TMI Blog2015 (12) TMI 1750X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee’s appeal is accordingly treated as allowed for statistical purposes Addition on account of share of goodwill received by the assessee on his retirement from the partnership firm - Held that:- 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 (2007 (6) TMI 304 - ITAT DELHI) 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. - I.T.A. No. 1866/KOL/ 2012 , I.T.A. No. 120/KOL/ 2013 - - - Dated:- 11-12-2015 - Shri P.M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member Shri J.P. Khaitan, Sr. Advocate, for the assessee Shri Sridhar Bhattacharya, JCIT, for the Department 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 ld. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of the assessee. The decision of the Hon'ble Supreme Court cited by the assessee is not applicable here as the facts of the said case are not similar to the present case. I wanted to examine the terms and conditions of the deed of the Accounting Partners Trust-1 through which the assessee claims to have received the said money which the assessee claims as compensation. The Office of the Trust is at New Delhi. The Trustee of the said trust has stated that the money was received from the Ernst Young Global Services, in short EYGS, for payment to the retiring partners. A copy of the balance sheet of the trust as on 31.03.2003 sent by the Trustee is enclosed. Unfortunately, the copy of the trust deed was not made available to me for examination. They have expressed inability to furnish 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 on which grounds the said money was paid to him. The assessee claims that he was paid the same upon his cessation of employment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objects of the trust, who were contributors of the trust corpus and what were the terms and conditions for payment of retirement benefit to retiring partner. However, one fact is obvious that the assssee has received the benefit only because of his continuation in the employment in past for which he has received salary. Therefore, in my view, the compensation of ₹ 1,46,00,000/- received by the assessee on his cessation of employment is in lieu of salary and hence it is a salary income chargeable to tax . 5. The addition of ₹ 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. Batlibo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no bearing on the taxability of the amount paid to the appellant. If the person chooses to receive in a lumpsum what he could have received by way of monthly payment, there is no connotation of capital nature in spectrum of tax in this case. Those cases embraced situation when present business set ups ceased to exist or a source from which was being currently derived which was not the position in the instant but merely involved the concept of a voluntary change in terms which was devoid of any impact on taxability. Pension to the partners from the firm would constitute professional income which is liable to tax. The chorales taxability would not cease because the partners decided to receive such income in another manner. Taxable laws do not become inapplicable because income which is taxable 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 account of the cessation of the profession by, or the retirement or death of, the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If I would have received compensation from E Y, then it is revenue receipts. Since I have received from Accounting Partner Trust-I it is capital receipt . Here mode of receipt is not important but purpose of receipt is important. Appellant himself admitted the receipts are taxable. It is a receipt for premature retirement. Accounting Partners Trust- I merely helped to facilitate the receipt of compensation from E Y Ltd. After retiring from S R Batliboi Co., taken over E Y Kolkata, appellant being C.A. by profession started his own partnership concern in the name style of M/s. Doshi, Chatterjee, Bagri Co. Appellant never lost the qualification but change it from one to another professional concern. Hence the appellant's contentions in this behalf do not form any basis for its consideration as receipt exempt from tax. The addition of Rs.l,46,00,000/-is therefore confirmed . 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 Coordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 ₹ 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 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 ₹ 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 goodwill and apportioned the same amongst the partners and credited the value of the goodwill to the accounts of the partners according to the profit sharing ratio. On creation of the goodwill, it does not ipso facto become any income in the hands of the firm but the value of the goodwill depends on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill, if any, of the Firm shall always belong to the Firm and that none of the partnership would have any right, title or interest in goodwill of the Firm of whatsoever nature. Inspite of this term, during the year under appeal firm created goodwill as an asset in its books by debiting to Goodwill Account and crediting to the accounts of the then partners in their profit sharing ratio. Accordingly in previous year ended on 31-03-2003 the Firm credited ₹ 22,56,250/- to the accounts of the appellant on account of goodwill apart from other credits on account of interest on capital and share of profit. Out of total credit appellant withdraw ₹ 2,41,71,614/- overdrawing by ₹ 7,32,237/-. Thus the credit in appellant's account is for goodwill ₹ 22,56,250/- of the Firm which is clearly liable to be taxed as capital gain. Here, an issue may be raised that the goodwill so created by Firm in its books will be/ can be sold by firm only as the appellant has not sold goodwill to anyone. But the Firm on sale of goodwill at a future date will claim deduction against sale consideration as cost of acquisition the total amount credited to all the partners as goodwill d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the transfer of a capital asset by way of distribution of capital asset on dissolution or otherwise of a firm, and brings to tax the capital gains in the hands of the firm. However, we are dealing with a case of the partner here. The firm acquired goodwill over a period of time, which was brought into the books and distributed amongst existing partners before the new partners were taken in and some existing partners retired. The asset of the firm already existed and it was quantified and credited to the accounts of existing partners. Similarly, when the assessee retired from the firm, he did not transfer any goodwill to the film as he 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 from the incoming partners by way of goodwill and, thus, there is no question of even indirect realization of the value of goodwill by the assessee from the incoming partner through the firm in a number of cases, referred to above, it has been held that what a partner gets at the time of retirement is nothing but his own share in the assets of the firm. In such a scenario, there canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot on retirement was for the value of their interest in the firm. This view is duly supported by various decision cited by the Ld. Authorised Representative 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 question of any assessment being made in their hands does not arise. The notional valuation of the goodwill in its accounts by the firm does not result in any transfer which can attract capital gains as has also been clarified by the Board in its Circular No.495 dated September 27. 1987. Even the amendment made in Section 55(2) of the Act is of no help to the case of the Department in view of the clarification made by the Board. We fail to appreciate how the amount could be assessed in the hands of the partners and that too under the head Income 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 capital receipt and assessable if at all only under item 'E' of Section 14. It cannot be treated as a casual receipt and be subjected to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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