ITO v. Savitri Kadur [MP No. 123/Bang/2019 [in ITA
No. 1700/Bang/2016], dt. 28-9-2020] : 2020 TaxPub(DT) 3937 (Bang-Trib)
Amount credited to Partner's capital account prior to
retirement for goodwill whether taxable as capital gains with cost of
acquisition as per section 55(2)(a) as NIL.
Facts:
This was a miscellaneous petition which arose from the
revenue arising out of the order of ITAT in ITA No. 1700/Bang/2016,
dated 3-5-2019 : 2019 TaxPub(DT) 3593 (Bang-Trib). It needs to be
understood from the original appeal to appreciate the fine print of this MA
petition of the department.
Assessee had retired from their firm where her balance
stood in the capital account as under --
|
Amount
(in Rs.)
|
Opening balance as on 1-4-2006
|
1,64,14,044
|
Share of profit for the year
F.Y. 2006-07
|
46,20,591
|
Revaluation share of land and
building done on 15-1-2007
|
62,51,112
|
Interest on capital
|
18,12,528
|
Total credits on Capital
account
|
29,098,275
|
Less: Drawings
|
(13,10,075)
|
Balance of capital Account on
date of retirement 1-4-2007
|
2,77,88,200
|
Amount paid to partner on
retirement
|
3,39,50,000
|
Capital gains taxable under
section 45(4) as per Revenue
|
61,61,800
|
Less: Investment in specified bonds
|
(50,00,000)
|
Taxable
Capital gains
|
11,11,800
|
This went in appeal to Commissioner
(Appeals) where the amount paid over and above the Capital account balance to
the tune of Rs. 61,61,800 was disclosed by the assessee with the Commissioner
(Appeals) as goodwill amount received as under --
Goodwill paid during assessment
year 2008-09 -- Rs. 21,64,800
Goodwill paid during assessment
year 2009-10 -- Rs. 39,97,000
Adding to Rs. 61,61,800
The retirement deed did not specify any thing on the
Goodwill however it was noticed that the goodwill of 38,38,200 was appearing as
goodwill in the capital account of the partner. The assessee's claim was that
capital gain was 61,61,800 less 38,38,200 = 23,23,600 since the entire capital
gain was invested in specified bonds no capital gains tax can further arise.
The Commissioner (Appeals) did not concur with the views of
the assessee and sustained the additions of assessing officer. The case went in
higher appeal where it was decided in favour of the assessee holding that they
were not liable for any capital gains tax.
As against this verdict the revenue moved a miscellaneous
petition claiming that Goodwill does not have any cost of acquisition under
section 55(2)(a) and thus the order was incorrect to that extent.
Held against the revenue by dismissing the miscellaneous
petition that once goodwill was credited it became part of the capital account.
Besides this the retirement deed did not specify that goodwill was also
involved in the transfer or consideration was paid for the same. The topic of
goodwill being a debatable issue also cannot be moved in a MP.
Editorial Note: The
original decision is a landmark judgment as it discusses threadbare section
45(4) and 45(3). (Both the original decision and the Miscellaneous petition are
enclosed herewith)
It is precisely not explained as to if the goodwill of Rs.
38,38,200 was also credited in the Capital account of the assessee prior to
retirement but it appears so thus on an implicit reading.