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Lupin Investments Pvt. Ltd V/S Dy. Commissioner of Income Tax 10(1)

    Income Tax Appeal No. 3248 of 2018
    Decided On, 12 April 2019
    At, High Court of Judicature at Bombay
    By, JJ.
    For Petitioner: Jehangir Mistri, Sr. Counsel, Nishant Thakkar and Hiten Chande i/by Pds Legal And For Respondents: Suresh Kumar

Judgment Text

1. With the consent of the learned counsel for the parties, this appeal is taken up for final hearing at this very stage.

2. The appeal is filed by the assessee to challenge the judgment of the Income Tax Appellate Tribunal ("the Tribunal" for short) dated 1.6.2018 rejecting the assessee's appeal. By the same order, the Tribunal also allowed the Revenue's cross appeal arising out of the common judgment of the Income Tax Appellate Commissioner.

3. It is not necessary to record facts in detail, in view of the manner in which we propose to dispose of this appeal eventually. Assessee is a Private Limited Company The appeal arises out of the assessee's return of income for the assessment year 2010-11. The assessee who is engaged in the business of investment and financing, was a partner in a firm which was constituted under Partnership Deed dated 1.4.2005. On 1.4.2007, the firm revalued the assets of development rights in land which resulted into appreciation of Rs. 262.12 Crores (rounded off). The effect of this revaluation was given in the books of accounts of the firm by crediting the accounts of the respective partners. Consequently, in the account of the appellant assessee maintained by the firm, a sum of Rs. 10.48 Crores (rounded off) was credited as the share of the partner.

4. Under a deed dated 6.11.2009, the assessee retired from partnership w.e.f. 1.4.2009. The partnership firm continued its business with remaining partners. On 6.11.2009, the assessee was entitled to receive its share lying to the credit of capital and current account to the firm which came to Rs. 11.34 Crores (rounded off). This includes credit on account of revaluation of Rs. 10.48 Crores. The assessee filed its return of income for the assessment year 2010-11 in which the said amount received on account of retirement of partner (as was later on realized erroneously) was claimed as exempt under Section 10(2A) of the Income Tax Act, 1961. The return of income of the assessee was taken for scrutiny. The Assessing Officer passed assessment order under Section 143(3) of the Act on 31.3.2013 in which he taxed the said sum of Rs. 10.48 Crores by way of capital gain. The assessee carried the matter in appeal. The Commissioner (Appeals) held that the said receipt did not give rise to the capital gain in the hands of the assessee. The Commissioner, however, made certain observations which in the context of the said amount was adverse to the assessee. This order of the Commissioner, therefore, gave rise to two cross appeals at the hands of the Revenue as well as the assessee. These appeals were disposed of by the Tribunal by the impugned common judgment. The Tribunal rejected the assessee's claim of exemption under Section 10(2A) of the Act, though the counsel submitted that the said claim was dropped before the Tribunal. Be that as it may, with respect to the dispute about chargeability of the receipt as capital gain, the Tribunal observed as under:-

"11. Now we come to the claim that the sum received was exempt as capital receipt. The Ld. Commissioner of Income Tax (Appeals) has held the sum to be capital receipt by holding that it was received on account of erstwhile partnership firm from which assessee had retired. The facts of the case clearly indicate that the assessee had retired from the partnership firm and the retirement deed was duly executed. There was no mention of any remaining claim of the assessee in the assets of the firm of revaluation reserve. Hence, the assessee had relinquished its right into the properties of the partnership firm in lieu of outstanding as on that date of retirement. As it is evident, the said revaluation is claimed to have taken place in the year prior to the year under consideration in 2007-08. The assessee company had not taken credit of that revaluation reserve in its accounts of that period. On query from the bench in this regard, the learned counsel of the assessee submitted that assessee company had taken a conscious decision not to account for the revaluation reserve credit. Considered in this perspective when the assessee company had not accounted for the revaluation reserve in the past when it had accrued and consciously left it in the hands of the firm, it cannot claim that the receipt in the previous year relates to the above said revaluation despite the fact that assessee had retired duly relinquishing its rights and properties in the said firm. Hence, in our considered opinion, the Ld. Commissioner of Income Tax (Appeals) has clearly erred in holding that this sum has been received upon retirement from the firm and it is a capital receipt."

5. Having heard the learned counsel for the parties and having perused the documents on record, in our opinion, in view of the facts on record, which do not seem to be in any manner disputed, the question of applicability of the judgments of the Supreme Court would arise. The applicability of the decision of the Gujarat High Court in case of CIT Vs. Mohanbhai Pamabhai : [1973] 91 ITR 393 (Guj) as confirmed by the Supreme Court in case of CIT Vs. Mohanbhai Pamabhai [1987] 165 ITR 166 (SC), the decision of the Supreme Court in case of Sunil Siddharthbhai Vs. CIT : [1985] 156 ITR 509 (SC), as also the decision of the Supreme Court in case of CIT Vs. R. Lingmallu Raghukumar : [2001] 247 ITR 801 (

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SC) would have to be examined. Since this has not been done at the level of the Tribunal, we are of the opinion that it would be a better option that the Tribunal at first instance undertakes such exercise. Only on this ground, the impugned judgment of the Tribunal is set aside. The Tribunal is requested to decide the appeals afresh on merits after considering the contentions of both sides. We clarify that we have not expressed any opinion on rival contentions. All arguments of both sides are kept open. 6. With these observations and directions, the appeal is disposed of.