Pr. Commissioner Of Income Tax Central – 2 Mumbai v. M.s.sanklecha, Jj

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1755 OF 2016 Pr. Commissioner of Income TaxCentral – 2 Mumbai VersusSmt. Hemlata S Shetty : Appellant. : Respondent. Mr. Suresh Kumar a/w Ms. Samiksha Kanani for the Appellant.Mr. Ruturaj Gurjar for the Respondent. CORAM : AKIL KURESHI & M.S.SANKLECHA, JJ. DATE : 05th MARCH 2019. P.C.: 1This Appeal under Section 260A of the Income Tax Act, 1961 (Act)challenges the order dated 01/12/2015 passed by the Income Tax AppellateTribunal (“the Tribunal” for short). This Appeal relates to Assessment Year21006-2007. 2Although multiple questions have been raised in the memo ofappeal, the essence of these questions is in the following question pressed bythe Revenue :- “Whether, on the facts and circumstances of the caseand in law, the Tribunal is justified in holding that theamount received by the assessee on retirement frompartnership firm is not taxable in the head capital gainin the hands of the partner, ?” 3The Respondent Assessee is an individual. On 16/09/2005, shejoined a partnership firm M/s. D. S. Corporation as a partner making a capitalcontribution of Rs.52.50 lakhs. Thereafter the assets of the firm were revalued.On 27/03/2016 Respondent retired from the firm and at the time of herretirement she received a sum of Rs.30.87 crores from the said firm. TheAssessing Officer by an order dated 31/12/2008 passed under Section 143(3)r/w Section 153A of the Act, brought to tax the amount of Rs.30.87 croresbeing the amount received by the Respondent on her retirement from the saidpartnership firm M/s. D. S. Corporation. 4Being aggrieved, the Respondent filed an Appeal to theCommissioner of Income Tax (Appeals) (“CIT(A)” for short), but withoutsuccess. 5On further appeal by the Respondent, the Tribunal by theimpugned order noted the fact that in view of Section 45(4) of the Act theamounts received by a partner on his retirement from a partnership firm is notliable to capital gain in the hands of the partner. However, it is the partnershipfirm which is liable to pay the tax. In support, a reliance was placed upon adecision of this Court in the case of Prashant S Joshi v/s. Income Tax Officer,Ward 19(2)(4)reported in (2010) 189 Taxman 1 (Bombay) and in the case of Commissioner of Income Tax – III Pune v/s. Riyaz A Sheikhreported in(2014) 41 taxman.com.455 (Bombay). The impugned order also records thefact that the assessment of the partnership firm has been reopened for thepurpose of bringing to tax the amounts paid to the Respondent on herretirement. Thus allowed the appeal of the Respondent. 5Mr.Suresh Kumar the learned counsel for the Revenue in supportof the appeal submits that the Respondent had become a partner on06/09/2005 in the previous year relevant to the subject Assessment Year andduring the same Assessment Year i.e. on 27/03/2006 the Respondent retiredfrom the firm and received a sum of Rs.30.87 crores on her retirement. Inthese facts it is submitted that the Respondent is liable to pay the tax on theamounts received by her on her retirement from the partnership firm. 6We find that impugned order of the Tribunal placed reliance uponthe decision of this Court in Prashant Joshi's case (supra) and Riyaz Sheikh'scase (supra) to hold that amount received by a partner on his retirement andthe partnership firm is not subjected to tax in the retiring partner's hands inview of Section 45(4) of the Act. The liability, if any, to pay the tax is on thepartnership firm in view of Section 45(4) of the Act. Besides, the duration of aperson being a partner in the firm does not decide the applicability of Section45(4) of the Act, as it is not so provided therein. 7In view of the fact that the question as proposed stands concludedby the decision of this Court, the question does not give rise to any substantialquestion of law. Hence not entertained. 8Accordingly Appeal dismissed. [ M.S.SANKLECHA,J.]