Income Tax Appellate Tribunal - Kolkata
Ajay Kumar Doshi., Kolkata vs Assessee on 11 December, 2015
I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2
Assessment year: 2003-2004
&
I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3
Assessment year: 2003-2004
Page 1 of 14
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member
and Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 1866/KOL/ 2012
Assessment Year: 2003-2004
Ajay Kumar Doshi,.................................................................Appellant
P-130, CIT Road, 2 n d Floor,
Kolkata-700 010
[PAN : ADGPD 2041 M]
-Vs.-
Assistant Commissioner of Income Tax,.... ............................Respondent
Circle-54, Ko lkata,
3, Government Place (West),
Kolkata-700 001
-A N D -
I.T .A. No. 120/KOL/ 2013
Assessment Year: 2003-2004
Assistant Commissioner of Income Tax,.... ............................Appellant
Circle-54, Ko lkata,
3, Government Place (West),
Kolkata-700 001
-Vs.-
Ajay Kumar Doshi,.................................................................Respondent
P-130, CIT Road, 2 n d Floor,
Kolkata-700 010
[PAN : ADGPD 2041 M
Appearances by:
Shri J.P. Khaitan, Sr. Advocate , fo r th e assessee
Shri Sridhar Bhattacharya, JCIT, for the Department
Nate of concluding the hearing : December 04, 2015
Date of pronouncing the order : December 11, 2015
O R D E R
Per Shri P.M. Jagtap:-
These two appeals, one filed by the assessee being ITA No. 1866/KOL/2012 and other filed by the Revenue being ITA No. 120/KOL/2013, are cross appeals, which are directed against the order of I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 2 of 14 ld. Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 06.11.2012 for the assessment year 2003-04.
2. First we take up the appeal of the assessee, Ground No. 1 of which disputes the addition of Rs.1,46,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) to the total income of the assessee rejecting the stand of the assesese that the same is capital receipt.
3. The assessee in the present case is an individual, who is a Chartered Accountant by profession. The return of income for the year under consideration was filed by him on 27.11.2003 declaring total income of Rs.72,35,276/-. In the said return, the sum of Rs.1,46,00,000/- was claimed to be exempt by the assessee from tax and the following note was appended to the return to support and substantiate the said claim:-
"Income exempt from tax- capital receipts- during the year, I have received Rs.1,46,00,000/- from EYLLP through accounting partners trust upon termination of my employment with Ernst & Young Pvt. Limited. Since the payment is received neither from my employer nor on behalf of my employer ( & since there was no obligation upon my employer to pay such amount to me), it is not taxable as profits in lieu of salary under the Income Tax Act, 1961. Further, Courts have held that consideration received for giving up employment right is a capital receipt. Hence, applying this principle, the amount received by me is not taxable".
4. During the course of assessment proceedings, it was also submitted by the assessee that the sum of Rs.1,00,00,000/- (net of tax) was received from Ernst & Young LLP through Accounting Partners Trust-1 upon his cessation of employment with Ernst & Young. It was contended that since the said amount was in the nature of capital receipt, it was exempt from tax and the same, therefore, was not included as part of total income declared in the return. Reliance in support of this contention was place d by the assessee on the decision of the Hon'ble Supreme Court in the case I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 3 of 14 of Naresh Narayan Saxena -vs.- CIT reported in 220 ITR 19. This stand of the assessee was not found acceptable by the Assessing Officer and the sum of Rs.1,46,00,000/- was brought to tax by him in the hands of the assessee as income from salary for the following reasons given in paragraphs no. 4.1 and 4.2 of the assessment order:-
"4.1. I have considered th e submission of the assessee. The decisio n of the Hon'ble Supreme Court cit ed by the assessee is not applicable here as the facts of th e said case are not similar to the present case. I want ed to examine the terms and conditions of the deed of th e Acco unting Part ners T rust-1 through which the assessee cl aims to h ave received the said money which the assessee cl aims as compensation. The Office of the Trust is at New Delhi. The Trustee of the said trust h as stated th at the money was received fro m the Ernst & Young Global Services, in short EYGS, fo r payment to the retiring partners. A copy of the balance sheet of the trust as on 31.03.2003 sent by t he Trustee is enclosed. Unfo rtunately, the copy of the t rust deed was not made available to me fo r examination. They h ave expressed inabilit y to furni sh the copy of the deed. It has been stated that the assessee was paid the above money by the said trust as per the balance sheet and Statement of Receipts & its Application (enclosed as Annexure 'B' to this order). It is not clear why the said trust was formed and o n which grounds the said money was paid to him. The assessee claims that h e was paid the same upon his cessation of emplo yment with his employer Ernst & Young Pvt Lt d. The assessee has wanted t o make it a point th at he has received the said amount as co mpensation fo r the loss of source of inco me which he would h ave been receiving h ad he continued as an emplo yee. I have stat ed earlier th at the terms of the deed could not be examined. I sh ould mention here th at the assessee was also a part ner in a firm namel y, M/s. S. R. Batliboi & Co. from where he had retired during this year. The money was received by the assessee upon his cessation of employment and retirement from part nership firm. It may be noted that the said amount was not paid by his employer or his firm directly. It is not clear in absence of the deed of the trust or clarification of the trustee wheth er the money was paid to the assessee on cessat ion of employment or ret irement from partnership firm. The said money termed as compensatio n was received on premature cessation or retirement either from employer o r partnersh ip. The salaried perso ns are being paid co mpensation upon voluntary retirement prio r to the normal dat e of retirement . The said compensation is being taxed as sal ary income under the Act. The Act h as not exempted the compensation of salary inco me. Th e present case is very simil ar. The assessee states th at he has received compensation I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 4 of 14 upon cessat ion of employment in lieu of the regular income by way of salary. Therefore, in my view, the compensatio n of Rs.1 ,46,00,000/- received by the assessee upon his retirement is a sal ary income ch argeable to t ax. If the assessee was paid the said co mpensation on premature retirement from the firm, then the compensatio n would be the professional income chargeable to tax. Here, upon t he version of th e assessee and without prejudice to my second finding made above, the receipt of Rs.1 ,46,000/- is chargeable to tax as sal ary income of the assessee.
4.2. It appears that the assessee has misunderstood the meaning of "loss of source of income". In my considered view the loss of source of income is one which is beyond the control of the employee. T he assessee h as vo luntarily opted for retirement . Therefo re, the amount received due to his retirement is in lieu of salary. It makes no difference whether the retirement benefit is paid by the employer or b y any t rust creat ed fo r pro viding retirement benefit. In absence of t rust deed, it is not ascert ainable as to wh at were the objects of the trust , who were cont ributors of the trust corpus and what were the terms and conditions for payment of retirement benefit to retiring part ner. However, one fact is obvious that the assssee has received the benefit only because of h is continuatio n in the emplo yment in past fo r which he has received salary. Therefore, in my view, th e compensation of Rs.1,46 ,00,000/- received by the assessee on his cessatio n of employment is in lieu of salary and hence it is a salary income chargeable t o tax" .
5. The addition of Rs.1,46,00,000/- made by the Assessing Officer treating the amount in question as income from salary was challenged by the assessee in appeal before the ld. CIT(Appeals). During the course of appellate proceedings, it was submitted by assessee that he had given up his entitlement for receipt of pension rights like others in the same case in the firm because of a change in its constitution and since Ernst & Young Global had made the payment for giving up right of pension, the amount in question was claimed to be exempt from tax being receipt of capital nature. It was also contended that the assessee being a partner of the firm of M/s. S.R. Batliboi & M/s. S.R. Batliboi Associates, there was no employer and employee relation between the assessee and the firm, which had paid the amount in question and, therefore, the said amount could not be considered as profit in lieu of salary chargeable to tax under I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 5 of 14 the provision of section 17(3) of the Act. This contention of the assessee was not found acceptable by the ld. CIT(Appeals), who proceeded to confirm the addition of Rs.1,46,00,000/- made to the total income of the assessee on this issue after discussing all the relevant aspects of the matter in paragraphs no. 4.2 to 4.5 of his impugned order, which are extracted below:-
"4.2. The Assessing Officer observed in the assessment order th at the appellant who was due to retire in later years would have received pension in acco rdance with the partnersh ip deed. He compared the appellant's case with that of a person who retires premat urely and receives payments on that account. The Ld. AR argued that Sect ion 17 of the Income tax Act could not apply in the appellant's case. The appellant being part ner of a firm of M/s. S. R. Batliboi & M/S S. R. Batliboi Associates there was no employer emplo yee relat ionship between the appellant and the Firm. It was his posit ion that the appellant could not be said to have received the payment under any consideration from his emplo yer or fo rmer employer. He vehemently submitt ed that the pro visio ns of Sect ion 17(3) did not apply and the amo unt received cannot be considered as profit in lieu sal ary.
It is correct that th ere was no employer employee relatio nship between the appellant and t he Firms of which he was a partner. It is however a fact t hat the lumpsum payment was received in consideration fo r giving up pension rights. Where any t he terms of an agreement governing professio nal relatio nship and matters incidental thereto undergo ch anges as in the impugned case any payment received as a result becomes a professional receipt. It is therefo re incont rovertibly liable to tax as income fro m professio n. The amo unt so received woul d otherwise h ave been avail able to him post - ret irement by way of pension fo r the rest of his life t ime. Pension is a revenue receipt and giving up a right thereto would not constit ute a sit uat ion of non-t axable capit al receipt . The fact that the amount was paid by M/s. Ernest Young & Global though Accounting Part ners Trust Fund 1 has no bearing on the taxability of the amount paid to the appellant . If the person chooses to receive in a lumpsum what he co uld h ave received by way of monthly payment, there is no connot ation of capit al nature in spect rum of tax in t his case.
Those cases embraced situatio n when present business set ups ceased to exist or a source from which was being currentl y derived which was not the po sition in the inst ant I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 6 of 14 but merely involved the concept of a vol untary ch ange in terms which was devoid of any impact on taxabilit y. "Pensio n" to the partners from the firm would constitute professio nal income which is liable to tax. The chorales taxability woul d not cease because the partners decided to receive such inco me in another manner. T axable laws do not become inapplicable because income which is t axable is by a convenient manoeuvre received in another form. Sec. 176(4) of Income Tax Act is clear on this issue. The provisions are produced as below:-
(4) "Where any profession is discontinued in any year on acco unt of t he cessation of the profession by, o r the retirement or death of, the person carrying o n the profession, any sum received aft er the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingl y in the ear of receipt , if such sum would have been included in th e total inco me of the aforesaid person had it been received before such discontinuance."
4.3 The Ld. AR quot ed the verdict in the case of Kettle well Bullen & Co. Ltd. (35 ITR 261)(SC), Vazir Sultan & Sons (36 ITR
175)(SC) and Oberoi Hotel Pvt. Ltd. (23 6 ITR 903)(SC), and Naresh Narayan Saxena vs. C IT 220 ITR 19 in suppo rt of his contentions. These cases relate to receipts against loss of business asset s or sources. Thus th ese judgment s are distinguished vis-a-vis the appellant's case. His profession did not cease and the so urce of such inco me not extinguished but there was only a change in terms which cannot have the effect of negat ing the provisions of the I. T. Act 1963. In any case payment receivable from the firm under the appellation of "pension" is a contingent right . It was dependent on the appellant surviving till the date of retirement which was not a certainly and then parameter of how long he survive d. To exchange such a situation fo r a h andsome payment was not tantamount to dismantling an apparatus. When the payment was received fro m Ernest & Young pension was a dist ant and contingent issue. To borrow an analogy th e concept of pension in the case of an employee is not applicable during continuation of his service and if any payment was made on lieu thereof it wo uld become taxable as "profit in lieu of salary" . Likewise in a professional set up a fut ure contingent receipt is converted into present lump sum its ch aracter as income will not undergo any change and can have no impact on its taxable. Tax laws do not land t hemsel ves to such manipulation nor sleight of hand operations to defeat its end to escape a rightful imposition.
I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 7 of 14 4.4. It is not po ssible to say that th e appellant was fo rced to accept a capit al sum in lieu of his pension. He voluntarily cho se to accept income by way of payment from Ernest Young & Global through Acco unting Partners T rust - 1. The pension could not h a e been a non-taxable item and the appellant's preference to receive lump sum money carries the same connotation. Pension itself is not a capital asset but a revenue one. The payment so received in of opt ional change does not fall out of the umbrella of taxabilit y.
4.5. During appellat e proceeding dt . 12.06.2012 appellant mentio ned that "If I would have received compensation from E&Y, then it is revenue receipt s. Since I have rece ived from Accounting Part ner T rust -I it is capit al receipt" . Here mode of receipt is not import ant but purpose of receipt is import ant . Appellant h imself admitted th e receipts are taxable. It is a receipt for premature retirement . Account ing Partners Trust- I merely helped to facil itate the receipt of compensation from E& Y Ltd. After retiring from S R Batliboi & Co., take n over E & Y Kolkata, appellant being C .A. by profession started his own partnersh ip concern in th e name & st yle of M/ s. Dosh i, Chatterjee, Bagri & Co. Appellant never lost the qualification but change it fro m o ne to another professional conc ern. Hence the appellant's contentions in this behalf do not form any basis for its considerat ion as receipt exempt fro m tax. The addition of Rs.l,46,00,000/-is t herefo re co nfirmed".
6. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has contended that this issue involved in Ground No. 1 of the assessee's appeal is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the case of Mr. Ramkrishna Agarwal
-vs.- ACIT rendered vide its order dated 17.07.2014 in ITA No. 1740/KOL/2012, wherein a similar amount received by the assessee as compensation for giving up his right to receive pension was held to be capital receipt not chargeable to tax by relying on the decision of the Hon'ble Delhi High Court in the case of Khanna and Annadhanam reported in 351 ITR 110. However, as rightly pointed out by the ld. D.R., the amount in question received by the assessee was never claimed by the assessee either during the course of assessment proceedings before the Assessing Officer or even in the statement of facts filed before the ld.
I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 8 of 14 CIT(Appeals) to be the amount received for giving up his right to receive pension and although this claim was made by the assessee for the first time before the ld. CIT(Appeals), the impugned order of the ld. CIT(Appeals) does not show that he has verified the same from the relevant documentary evidence, such as the relevant partnership deed giving the assessee his right to receive pension, agreement whereby the right to receive pension, if any, was given up by the assessee for the amount in question, etc. He has contended that this matter may, therefore, be sent back to the file of the Assessing Officer for verifying the claim of the assessee. Since this position pointed out by the ld. D.R. is clearly evident from the orders of the authorities below and the ld. Counsel for the assessee has also not disputed the same, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh in the light of the decision of the Coordinate Bench of this Tribunal in the case of Mr. Ramkrishna Agarwal (supra) after verifying the claim of the assessee from the relevant documentary evidence. Needless to mention, that the assessee shall offer proper and sufficient opportunity of bein g heard to the assessee. Ground No. 1 of the assessee's appeal is accordingly treated as allowed for statistical purposes.
7. In Ground No. 2, the assessee has disputed the addition of Rs.22,56,250/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of share of goodwill received by the assessee on his retirement from the partnership firm of M/s. S.R.. Batliboi & Co.
8. During the year under consideration, the assessee had retired from the partnership firm of M/s. S.R. Batliboi & Co. Upon his retirement, he was paid, inter alia, a sum of Rs.22,56,250/- in lieu of the goodwill from the said firm and the same was claimed to be exempt by the assessee from tax being in the nature of capital receipt. The claim made by the assesee I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 9 of 14 in this regard was that the said amount could not be taxed even as capital gains since there was no transfer of goodwill. This claim of the assessee was not accepted by the Assessing Officer and the sum of Rs.22,56,250/- received by the assessee as his share of goodwill from M/s. S.R. Batliboi & Company on his retirement was brought to tax by the Assessing Officer in the hands of the assessee under the head "income from other sources" for the following reasons given in paragraph no. 5.1 of the assessment order:-
"5.1. The firm created go odwill and apport ioned the same amongst the part ners and credited the val ue of the goodwill to the accounts of the partners according t o the profit sh aring ratio . On creation of the goodwill, it does not ipso facto become any inco me in the hands of the firm but the value of the goodwill depends on the reputatio n and the quantum of income generated/earned in the post . Therefo re, when it is paid to the part ner o n retirement, the partner's sh are in the profit and loss ratio assumes the ch aracter of dist ributio n of the firm' s accumul ated income in the form of goodwill which was not taxed in the firm's h ands. The money received from the firm by a partner on account of his capit al is a capit al receipt because what is received by the partner is his own capit al which was either contributed by him or was out of accumulatio n of pro fit subjected to tax. But when it is received o n account of goodwill, it is not his capit al contribution or out of income accumul atio n subjected to tax in firm's hands. As he receives any money in lieu of goodwill, the said money beco mes his inco me as he gets it by virtue of his being a partner and in exercise of his profession. Moreover, any inco me has to be t axed eit her in th e hands of the earner or receiver of income in beneficial capacity. Therefo re, I do not agree with assessee's contention th at his share in goodwill received on retirement is a capital receipt, rather it is casual receipt in the nat ure of income which was not taxed in the h ands of firm. Mo reover, this receipt is not liable to be taxed under any of the heads fro m A to E of section 14 of the Act. In view of the o pening sent ence of section 56 of the Act , such receipt of income is li able to be taxed as income from other sources. Acco rdingly, I t reat the assessee's share of go odwill of Rs.22,56,25 0/- as i ncome fro m other so urces and include the same in assessee' s total income" .
I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 10 of 14
9. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer after recording the following observations in paragraph no. 6 of his impugned order:-
"6. I have considered the A.O.'s findings as well as submissions made by appellant carefully incl uding number of case laws cited in written submissio n. Goodwill though not defined in the I.T. Act, 1961 (the Act) it is a capit al asset for the purpose of comput ing capital gain as is clear fro m section 55(2)(a) of the Act which provides fo r cost of acquisitio n of Goodwill trade mark etc. for the purpose of computat ion of capit al gain.
In present case it is an admitted fact that the terms of partnersh ip of M/s. S.R. Batliboi & Co. (the Firm) th ere is a pro vision since incept ion that Goodwill, if any, of the Firm shall always belong to th e Firm and th at no ne of the part nership would have any right, title or interest in goodwill of the Firm of whatsoever nat ure. Inspite of this t erm, during the year under appeal firm created goodwill as an asset in its books by debiting to Goodwill Account and crediting to the account s of the then partners in their pro fit sharing ratio. Accordingly in previous year ended on 31-03 -2003 the Firm credited Rs.22,56,250/- to the account s of the appell ant on account of goodwill apart from other credits on account of interest on capit al and share of profit . Out of total credit appellant withdraw Rs.2 ,41,71,614/- overdrawing by Rs.7,3 2,237/-.
Thus the credit in appellant's account is for goodwill Rs.22 ,56,250/- of the Firm which is clearly liable to be taxed as capit al gain. Here, an issue may be raised that the goodwill so creat ed by Firm in its books will be/ can be sold by firm onl y as the appellant has not sold goodwill to anyone. But the Firm o n sale of goodwill at a future date will claim deduction against sale consideration as cost of acquisitio n the total amount credit ed to all the part ners as goodwill during the year under reference and can avo id payment of capit al gain tax subst antially, in terms of sectio n 55(2)(a)(i) of the Act. Sec. 10(2A) of the Act invoked by the appellant cannot hel p him as said section deals with share of a partner in the total income of the firm and not share of goodwill of the firm.
In appellant' s case h e is being credited h is share in goodwill which credit goes in creat ion of goodwill in the Firm's assets. In such case pro visio ns of section 55(2)(a)(i) which provides that in cases where there is no purchase of goodwill cost of acquisition will be considered as "nil" as appellant has not purchased goodwill which is covered by sub-clause (i) of clause
(a) of section 55(2) .
I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 11 of 14 In view of above no intervention is called for in A.O.'s act ion except that in place of income fro m other source it is to be taxed as long term capital gain as the amount is for goodwill received by the appellant from the Firm" .
10. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue involved in Ground No. 2 of the assessee's appeal is squarely covered in favour of the assessee by the various judicial pronouncements including the decisions of the Coordinate Benches of this Tribunal. In one such decision rendered in the case of Shri Amitabh Singh (ITA No. 1996/DEL/2006), Hon'ble Delhi Bench of this Tribunal decided the similar issue in favour of the assessee in the identical facts and circumstances for the following reasons given in paragraph no. 5 of its order:-
"5. We have considered the facts of the case and rival contentions. The revenue's case is primarily based on the pro vision contained in sectio n 55(2) under which the co st of goodwill has to be taken as nil if it has no t been purchased fro m a previous owner. Such is the case here nonetheless, this cost is for the purpo se of sections 48 and 49, wh ich deal with the mo de of comput ation of the income chargeable under the head capit al gains. Before coming to the mode of co mput ation, it h as to be seen whether any amount is chargeable to capit al gains tax u/s 45, which is the charging section. The ld. DR was not able to expl ain how provisio ns of section 45 were applicable in the instant case. Sub-sect ion 4 of this section deals with profits or gains arising from t he transfer of a capital asset by way of dist ributio n of capit al asset on dissolution or otherwise of a firm, and brings to t ax the capital gains in the hands of th e firm. However, we are dealing with a case of t he partner here. The firm acquired goodwill over a period of time, wh ich was brought into the books and distributed amongst existing partners befo re the new partners were t aken in and some existing partners retired. The asset of the firm already exist ed and it was quant ified and credited to the account s of existing partners. Simil arl y, when the assessee retired fro m the firm, he did not transfer any goodwill to the film as h e did not have any individual goodwill. The goodwill belonged to the firm and continued to remain with the firm. As clarified by the ld. Counsel, nothing was charged fro m the incoming partners by way of goodwill and, thus, there is no question of even indirect I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 12 of 14 realizat ion of the value of goodwill by t he assessee fro m the incoming part ner th rough the firm in a number of cases, referred to above, it has been held that what a part ner get s at the time o f retirement is nothing but his own sh are in t he assets of the firm. In such a scenario, th ere cannot be any t ransfer of an asset and such has been the decision of Hon'ble Supreme Coon in the case of Mohanbhai Pamabhai and Tribhuvandas G. Patel (supra). The fact is that a provision corresponding to sub-sectio n (3) regarding levy of capital gain t ax when a partner brings in a capit al asset to the firm does not exist o n the stat ute book in case of retirement of the partner and, thus, general provisions of law, namely. that wh at he tak es is his sh are in the asset s of th e firm continues to appl y with the exception that under sub- section (4), when a capit al asset is distributed to the partner o n dissolutio n of the firm or on his retirement at less than the fair market value, th en, t he firm becomes liabl e to pay capital gains tax. Such is not the case h ere, as we are dealing with the case o f a part ner. Therefore, we concur with the ld. CIT(Appeals) that nothing was taxable in the hands of the assessee" .
12. The Coordinate Bench of the Tribunal at Kolkata also had a occasion to consider the similar issue in the case of Nawshir H. Mirza, wherein the case of the assessee for exemption on account of share of goodwill received on retirement was held to be capital receipt not chargeable to tax by the Tribunal for the following reasons given in its order dated
11.01.2008 passed in ITA No. 1252/KOL/2007:-
"9. We have considered the facts of the case and rival contentions and are of the view th at the order of th e ld. CIT (A) needs to be upheld and does not call for any interference. In the instant case, it is not disputed th at the said firms were having self generated goodwill which was valued by them during th e present assessment y.ear There h as been no transfer of such goodwill by the said firms. The firms stil l own and hold such goodwill and the assessee who has retired has no interest of any nature what soever th erein. The revenue's case is primarily based on view that money received. in lieu of goodwill from the firm by the part ner is casual receipt in the nature of income wh ich is no t taxable in the hands of the firm. What the partners got at the time of the retirement including th e amount credite d for th e goodwill of the firms is a capital receipt in their hands. The partners did not own the goodwill nor did they t ransfer the same. The goodwill al l along remained wit h the firm as its asset even after the retirement of the partners. What the partners got on retirement was for the val ue of their int erest in the firm. This I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 13 of 14 view is duly support ed by various decision cited by the Ld. Authorised Represent ative including the decision .of Apex Court in the case of Sunil Siddharthhbhai vs. CIT (supra).
9.1. In the instant case, the firms have not realized any amount on account of goodwill hence the questio n of any assessment being made in their h ands does not arise. T he notional val uation of the goodwill in its account s by the firm does not result in any transfer which can attract capit al gains as has also been clarified by th e Board in it s Circul ar No.495 dated September 27. 1987. Even the amendment made in Sectio n 55(2) of the Act is of no help to the case of the Department in view of the clarificatio n made by th e Board.
We fail to appreciate how the amo unt could be assessed in the hands of th e part ners and th at too under th e he ad " Inco me from other sources. Goodwill is an intangible asset and transfer/surrender of which would attract Section 45 so that the value received would be a capit al receipt and assessable if at all only under item 'E' of Section 14. It cannot be tre ated as a casual receipt and be subjected to tax under Section 56. The argument that even if the income cannot be chargeable u/s. 45 , because of the inappl icability of th e computation provided u/s. 48, it could still impose tax under the residuary head is thus unaccept able. If the income cannot be taxed u/s. 45, it cannot be taxed at all as has been h eld in the case of S.G . Mercantile Corporation (P) Ltd. -vs.- CIT [1972] 83 ITR 700 (SC)" .
13. As the issue involved in the present case as well as all the material facts relevant thereto are similar to the cases of Shri Amitabh Singh (supra) and Nawshir H. Mirza (supra) decided by the Coordinate benches of this Tribunal, we respectfully follow the decision rendered in the said cases to hold that the amount in question received by the assessee as his share of goodwill on retirement from the firm is not chargeable to tax being capital receipt. The addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue is accordingly deleted.
Ground No. 2 is accordingly allowed.
14. As regards the appeal of the Revenue, it is observed that the solitary issue involved therein relates to the taxability of the amount of Rs.22,56,250/- received by the assessee on account of his share of I . T. A . N o. 1 8 6 6 / KO L . / 2 0 1 2 Assessment year: 2003-2004 & I . T. A . N o. 1 2 0 / KO L . / 2 0 1 3 Assessment year: 2003-2004 Page 14 of 14 goodwill from the firm on retirement. Since this issue has already been decided by us while disposing the appeal of the assessee, we do not find any merit in this appeal filed by the Revenue. Even otherwise, the tax effect involved in this appeal of the Revenue is less than the prescribed monetary limits of Rs.3,00,000/- as applicable at the relevant time for filing of appeal before ITAT. This appeal of the Revenue thus is not maintainable and is liable to be dismissed on this ground also.
15. In the result, the appeal of the Revenue is dismissed, while the appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open Court on December 11, 2015.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Accountant Member
Kolkata, the 11 t h day of December, 2015
Copies to : (1) Ajay Kumar Doshi,
P-130, CIT Road, 2 n d Floor,
Kolkata-700 010
(2) Assistant Commissioner of Income Tax,
Circle-54, Ko lkata,
3, Government Place (West),
Kolkata-700 001
(3) Commissioner of Inco me-t ax (Appeals)-XXXVI, Kolk ata
(4) Commissioner of Income Tax, Kolkata
(5) The Depart ment al Represent ative
(6) Guard File
By order
Assistant Registrar,
Income Tax Appellate Tribunal,
Kolkata Benches, Kolkata
Laha/Sr. P.S.