deduction. Facts being identical, respectfully following the consistent view of the Tribunal in assessee’s own case as referred to above, we uphold the decision of learned Commissioner (Appeals) on this issue. Grounds raised are dismissed.
15. In the result, Revenue’s appeal is dismissed.
16. To sum up, both the appeals are dismissed.
Order pronounced in the open Court on 07.08.2019
