Income Tax

Retirement funds received by partner of firm not taxable and not in the nature of goodwill also-ITAT

Retirement funds received by partner of firm not taxable and not in the nature of goodwill also. Receiving of money on retirement from firm is exempt-ITAT

ABCAUS Case Law Citation:
ABCAUS 1108 (2017) (01) ITAT

Assessment Year : 2004-05
Date of Pronouncement: 05-01-2017

Important Case Laws Cited/relied upon:
CIT Vs. Riyaz A. Sheikh (2014) 41 taxman.com 455 (Bom)
Prashant S. Joshi v. ITO (2010) 324 ITR 154 (Bom)
CIT V/s. R. Lingamallu Rajkumar reported in [2001] 247 ITR 801

Brief Facts of the Case:
The assessee was partner in a partnership firm. A survey was conducted u/s 133A in which certain incriminating documents and loose papers pertaining to the assessee was found from the premises of the firm. During the course of survey proceedings, the department found that the assessee partner had received a sum of Rs. 36,42,860/- being transferred / relinquishment of right by the assessee in the firm, but she had not offered the sum to tax.

Treating the sum not disclosed as income escaping assessment, the Assessing Office (AO) reopened the assessment by issuing notice u/s 148 of the Income Tax Act, 1961 and finally he added the same to the return of income of the assessee treated it as income from undisclosed sources u/s 68.

Aggrieved, the assessee preferred appeal before CIT(A), who also confirmed the action of the AO, but CIT(A) held that the amount received was in the nature of goodwill and was liable to be taxed as such.

Observations made by the Tribunal:
The Tribunal observed that the assessee along with her other family members were partners in the firm and vide retirement deed the assessee retired and received the said payments along with other family members.

As per retirement deed, the retiring parties acknowledged the receipt payment in full settlement of their shares and agreed that the remaining parties will carry on the business of partnership and property of the firm.

The Tribunal observed that in the instant case the assessee had not taken any property while relinquishing her share in the partnership firm but she had taken equllant amount on retirement and the assets and firm was retained by the surviving partners.

In view of the above, the Tribunal was of the view that this was a clear cut case of assessee receiving a sum of money on retirement from the firm. The Tribunal pointed out that whether, such sum receipt on retirement is taxable or not was answered by Bombay High Court in the case of CIT Vs. Riyaz A. Sheikh. In the said judgment, the Bombay High Court had observed that its decision in the case of Prashant S. Joshi placed reliance upon the decision of the Supreme Court in the case of CIT V/s. R. Lingamallu Rajkumar wherein it had been held that amounts received on retirement by a partner is not subject to capital gains tax.

Held:
It was held that the retirement funds received were not subject to tax and not in the nature of goodwill also.

Download Full Judgment

Share

Recent Posts

  • Income Tax

Registration u/s 12AB granted as activities fall under general public utility, if not education as claimed

ITAT directed registration u/s 12AB as activities of the trust fall under general public utility services if not falling fall…

16 hours ago
  • Income Tax

How a loan amount was utilised wouldn’t constitute failure to discharge onus u/s 68

Utilisation of loan amount would not constitute failure to discharge onus caste u/s 68 in absence of any defect in…

1 day ago
  • Income Tax

No addition based on third party information in form of unsigned excel sheet – ITAT

Addition on the basis of third party information in form of unsigned excel sheet can not be sustained - ITAT…

2 days ago
  • Income Tax

Shagun money received on occasion of marriage not taxable income – ITAT

Shagun money received on marriage of individual cannot be considered as income in the year of its receipt - ITAT…

5 days ago
  • Income Tax

There is no statutory requirement to maintain cash book for salaried individual – ITAT

ITAT deleted addition towards cash deposited in bank account observing that there is no statutory requirement to maintain cash book…

6 days ago
  • RBI

Foreign Exchange Management (Authorised Persons) Regulations, 2026 notified

RBI has notified the Foreign Exchange Management (Authorised Persons) Regulations, 2026. The Regulation becomes effective from 06.05.2026  A person seeking…

6 days ago