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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
O R D E R Per : Saktijit Dey (JM) This is an appeal by the revenue against the order dated 03-02-2017 of learned Commissioner of Income Tax (Appeals)-34, Mumbai for the assessment years 2010-11.
At the outset, we must observe, registry has pointed out a delay of 254 days in filing the appeal. Vide letter dated 31-01-2018, revenue has explained the cause of delay, as under:- “To, The Sr. Registrar, Income Tax Appellate Tribunal, 2 ITA 582/Mum/2018 Mumbai. Sir, Sub: Request for condonation of delay in filing Appeal U/s before ITAT in the case of Mrs. Ramona Pinto for A.Y. 2010-11. ***** Kindly refer to the above.
2. In the instant case, the order of the CIT(A) vide order No. CIT(A)-34/DCIT 23{3)/IT-91/15-16 dated 03.02.2017 was received in this office on 23rd March 2017. In the order, the Assessee's appeal was dismissed. Thus the appeal, if any, was to be filed before the ITAT on or before 23rd May 2017, the time barring date.
3. It is humbly submitted that, in the instant case, due to oversight and also the fact that the CIT(A) has dismissed the appeal of the assessee, the Appeal could not be filed in time. However, on verification of records, it was found that the Ld. CIT(A) has erred in deciding that the consideration received by the assessee should be assessed u/s 56(1) whereas the Assessing officer had rightly added the amount u/s 28(iv) as the said arbitration award was in nature of one time compensation and was squarely covered u/s 28(iv).
4. Therefore, as the decision of the CIT(A) was erroneous and appeal should have been filed before the ITAT within prescribed time limit which was not filed due to oversight. It is requested that the delay of 254 days in filing the appeal before the ITAT against the order of the CIT(A) may kindly be condoned and this office may be allowed to file appeal before the ITAT in the instant case.”
After perusing the contents of the condonation application and considering the submissions of the parties, we are satisfied that the delay in filing the appeal is due to a reasonable cause. Hence, we condone the delay and admit the appeal for adjudication on merit.
The effective ground raised
by the revenue reads as under:-
1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deciding that the consideration received by the assessee should be assessed U/s 56(1) whereas the Assessing Officer had rightly added the amount U/s 28(iv) as the arbitration award was in the nature of one time compensation and was completely covered U/s28(iv).”
3 ITA 582/Mum/2018
Briefly the facts are, the assessee is an individual. For the assessment year under dispute, assessee had filed her return of income on 16-07-2010 declaring total income of Rs.18,91,589/-. Subsequently, the assessing officer received information from the assessing officer having jurisdiction over another assessee, viz. M/s P.N. Writer & Co that the assessee has been awarded an amount of Rs.28 crores as settlement through an arbitration award and a part of that award has been received by the assessee in the impugned assessment year. After issuing a show cause notice to the assessee to explain why the amount awarded by the Arbitrator should not be treated as income and considering assesse’s explanation, the assessing officer added back an amount of Rs.28 crores to the income of the assessee by treating it as income from business. Assessee contested the aforesaid addition before learned Commissioner (Appeals). After considering the submissions of the assessee and examining the facts on record in the light of decisions relied upon, learned Commissioner (Appeals), though, agreed that the amount awarded by the Arbitrator is taxable in the impugned assessment year; however, he was of the view that it cannot be treated as income from business under section 28(iv) of the Act. On the contrary, he held that the amount of Rs.28 crores is taxable as “Income from other sources” under section 56(1) of the Act. Against the decision of learned Commissioner (Appeals), both the assessee and revenue filed appeals before the Tribunal.
At the outset, learned counsel for the assessee submitted, while deciding assessee’s appeal on identical issue, the Tribunal has upheld the decision of learned Commissioner (Appeals) in holding that the amount received by virtue of arbitration award is taxable under the head “Income from other sources” under 4 ITA 582/Mum/2018 section 56(1) of the Act. Thus, he submitted, the issue is squarely covered by the decision of the Tribunal. 7. The learned departmental representative, though, agreed that the issue is covered by the decision of the Tribunal; however, she relied upon the observations of the assessing officer. 8. We have considered rival submissions and perused materials on record. Pertinently, against the decision of the learned Commissioner (Appeals) holding that the amount of Rs.28 crores awarded by the Arbitrator is taxable as “Income from other sources” under section 56(1) of the Act, both, the assessee and the revenue filed appeals in the Tribunal. While deciding assessee’s appeal in dated 02-04-2018, the Tribunal upheld the decision of learned Commissioner (Appeals) with the following observations:-
“20. As regards the merits of the case, we find that the assessee has received an arbitration award for Rs.28 crores, upon relinquishment of her rights in the partnership of M/s. P. N. Writer & Co. Here it may be gainful to recount the brief history of the case which leads to the arbitration ward. The assessee was a partner in M/s P.N.Writer & Co. A fresh partnership deed was executed in 1997 wherein the name of the assessee was excluded from the partnership firm. However, as claimed by the assessee, this new partnership deed was prepared without her consent and she was shown as retired from the said firm without her knowledge. The assessee, therefore, filed various suits against the partners, firm and various entities held by the partnership firm. Ultimately, the assessee was granted arbitration award of Rs.28,00,00,000/- on 25.09.2009 by the Arbitrator appointed by the Hon'ble Supreme Court as per mutually agreed Consent Terms for relinquishment of all her rights and benefits in the firm and for withdrawal of all claims against the partners, firm and entities held by partners, The arbitration award, however, made no mention of whether the assessee was actually retired from the firm in 1997.
In this regard, it may also be gainful to refer to certain points of the consent term which read as under:
5 ITA 582/Mum/2018 (i) The Consent Terms did not speak anything about retirement of Mrs. Ramona Pinto from the partnership firm M/s P.N. Writer & Company. (ii) It was nowhere mentioned in Consent Terms that the arbitration amount of Rs. 28 crores was an amount awarded to Mrs. Ramona Pinto for her retirement from M/s P.N. Writer & Company. (iii) The amount awarded to the appellant was also for withdrawal of her rights and bequests made to her under the Will dated 16.09.1990 of her late father Shri Charles D'Souza. (iv) The arbitration award was given not only for withdrawal of Suit against partners and partnership firm but it was also granted for withdrawing all the Suits against entities owned and controlled by the partners. (v) Condition No.9 of Consent Terms stated that the appellant and her husband Etienne Pinto had no interest in properties listed in clause 9 and they would ensure execution of necessary documents for transfer of properties which presently stood in their names in favour of existing partners. This condition had no reference with the retirement of the appellant from the partnership firm. (vi) As per condition no.12, the appellant's husband was also required to sign the Consent Terms in acceptance of his obligations as set out in the Consent Terms. Though her husband had no relation to M/s P.N.Writer & Co., it was agreed that the husband shall also sign Consent Terms and shall also transfer back assets mentioned in condition no.9 which was in the name of the appellant as well as in the name of her husband.
When the above facts are viewed in the light of the fact that there are no positive balance of the capital account of the assessee with M/s. P. N. Writer & Co., the question of the balance in her capital account being returned back to her certainly does not arise. The above facts clearly indicate that the arbitration award was received by the assessee not for retirement from partnership firm but was in lieu of relinquishment of all her rights, claim and demand of any nature whatsoever against the partnership firm M/s P.N.Writer & Co. and all other entities owned and controlled by the firm and partners and for withdrawing all the Suits against all the entities. It is further to be noted here that as per para 9 of the concerned terms, the assessee and her husband who had nothing to do with the said firm in any capacity are to execute all necessary documents to facilitate transfer of properties (listed at a. to f. under para 9 of Consent Terms) presently standing in their names either to the other partners of the firm and/or to persons nominated by them. The ld. Commissioner of Income Tax (Appeals) has further found that this property and assets included the following :
6 ITA 582/Mum/2018 i. 55 equity shares of Rs.1,000 each fully paid up in Ocean air Transport and Investment Company Pvt. Ltd. held in the name of the appellant which has no connection with her interest in the firm or the assets of the firm. ii. 2001 equity shares of Rs. 1,000 each fully paid up in JOSCO International Shipping Agency Pvt. Ltd. held in the name of Mr. Etienne Pinto, husband of the appellant, which has no connection with her interest in the firm or the assets of the firm.
From the above, we agree with the ld. Commissioner of Income Tax (Appeals) that when the arbitration award was given in consideration of the assessee giving certain rights and interests in assets which included rights and interests in assets which have not even a remote connection with her interest in the firm or the assets of the firm, the Arbitration Award cannot be said to be given on account of her retirement from the firm. Further, as rightly observed by the authorities below, the accepted practices upon retirement from the firm is that the share in the partnership ship is worked out by drawing of accounts in the manner prescribed by the relevant provision of the partnership law. His/her share in net partnership asset after deduction of liabilities and prior charges is determined and the same is given to him. In the present case, no such determination regarding the share of the assessee in the partnership firm has been done. The assessee despite request made in this regard by the Assessing Officer has not been able to provide the working of the share in the net asset of the firm and has generally stated that it was based on the market value of the asset of the firm. Before the ld. Commissioner of Income Tax (Appeals) also no detail working has been given except for submitting the valuation report of the assets by way of additional evidence.
Thus from the above, it is clear that neither the Arbitration award nor the concerned terms made any mention or a declaration or a decision for a finding that the assessee retired from the firm in the year 1997. Neither does the Arbitration Award or Consent Terms anywhere specify that the sum of Rs.28 crores represents the payment to the assessee for her retirement from P.N.Writer & Co. As a matter of fact, the basis of the Arbitration Award was never given. As rightly observed by the ld. Commissioner of Income Tax (Appeals) that the retirement of a partner from the firm has to be an evident fact and is not required to be indirectly inferred or to be guessed in substance. The assessee has received a consideration in lieu of a composite bundle of conditions which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdrawal of all suits/legal proceedings filed by her against the other persons and against firms and entities owned or controlled by them.
As rightly held by the ld. Commissioner of Income Tax (Appeals) since the Arbitration Award is in cash on the touch stone of the Hon'ble jurisdictional High Court decision in 7 ITA 582/Mum/2018 the case of Mahindra & Mahindra Limited v CIT 261 ITR 501, section 28(iv) cannot be invoked. However, the ld. Commissioner of Income Tax (Appeals) is very correct in holding that the same is taxable u/s. 56(1) as income from other sources. The fact remains that the assessee has received benefit of Arbitration Award for conditions, which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdrawal of all suits/legal proceedings filed by her against the respondents (other partners) and against firms and entities owned or controlled by them. This should also be viewed in light of the fact that there is no positive balance of her in the partnership account.
Hence, we agree with the ld. Commissioner of Income Tax (Appeals) that it is judicially settled that the special income must be considered in its wider sense. The definition of income is an inclusive one having a wide amplitude. Section 56(1) provides that income of every kind which is not to be excluded from the total income in this Act shall be chargeable to tax income under the head ‘income from other sources’ if it is not chargeable to income tax under any of the head as specified in section 14. Accordingly, in the background of the aforesaid discussion and precedent, we uphold the order of the ld. Commissioner of Income Tax (Appeals).”
Since, while deciding assessee’s appeal, the Tribunal has upheld the decision of learned Commissioner (Appeals) that the arbitration award is taxable as “Income from other sources” under section 56(1) of the Act, the issue is squarely covered insofar as the present appeal is concerned and nothing survives to be decided. Therefore, respectfully following the decision of the co-ordinate bench (supra), we uphold the decision of learned Commissioner (Appeals) by dismissing the ground raised.
In the result, appeal is dismissed.