Supreme Court - Daily Orders
The Pr. Commissioner Of Income Tax vs R. F Nangrani Huf on 13 April, 2023
Bench: K.M. Joseph, B.V. Nagarathna
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2799 OF 2023
(Arising out of SLP (C) No. 448 of 2019)
THE PR. COMMISSIONER OF INCOME TAX Appellant (s)
VERSUS
R. F NANGRANI HUF Respondent(s)
O R D E R
1) Leave granted.
2) The respondent was a partner in a firm. It retired on
14th August, 2008. When it retired, it received a sum of Rs.15 crores from the partnership firm M/s. Landmark Developments. It purported to be in full and final settlement of its right, title and interest as a partner. The respondent was having 50% share in the firm. The other 50 per cent according to the appellant was being held by two other partners who had 25 per cent share each.
3) It is the case of the appellant that the consideration for payment of 15 crores received by the respondent was brought in by three incoming partners. The entire consideration paid accordingly, was debited to the account of the new partners. It is the case of the appellant Signature Not Verified Digitally signed by accordingly that the the Assessing Officer found that the Nidhi Ahuja Date: 2023.04.21 18:13:58 IST Reason: assessee had hoodwinked the revenue. On the said basis, the 1 Assessing Officer sought to bring the amount of Rs.14,15,61,370/- to tax. This is after deducting the amount of Rs.84,38,630/- which stood to the credit of the capital account of the respondent-assessee. This order came to be upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (hereinafter referred to as ‘ITAT’ for brevity) allowed the appeal of the respondent-assesee.
4) ITAT purported to follow the order passed by the jurisdictional High Court. In further appeal which has culminated in the impugned order, the High Court has not found favour with the contentions of the appellant. Hence the appeal.
5) Heard learned counsel for the appellant Shri Rupesh Kumar, and the learned senior counsel for the respondent Shri Ajay Vohra.
6) Learned counsel for the parties have referred elaborately to judgments of this Court. It is the case of the appellant that this is a case where the Assessing Officer was right for the reason that the sum of Rs.15 crores received by the respondent was paid in excess of the amount due to it by way of the share it was entitled under the partnership deed. It is not a case where the amount which it has received is attributable in other words to the share which the retiring partner would be entitled in law. The amount is far in excess. Had the amount being the same 2 as the share, the Revenue would not have raised objection. This is in addition to the fact that the amount paid to the respondent was, in fact, brought in by the three new incoming partners. This made the amount exigible to Income Tax under the head income under the capital gains under Section 45 of the Income Tax Act, 1961.
7) Per contra, learned senior counsel for the respondent would submit that the High Court was actually right in the view it took.
8) Learned counsel for the appellant drew our attention to the statement given by the assessee himself:
“9.2 From the above statement it is very clear that assessee is relying on reply filed vide letter dated 7.11.2011 and 16.12.2011 (as reproduced in para 5 and para 6 has no other explanation in respect of taxability of above income and under which section of the Act the same is claimed as exempt. Similarly as regards the basis and quantum the managing partner of the firm M/s Landmark Development has stated as under:
Q.5: During the course of assessment proceedings in the case of Shri R.F. Nagrani (HUF), it is noticed that R.F. Nagrani (HUF) retired from the partnership and what was the terms of retirement.
Ans: - The R.F. Nagrani HUF retired from the firm on 14.3.2008. The terms of retirement in the retirement deed. A copy of which is already furnished vide above referred submission dated 14.12.2011.
Q.6 As per the deed of retirement furnished, it is noticed that outgoing partner was to receive Rs.15 crores in full and final settlement of HUF’s right, title and interest in the firm. Please state how the above amount was worked out.
3 Ans. It was based on mutual agreement and considering that HUF had been with partnership for more than last 15 years and all investments were made to get appreciation. The above amount includes capital balance, current account balance and loch with the firm.
Q.7 What is the basis of fixing the amount at Rs.15 crores and not at any other amount? Ans: - Please refer to the reply to earlier question….” 9.3 Hence from all the above discussion it is emerged that there was no basis of fixing the payment of adhoc amount of Rs.15 Crores to the assessee. It was on mutual understanding and after considering 15 year association of assessee with the firm and also expected future expected profit. Hence, as the assessee had relinquished his rights and shares in favour of continuing partners (including new partners entered on the date of retirement deed) and has received Rs.15 Crores as full and settlement of right, title interest. In the same taxable in the hands the assessee as Capital Gains.”
9) Learned senior counsel, on the other hand, would point out that actually though the amount may appear to be in excess of the share standing to the credit of the capital account of the respondent-assessee, the amount in excess is attributable to the goodwill which, according to him, is subject matter of decisions of this Court and since goodwill under the law as it stood was to be taken into consideration in determining the share of the retiring partner, no part of the amount received by the respondent-assessee was exigible to tax.
10) From the impugned order, we do not find any discussion 4 on any submission on the lines which has been addressed before this Court. We are of the view that the matter should, therefore, be reconsidered by the High Court with reference to the facts as are not in dispute and law which governs the field. The appeal is allowed. The impugned order will stand set aside. The case will stand remitted. The appeals will be reheard.
11) Needless to say that the Court will bear in mind the state of the law and the amendments which have been engrafted later on.
12) We make it clear that we have not expressed any views on the merits of the contentions of either side.
…………………………………………………………………., J.
[ K.M. JOSEPH ] …………………………………………………………………., J.
[ B.V. NAGARATHNA ] New Delhi;
April 13, 2023.
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ITEM NO.33 COURT NO.3 SECTION IX
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Petition(s) for Special Leave to Appeal (C) No. 448/2019 (Arising out of impugned final judgment and order dated 18-04-2018 in ITA No. 33/2016 passed by the High Court of Judicature at Bombay) THE PR. COMMISSIONER OF INCOME TAX Petitioner(s) VERSUS R. F NANGRANI HUF Respondent(s) [TO BE TAKEN UP AFTER FRESH MATTERS] Date : 13-04-2023 This petition was called on for hearing today. CORAM :
HON'BLE MR. JUSTICE K.M. JOSEPH HON'BLE MRS. JUSTICE B.V. NAGARATHNA For Petitioner(s) Mrs. Anil Katiyar, AOR Mr. Rupesh Kumar, Adv.
Mr. H R Rao, Adv.
Mr. Raj Bahadur Yadav, AOR Mr. Zoheb Hussain, Adv.
Mr. Aakansha Kaul, Adv.
Mr. S A Haseeb, Adv.
Mr. Sundeep Pandhi, Adv.
For Respondent(s) Mr. Ajay Vohra, Sr. Adv.
M/S. Karanjawala & Co., AOR Ms. Nandini Gore, Adv.
Ms. Sonia Nigam, Adv.
Mr. Akarsh Sharma, Adv.
Mr. Yashwant Gaggar, Adv.
UPON hearing the counsel the Court made the following O R D E R Leave granted.
The appeal is allowed in terms of the signed order.
(NIDHI AHUJA) (RENU KAPOOR)
AR-cum-PS ASSISTANT REGISTRAR
[Signed order is placed on the file.] 6