TMI Blog2010 (2) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... di, instructed by ANS Law Associates, for the petitioner. Vimal Gupta for the respondents. JUDGMENT DR. D. Y. CHANDRACHUD J. Rule, by consent made returnable forth with. Counsel for the respondents waives service. With the consent of counsel, the petition is taken up for final hearing. 2. The petitioner who is a partner in a firm of solicitors retired on October 20, 2003 on attaining the age of seventy years. Clause 33 of the deed of partnership stipulates that all partners shall retire from the firm on reaching the age of seventy years. The deed of partnership provides for three modes by which a person may cease to be a partner. Cause 32 provides for a voluntary retirement of a partner; clause 33 provides for retirement on the attainment of superannuation; and clause 41 provides for certain eventualities such as insolvency, professional misconduct or conviction of an offence involving moral turpitude upon which a partner shall become disqualified. Clause 35 of the deed of partnership provides as follows: "A partner who has retired voluntarily or has been required to withdraw from the firm under clause 41 of this deed shall not, so long as the continuing or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the said business, for a period of three years from such retirement or withdrawal, solicit the clients of the firm.' 0.3 Thus, it is clear that the amount paid by the firm to the retiring partners is on account of retiring partners' renunciation of their rights to have free trade and profession envisaged in the Constitution of India for three years and thus amount received by the retiring partners are liable to capital gain tax as explained in section 28(va). The firm has simply purchased the shares of the retiring partners by paying the amount as per clause 38 of the said deed. 0.4 In view of the above facts, I have reason to believe that an amount of Rs. 21,65,625 received by the assessee on retirement has escaped assessment chargeable to tax within the purview of section 147 of the Income-tax Act, 1961 for the assessment year 2004-05. Therefore, a notice under section 148 is being issued." (emphasis supplied) 5. On October 23, 2009, the petitioner lodged his objections to the reasons recorded by the Assessing Officer. The contention of the petitioner was that (i) clause 35 of the deed of partnership had no application to a situation where a partner had retired mandator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elieve that the payment that was received by the petitioner was in consideration of a renunciation of the right to carry on his profession. In any event, clause 35 of the deed of partnership can have no application to a payment received by a partner who attains the age of superannuation under clause 33. More over, it was submitted that it is a well settled position of law that when a payment is made to a partner retiring from a firm that represents his share in the net assets upon drawing of accounts and no element of transfer is involved within the meaning of section 2(45). It is submitted that the reasons recorded by the Assessing Officer referred to section 28(va). On the other hand, while disposing of the objections of the assessee, the Assessing Officer has adverted to section 28(iv). It is now settled position that payment which is made in money would not fall within the ambit of section 28(iv). Assuming that the Assessing Officer was entitled to correct a mistake, if any, section 28(va) would also have no application. In these circumstances, it was submitted that the jurisdictional condition for the exercise of the power is absent in the present case. 8. On behalf of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. The case is, therefore, at the stage of an intimation under section 143(1). After April 1, 1989, the power to reopen an assessment has been widened as compared to the position as it stood prior to that date. But it is settled law that section 147 has to be given a schematic interpretation to ensure against an arbitrary exercise of power. The manner in which the provisions of section 147 should be construed is clarified in the judgment of the Supreme Court in Kelvinator of India Ltd. [2010] 320 ITR 561. The Supreme Court held as follows (page 564): " post-April 1, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was on the basis of clause 35 that the Assessing Officer formed a reason to believe that income had escaped the assessment. 12. Counsel for the Revenue submitted that while disposing of the objections of the assessee, the Assessing Officer purported to rely on the pro visions of section 23(iv) under which, according to him, the amount received by the petitioner was taxable. In so far as this court is concerned, a Division Bench of the court in Mahindra and Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom) held that income which can be taxed under section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, section 28(iv) does not apply to benefits in cash or money. This court followed the decision of the Gujarat High Court in CIT v. Alchemic Pvt. Ltd. [1981] 130 ITR 168 (Cuj). Therefore, considered from all perspectives, the reasons which have been disclosed by the Assessing Officer, can by no stretch of logic lead a prudent person to form a reason to believe that income has escaped assessment. For the purpose of determining the validity of the challenge to the notice under section 148, the court would have to refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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