Itxa 29/11 v. Assistant Commissioner Income Tax-11(3),Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.29/2011 Smt.Jyoti Rajnikant,Legalheir of Late PETITIONER VS.Assistant Commissioner IncomeTax-11(3),Mumbai & Ors.RESPONDENTS Mr.P.J.Pardiwala,Sr.Counsel a/w Mr.A.K.Jasani for PetitionerMr.D.K.Kamwal for Respondents CORAM- J.P.DEVADHAR ,AND MRS.MRIDULA BHATKAR,JJ.DATE - 24[th] JANUARY,2011. P.C. .Heard. Rule. Returnable forthwith. By consent of the parties the petition is taken up for final hearing. 2The petitioners have challenged the notice dated 25/3/2010 issued under section 148 of the Income Tax Act,1961 . By the said notice the assessment for the assessment year 2004-2005 is sought to be reopened by recording the following reasons. On perusal of the records, it is seen that the assessee was a partner in M/s Little & Co.-a solicitor firm ,and retired on 23/3/2004 .During the year relevant to A.Y.2004-05 the assessee was paid Rs.21,65,625/- on his retirement by the firm. The said amount has been reflected in the assesee’s capital account as receipt from M/s Little & Co.and also confirmed by the assessee’s representative’s letter dated 11/12/2006. On perusal of the memo of income it is seen that the assessee has listed the exempted income but the said sum of Rs.21,65,625/- has not been shown as exempted income by the assessee. The assessee has not shown the same amount as taxable income. On going through the partnership deed dated 1.1.2003 of M/s Little & Co.the clause no.35,36,37,38 r.w.8 & 9 clearly states that the retiring partner discharge the following rights :- i asset ii goodwill iii Profit of the partnership business iv compensation for loss of right to participate in the profits of the current year in which the partner retires. v restriction retiring partner soliciting the clients of the firms for 3 years from the date of retirement attracting provisions of sec. 28(va). 28(va). From the above clauses of the partnership it is clear that the payment to retired partner is made for relinquishing/discharge of all the above rights and interest which includes non-competing with the firms professional activities for 3 years . Therefore,the receipt of Rs.21,65,625/-received from the firm on retirement is to be assessed as income under the Income Tax Act. As the assessee has not declared the said sum as taxable income, I am of the opinion and reasons to believe that income chargeable to tax has escaped assessment to the extent of amount received at Rs.21,65,625/-from the firm on the assessee’s reason, coming within the meaning of Section 147 of the I.T.Act,by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for this assessment year. The time limit for issuing notice u/s 148 of the I.T.Act is on 31[st] March,2011. In view of the above, your honour is requested to grant sanction u/s 151 for issue of notice u/s 148 of the I.T.Act 1961. 3Counsel for the revenue states that in the case Balkrishna Hiralal Wani V.Income Tax Officer and Others, (2010)321 ITR 519(Bom), assessment sought to be reopened on similar grounds is held to be bad in law. 4In these circumstances for the reasons recorded in the aforesaid case, the impugned notice dated 25/3/2010 issued under section 148 of the Income Tax Act, 1961 is quashed and set aside. Rule is made absolute. No order as to costs. (MRS.MRIDULA BHATKAR,J.) (J.P.DEVADHAR,J.)