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Shri Sachin Bhausaheb Nikam Versus The Dy. Commissioner of Income Tax, Circle 11 (2) , Pune.

2016 (10) TMI 554 - ITAT PUNE

Capital gain - amount received by retiring partner - transfer of goodwill - Held that:- In the instant case, as noted above, the assessee as a retiring partner has received certain amount over and above the capital balance towards his share in the partnership firm. The partnership firm has continued to exist after the retirement of the assessee partner. The Revenue has treated the additional amount so received from the partnership firm as long term capital gain and sought to tax the same. Howeve .....

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the Act. - Decided in favour of assessee - ITA No.1288/PN/2014 - Dated:- 26-8-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Kishor Phadke For The Respondent : Shri P. L. Kureel ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal filed by the assessee is against the order of CIT(A)-I, Pune dated 28.12.2013 relating to assessment year 2007-08 passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. In this appeal, the assessee ha .....

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000/- received by the appellant upon retirement from the partnership firm is not taxable at all, being a transaction in capital field & not covered u/s 45(4) of the ITA, 1961. 3. The learned CIT(A)-I, Pune erred in law and on facts in making a wrong distinction of the facts of the case with various binding decisions. He further erred in not providing any opportunity to the appellant to submit his 'say' on the said issue of incorrect distinctions drawn. 4. Alternatively and without pr .....

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was subjected to scrutiny proceedings. In the course scrutiny proceedings, the Assessing Officer found that the assessee has inter-alia declared long term capital gains amounting to ₹ 1,35,43,452/- on relinquishment of right on retirement from partnership firm namely M/s Tushar Properties, Pune in terms of Deed of Modification (Deed), Retirement and Introduction of partner dated 05th October, 2006. As per the aforesaid Deed, the assessee has relinquished his right, title and interest in p .....

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77; 54,81,548/-. The benefit of indexation claim on the capital investment in the partnership firm worked out at ₹ 13,91,972/- was not accepted by the Assessing Officer on the ground that capital introduced in the firm is not in the nature of cost of acquisition for rights in property of firm. The assessee has transferred his rights to the profit arising from the firm after the date of retirement. The Assessing Officer observed that as per the deed property was vested in the firm and conti .....

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thout indexation. The Assessing Officer observed that mode of computation of capital gain is given in section 48 and since the cost of acquisition of the rights in the partnership firm is Nil, the full value of the consideration received or accruing as a result of the transfer of the rights in the partnership firm i.e. ₹ 1,49,35,424/- is the income chargeable under the head capital gains as against ₹ 1,35,43,452/- declared by the assessee in the return of income. He accordingly denie .....

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t the whole of the amount received ₹ 1,90,25,000/- is not taxable in the hands of the assessee at all in departure to its claim of indexation benefit alone at the assessment stage. It was made out before the CIT(A) that amount of ₹ 1,35,43,452/-offered for taxation while filing the return of income was under the erroneous impression of law. It was submitted that although the assessee considered the impugned transaction of receipt from partnership firm towards relinquishment of rights .....

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vt. Ltd., (2012) 349 ITR 336 (Bom.) to enable the CIT(A) to admit the legal plea of non-taxability of entire surplus received and grant appropriate relief. In view of the judicial dicta, it was contended that the assessee is entitled to raise the claim before the appellate authority as the relevant facts are already on record. 6. On the merits of the claim, the assessee referred to section 45(4) of the Act and contended that capital gain tax liability rests on the partnership and not on the part .....

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sed by the various arguments advanced by the assessee. The CIT(A), in conclusion, did not find merits in the claim of the assessee that the surplus receipts from partnership firm is exempt from tax. 7. Against the said action of the CIT(A), the assessee is in second appeal before the Tribunal. 8. The Ld. Authorized Representative (AR) for the assessee Shri Kishor Phadke at the outset reiterated that the assessee has received an additional sum of ₹ 1,49,35,424/- in addition to his capital f .....

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der head capital gains , the Ld. AR relied upon the decision in the case of (i) ITO vs. Shri Rajnish M. Bhandari in ITA No.469/PN/2011, order dated 17.07.2012; (ii) ACIT vs. N. Prasad, Executive Chairman, (2014) 43 taxmann.com 253 (Hyderabad - Trib.) and (iii) Smt. Hemlata S. Shetty vs. ACIT in ITA No.1514/Mum/2010, order dated 01.12.2015. He also adverted our attention to the decision of the Pune Bench of the Tribunal in the case of Mr. Riyaz A. Shaikh vs. ITO in ITA No.352/PN/2006, order dated .....

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in the partnership firm which right has been relinquished and therefore there is a transfer of capital asset within the meaning of section 2(47) of the Act which requires to be taxed under section 45 of the Act. The Ld. DR contended that the amount received by the assessee does not merely represent credit balance lying in his capital account with the partnership firm. The amount received over and above credit balance is an additional revenue which cannot escape taxation under the provisions of l .....

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rival submissions and orders of the authorities below. In the instant case, as noted above, the assessee as a retiring partner has received certain amount over and above the capital balance towards his share in the partnership firm. The partnership firm has continued to exist after the retirement of the assessee partner. The Revenue has treated the additional amount so received from the partnership firm as long term capital gain and sought to tax the same. However, we find that Co-ordinate Bench .....

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s capital gain under section 45 of the Act. It was also observed in the ITAT decision that the decision of the Bombay High Court in the case of CIT vs. Tribhuvandas G. Patel, 115 ITR 95 followed in N. A. Mody vs. CIT, 162 ITR 420 has been reversed by the Hon ble Supreme Court in the case of Tribhuvandas G. Patel vs. CIT, 236 ITR 515 and that this legal position has been noted in the case of Prashant S. Joshi vs. ITO, 324 ITR 154 (Bom.). We notice at this stage that the decision of the Co-ordinat .....

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