INCOME TAX ACT, 1961

Section 254 read with Section 55(2)(a)

Appeal (Tribunal) - Rectification of mistakes apparent from record - Treatment of sum received by assessee on his retirement from a partnership firm as capital gains -

Revenue treated sum received by assessee on his retirement from a partnership firm as capital gains. Revenue contended that value of goodwill should not be considered as cost of acquisition or sum standing to credit of partners capital account because as per section 55(2)(a), cost of the goodwill has to be taken as nil. Held: Tribunal held that right of a partner in firm was a capital asset and when that was relinquished, the consideration paid on such relinquishment, over and above the sum credited to the capital account of the concerned partner should be regarded as capital gain and brought to tax. Goodwill was not an asset which was subject matter of transfer and therefore, the provisions of section 55(2)(a) did not apply. What was subject matter of transfer was right of partner in the partnership firm which comprised of several components, goodwill being one of the components. Apart from above, issue that was sought to be agitated by the revenue in miscellaneous petition was a highly debatable issue. Jurisdiction under section 254(2) is confined only to rectifying mistakes that are apparent on the face of record. In the garb of an application under section 254(2) revenue could not seek a review of the order of Tribunal.

REFERRED : Savitri Kadur v. Dy. CIT [ITA No. 1700/Bang/2016, dated 3-5-2019] : 2019 TaxPub(DT) 3593 (Bang-Trib), Sudhakar M. Shetty v. Asstt. CIT [Income Tax 1515 (Mum.) of 2010, dt. 9-9-2010]

FAVOUR : In assessee's favour

A.Y. : 2008-09

SUBSCRIBE FOR FULL CONTENT