COMMISSIONER OF INCOME-TAX vs. SHREYAS CHINUBHAI

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ITR/318/1983HC GujaratGJHC24011786198318 April 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was correct in its conclusions on all three questions. Regarding Question 1, concerning Section 28(iv), the Court reiterated its decision in CIT Vs. Alchemic Pvt.Ltd., stating that Section 28(iv) applies only to non-monetary benefits or perquisites, not amounts received in cash or money's worth. The Court also cited CIT Vs. Smt. Chetanaben B.Sheth, which held that amounts falling to a partner's share on dissolution are not benefits under Section 28(iv). Therefore, the amount received by the assessee was not taxable under Section 28(iv). For Question 2, concerning Section 45 (capital gains), the Court relied on its previous decisions in CIT Vs. Anand Narhar Nimkar (HUF) and CIT Vs. Mohanbhai Pamabhai, which established that the receipt of a partner's share on retirement or dissolution does not involve a 'transfer' of a capital asset, and thus no capital gains tax is leviable. For Question 3, regarding adventure in the nature of trade, the Court noted that the land was contributed as stock-in-trade and the amount received was the assessee's share in the firm, directly relatable to that contribution. The Tribunal was therefore right in holding it not taxable as business income from an adventure in the nature of trade. All questions were answered in the affirmative against the Revenue.

What were the facts?

The assessee, Shreyas Chinubhai, was a partner in M/s. Arun Corporation (Estate Division), a firm dealing in purchase and sale of immovable properties. The assessee contributed land to the firm, which was treated as stock-in-trade. On February 14, 1975, a retirement deed was executed where five new partners took over the business. The assessee retired and received Rs. 1,25,092/- as his share after adjusting the stock-in-trade. The Income Tax Officer (ITO) held this amount taxable as business income from an adventure in the nature of trade or under Section 28(iv). The CIT (Appeals) accepted the assessee's case. The Revenue appealed to the Tribunal, which dismissed the appeal, holding the amount not taxable under Section 28(iv), Section 45, or as adventure in the nature of trade. The Tribunal referred three questions of law to the High Court for Assessment Year 1975-76.

What were the issues?

The High Court was asked to decide three questions of law: 1. Whether, on the facts and in the circumstances, the Tribunal was right in law in concluding that the amount of Rs. 1,25,092/- received by the assessee on retirement from the partnership firm was not liable to tax under Section 28(iv) of the Income Tax Act, 1961? 2. Whether, on the facts and in the circumstances, the Tribunal was right in law in concluding that the sum of Rs. 1,25,092/- received by the assessee on retirement from the partnership firm was not liable to tax under Section 45 of the Act? 3. Whether, on the facts and in the circumstances, the Tribunal was right in law in concluding that the sum of Rs. 1,25,092/- was not liable to tax as being an adventure in the nature of trade? Assessee's Contentions: The assessee contended that the amount received on retirement was his share of capital and not taxable as business income, capital gains, or under Section 28(iv). The assessee relied on the decisions in CIT Vs. Alchemic Pvt.Ltd., CIT Vs. Smt. Chetanaben B.Sheth, and CIT Vs. Mohanbhai Pamabhai. Revenue's Contentions: The Revenue contended that the amount was taxable as business income from an adventure in the nature of trade or alternatively under Section 28(iv) of the Act. The Revenue also argued for its taxability under Section 45 as capital gains.

Which sections of the Income-tax Act were involved?

Section 28(iv),Section 45

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 318 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

-------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus SHREYAS CHINUBHAI -------------------------------------------------------------- Appearance: MR B.B. NAYAK, with MR MANISH R BHATT for Petitioner MR JP SHAH with MR MANISH SHAH for Respondent

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 18/04/98

ORAL JUDGEMENT (Per R.K.Abichandani,J.)

The Income Tax Appellate Tribunal, Ahmedabad has referred the following three questions for the opinion of this Court under Section 256(1) of the Income Tax Act, 1961. 1. "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the amount of Rs. 1,25,092/- received by the assessee on retirement from the Partnership firm of M/s. Arun Corporation (Estate Division) was not liable to tax under Section 28(iv) of the Act?"

2.

"Whether on the fact and in the circumstances of the case the Tribunal was right in law in coming to the conclusion that the sum of Rs. 1,25,092/- received by the assessee onretirement from the partnership firm of M/s. Arun Corporation (Estate Division) was not liable to tax under Section 45 of the Act?"

3.

"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the sum of Rs. 1,25,092/- was not liable to tax as being the adventure in the nature of trade?"

2.

The relevant Assessment Year is 1975-76. The assessee was an owner of 202 sq.yards of land at Kalupur, Ahmedabad. On 1.12.1971, the assessee was admitted to the benefits of Partnership, which was constituted under the deed dated 4.12.1971. The business of the firm was to purchase and sell immovable properties, to construct buildings on lands purchased and to sell the same. On 23.12.1994, a fresh partnership deed was drawn by which new five partners were taken in the firm. On 14.2.1975 a deed of retirement was executed as per which the five new partners who were inducted under the Partnership deed dated 23.12.1974, took over the business of the firm as the going concern and the other partners went out of the firm. The stock in trade was determined and after adjusting the opening value thereof, the balance was credited to the accounts of the outgoing partners as a result of which the assessee got his share of Rs. 1,25,092/-. In this connection, the ITO held that the said amount was an income from adventure in the nature of trade and that induction of new partners was merely a device to transfer their assets to the new partners. It was held that the said amount credited to the assessee's account was liable to tax as business income being adventure in the nature of trade or in the alternative, it was taxable under Section 28(iv) of the said Act. The CIT (Appeals), however, accepted the assessee's case and not in cash or money, but is non-monetary benefit or non-monetary perquisite that the question of including also no longer res-integra. In CIT Vs. Anand Narhar ---

*/Mohandas

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