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2019 (3) TMI 1292 - AT - Income TaxTaxability of Goodwill,share capital and accrued profit received on retirement of firm - liable for capital gains tax or not? - exemption from tax u/s 10(2A) - amount paid to a partner upon retirement after taking accounts and upon deduction of liabilities there is no involvement of an element of transfer within section 2(47) - payment made to the assessee in realisation of his share in the net value of the assets of the firm on his retirement - HELD THAT:- The issue of whether the goodwill received by the assessee on retirement is liable for capital gains tax or not has been concluded by the Hon'ble Jurisdictional High Court in the case of Prashant S. Joshi [2010 (2) TMI 271 - BOMBAY HIGH COURT] wherein it was held that when an amount paid to a partner upon retirement after taking accounts and upon deduction of liabilities there is no involvement of an element of transfer within section 2(47) of the Act. The full bench decision in the case of CIT v. Dynamic Enterprises [2013 (11) TMI 731 - KARNATAKA HIGH COURT] has taken a similar view that when retiring partner took cash towards value of his share in partnership firm, there was no distribution of capital assets among the partners and there was no transfer of capital asset and therefore no profits or gains are chargeable to tax u/s. 45(4). We observe that the decision relied on by the Assessing Officer in the case of A.N. Naik Associates [2003 (7) TMI 46 - BOMBAY HIGH COURT] is distinguishable on facts and has no application to the assessee's case. Therefore, in view of our above discussion, the share of capital along with accrued profit, goodwill and brokerage / commission which were received / receivable in terms of consent deed entered among the partners on account of retirement of the assessee from the partnership firm and the payment made to the assessee in realisation of his share in the net value of the assets of the firm on his retirement are not liable to be taxed as capital gains and also u/s. 28(v) in view of the judicial pronouncements. Thus, we direct the Assessing Officer to delete the additions made towards, goodwill, share capital and share of profit and the brokerage/commission and recompute the income for the year under consideration. Grounds raised by the assessee are allowed. Addition u/s. 68 - HELD THAT:- Assessing Officer brought to tax ₹ 9,41,63,126/- being the amount credited in capital account of M/s. D'Silva Enterprises and capital credited to assessee James P. D'Silva account as undisclosed income u/s. 68 of the Act. We see no justification at all in treating such amounts as addition u/s. 68 of the Act. We find that major part of these amounts have been received as part of settlement in terms of consent terms entered into by the assessee for withdrawing his share of capital / profits from the firm BCI. These amounts represent ₹ 4.67 Crores credited to capital account of M/s. D'Silva Enterprise and ₹ 4.79 Crores withdrawn from BCI as share of profit by the assessee as stated in Para 18 above. Therefore, these amounts cannot be taxed as undisclosed income u/s. 68 of the Act. Additions made by the AO towards goodwill, share capital and share of profit, brokerage/commission received by the assessee on retirement from BCI. Since, we have deleted the addition made by the Assessing Officer which were treated as income of the assessee and for the reasons explained above, the other grounds in the appeal of the Revenue are dismissed.
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