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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
सुनवाई क� तार�ख / : 11.01.2018 Date of Hearing घोषणा क� तार�ख / : 02.04.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against order of the ld. Commissioner of Income Tax (Appeals) dated 03.02.2017 and pertains to assessment year 2010-11.
The grounds of appeal
read as under: As regards validity of reassessment proceedings
1. The Commissioner of Income Tax (Appeals) erred in upholding the validity of the reassessment proceedings initiated by the Assessing Officer.
Ramona Pinto 2. The Commissioner of Income Tax (Appeals) erred in negating the appellant's contention that the Assessing Officer had no new material or information in his possession to come to the conclusion that income of the appellant had escaped assessment to justify initiation of reassessment proceedings.
3. The Commissioner of Income Tax (Appeals) erred in holding that merely because a benefit had accrued to the appellant in terms of the arbitration award, the Assessing Officer was justified in forming a belief that income has escaped assessment and that the issue as to whether the benefit is in the nature of income was to be determined in the course of the assessment proceedings.
As regards addition of Rs.28,00,00,000 u/s 28(iv) 4. The Commissioner (Appeals) was not justified in upholding the view of the assessing officer that the sum of Rs.28 crore receivable by the appellant from P N Writer & Co. under the arbitration award dated 25th September 2009 was taxable as her income.
5. The Commissioner (Appeals) erred in holding that the sum of Rs.28 crore was taxable as Income from other sources u/s 56(1) of the Act.
6. The Commissioner (Appeals) failed to appreciate the fact that the amount awarded to the appellant in terms of the arbitration award was in substance for her retirement from and in settlement of her rights, interest and share as a partner of the firm of P N Writer & Co., having regard to the claim made by her in the arbitration proceedings.
7. The Commissioner (Appeals) ought to have held that the assessment was vitiated as the principles of natural justice were not followed by the Assessing Officer, by relying upon the statement of Shri Denzil D'Souza, without providing your appellant an opportunity of cross-examination of Shri Denzil 8. The Commissioner (Appeals) was wrong in ignoring the valuation reports of the properties of the firm of P N Writer & Co, which indicated the value of the appellant's share in the firm.
9. The Commissioner (Appeals) was not justified in holding that the consideration was given to the appellant 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 respondents and against firms and entities owned or controlled by them, without appreciating that these were merely incidental to her retirement from the partnership firm, and the settlement of all disputes between the parties.
10. The Commissioner (Appeals) erred in ignoring the appellant's statement of claim made before the arbitrator and other documents filed with him, which Ramona Pinto clearly showed that the crux of the dispute was the assessee's partnership right in the partnership firm of P N Writer & Co, while holding that the amount received by the appellant was not on account of her retirement from the partnership firm.
The Commissioner (Appeals) erred in stating that the contention of appellant that she had retired from the firm in November 1997 was inconsistent and contrary to the facts.
12. Without prejudice to the foregoing grounds, the Commissioner(Appeals) erred in holding that the entire amount of Rs.28 crore was taxable, while taking the view that the amount received by the assesse was not wholly and exclusively received on her retirement from the partnership firm of P N Writer & Co., without in any manner establishing how it was of an income character, and without appreciating that even amounts received under a will or a family settlement were not taxable.
Relief Sought 13. Your appellant prays that the addition made to the income of your appellant of the amount of Rs.28,00,00,000 receivable under the arbitration award, be deleted.
Brief facts of the case are that information was received by the Assessing Officer from the ITO - 17(3)(3), Mumbai, that an amount of Rs.28,00,00,000/- was agreed to be paid to the assessee as settlement through Arbitration Award by M/s, P.N. Writer & Co. out of which an amount of Rs.7,05,04,72/- was paid to the assessee in the A.Y. 2010-11. The Assessing Officer called for the case records of M/s. P.N.
Writer & Co. from ITO - 17(3)(3), Mumbai, and after going through them it was observed by the Assessing Officer that prima facie there was material on record which showed that income had escaped assessment. Therefore, after recording reasons, a notice u/s.148 of the Act was issued on 19.03.2014 which was duly served on the assessee. Subsequently, notices u/s 143(2) and 142(1) dated 18.06.2014 were also issued and served on the assessee. The assessee had filed objections against the Ramona Pinto reopening of assessment which were disposed off vide order dated 21,08.2014. The assessee had filed a writ petition against this order dated 21.08.2014 which was treated as dismissed by the Hon'ble Bombay High Court as the same was withdrawn.
Thereafter, notice u/s 142(1) was again issued on 23.02.2015 requesting the assessee to provide various details. After considering the various submissions made by the assessee, the re-assessment was completed u/s 143(3) r.w.s. 147 of the Act.
Further, the facts are that 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.
During the course of assessment proceedings, the assessee was asked to explain on what basis the arbitration award of Rs.28,00,00,000/- was granted in her favour.
Ramona Pinto The assessee submitted that arbitration award was granted to her in terms of consent terms signed by her and partners of M/s P.N. Writer & Company. Copy of the Consent Terms was also submitted. On perusal of the Consent Terms, the AO observed the following:
(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.
The Assessing Officer was of the view that all the above facts showed that the arbitration award of Rs. 28 crores was not awarded only with reference to the retirement of the assessee from the partnership firm. The assessee was asked to provide details of basis on which arbitration award was claimed and awarded.
No specific basis could be given by the assessee , but from the details submitted by Ramona Pinto the assessee it could be inferred that the market value of assets held by the firm could be the basis. The assessee submitted that she had provided list of assets held by M/s P.N.Writer & Co. before the Arbitrator and on the basis of market value of these assets, she claimed a hefty arbitration award which was settled at Rs. 28 crores.
The Assessing Officer had also issued summons u/s 131 of the Act and recorded the statement of Shri Denzil Dsouza, partner of M/s P.N.Writer & Co., which has been scanned and reproduced at pages 13 to 16 of the assessment order. In his statement, Shri Denzil Dsouza had stated that the arbitration amount of Rs, 28 crores was not an amount paid to retiring partner as she was already given her share as per the family arrangement earlier. That there was no balance available in her capital account and there was no accumulated profit in the firm. That the amount of Rs. 28 crores was given for relinquishing of rights, claims and demands of any nature whatsoever, against the firm and partners. That there was no basis for determining the amount of Rs. 28 crores between the assessee and partners of M/s P.N.Writer & Co., but the amount was settled at Rs. 28 crores for relinquishment of all the rights, claims and demand and withdrawing all court cases against partners and partnership firm and entities of partners. The Assessing Officer also observed that there was no positive balance of the assessee in her capital account with M/s P.N.Writer & Co. and the question of the balance in her capital account being returned
Ramona Pinto back to her did not arise. There were also no accumulated profits of the firm to the extent of Rs. 28 crores.
In view of all the above, the Assessing Officer held that the arbitration award of Rs.28 crores received by the assessee was 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. The AO was of the view that the assessee's rights and claims were converted into money terms through mutually agreed consent terms of Arbitration award and, hence, the amount of Rs.28,00,00,000/- was held as taxable u/s 28(iv) of the Act. The AO was also of the view that without prejudice to the taxability of the amount u/s 28(iv), the same was also alternatively taxable as capital gain.
A detailed show cause notice dated 18.03.2015 incorporating all the above observations of the Assessing Officer was issued asking the assessee to explain as to why the arbitration award of Rs. 28 crores should not be taxed u/s 28 (iv) and also alternatively as capital gains. This show cause notice has been scanned and reproduced by the Assessing Officer at pages 27 to 38 of the assessment order. The assessee submitted her replies vide letters dated 24.03.2015 and 26.03.2015 wherein she reiterated her stand that the arbitration award of Rs.28 crores was received on Ramona Pinto account of her retirement from M/s P.N.Writer & Co. which was not taxable. The assessee also did not agree with the statement given by Shri Denzil Dsouza.
The submissions filed by the assessee were duly considered by the Assessing Officer but were not found tenable. Besides the observations mentioned earlier, the Assessing Officer further observed that as per the records of Registrar of Partnership of Firm, the assessee's name appeared in the records as a partner till the year in which the Arbitration Award was passed. Even after receipt of the Arbitration Award, the name of the assessee was not removed from the record of Registrar of Partnership Firm. The AO was of the view that till such date the assessee's name appeared as a partner in the records of Registrar of Partnership Firm, she could not be treated as retired from the firm. On declaration of arbitration order, the assessee wrote a letter to the Registrar of Firm on 17.09.2009 intimating that earlier she had caused a notice dated 31.07.2006 to desist from registering any form or deeds in connection with M/s P.N. Writer & Co and now she was withdrawing the said notice and that she had no objection to the Registrar for taking on record any Forms and Deeds in respect of M/s P.N. Writer & Co. The AO observed that this was thus a withdrawal of intimation of notice dated 31.07.2006 and not any agreement submitted for retirement on the basis of which the assessee's name can be struck off in the records of the Registrar as a partner of M/s P.N. Writer & Co. That even after this, her name continued to be a partner in M/s P.N. Writer & Co in the records of Registrar of Partnership Firm.
Ramona Pinto 11. Considering all the facts and circumstances of the matter, the Assessing Officer was of the view that the Arbitration Award was not just for retirement of the assessee from the firm as the Consent Terms stipulated that certain assets held in the name of the assessee and her husband were to be tranferred in favour of the partners of M/s P.N, Writer & Co. That the Arbitration Award also included consideration for withdrawing all claims that the assessee had made against partners, partnership firm and several other entities held by the partners. That the rights and benefits claimed by the assessee through filing suits were converted into money terms through this Arbitration Award. The Assessing Officer, accordingly, held that the Arbitration Award of Rs. 28 crores was taxable u/s 28(iv) of the Act. It was also alternatively held to be taxable as capital gains as per provisions of section 2(47) and 45(4) of the Act in view of various judicial pronouncements relied upon by the AO. The Arbitration Award of Rs. 28 crores which was received during the period relevant to A.Y. 2010- 11 was therefore, added back to the income of the assessee.
Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals) challenging both the validity of reopening and merits of the addition on various counts. The ld. Commissioner of Income Tax (Appeals) admitted additional evidence from the assessee and obtained remand report also from the assessing officer. The ld. Commissioner of Income Tax (Appeals) upheld the validity of reopening by observing as under:
Ramona Pinto 4.3 I have considered the facts of the case and the appellant's submissions. The appellant had filed return of income for the assessment year 2010-11 on 16.07.2010 declaring total return of income of Rs 18,91,859 /-. The return was processed u/s 143(1) on 20.03.2012. Subsequently, information was received by the Assessing Officer that as per the settlement in arbitration proceedings which concluded on 25.09.2009, the appellant had received Rs 7,00,00,000 /- during F.Y. 2009-10 corresponding to A.Y. 2010-11 which was not offered for tax in her return of income. On the basis of this information and the fact of the amount of Rs. 7,00,00,000/- not being offered for tax in her return of income, the Assessing Officer formed a reason to believe that income chargeable to tax had escaped assessment and had accordingly re-opened the assessment by issuing notice u/s 148 after duly recording reasons. I find that the primary condition for re-opening of assessment, therefore, stands fulfilled. Such re- opening of assessment also cannot be said to be on account of change of opinion as the return of income of the appellant was processed only u/s 143(1) of the Act wherein the issue of taxability of arbitration award was not considered. There can, therefore, be no question of change of opinion when no opinion on the issue had been formed in the first place. In DCIT vs Zuari Estate Development & Investment Co. Ltd [2015] reported in 63 taxmann.com 177, the Hon'ble Supreme Court held that there being no assessment under section 143(1)(a) of the Act, the question of change of opinion, does not arise and, reassessment can be made. The appellant has also contended that in the reasons recorded by the AO there was no mention as to whether and how the receipt was of an income nature which rendered the reasons recorded by him as vague and incomplete thereby making the impugned notice dated March 19, 2014 issued under section 148 as illegal and bad in law. In this regard, it is pertinent to note here that it is not a statutory requirement that the escapement of income chargeable to tax should be proved to the hilt before re-opening of assessment. The requisite condition is that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment. There can be no dispute that a benefit had accrued to the appellant on account of the aforesaid arbitration award. Such benefit had not been offered for tax by the appellant in her return of income. The Assessing Officer, therefore, had cogent reasons to believe that income chargeable to tax had escaped assessment. Whether such benefit is in the nature of income or not is to be considered primarily during the ensuing re-assessment proceedings and non discussion of the same in the reasons recorded for re-opening of assessment will not make the issue of notice u/s 148 illegal or bad in law as contended by the appellant. In the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500, the Hon'ble Apex Court held and observed as under :
Ramona Pinto “In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction". In the light of the foregoing discussion, I am of the considered opinion that the re-opening of assessment and issue of notice u/s 148 by the Assessing Officer is valid and the same is upheld. The assessee’s grounds of appeal are dismissed.
13. The ld. Commissioner of Income Tax (Appeals) also upheld the addition upon merits. Relevant portion of his order in this regard may be gainfully referred as under: 7. I have considered the facts of the case, the appellant's submissions, A.O.'s remand report and further comments of the appellant thereon. Regarding admission of additional evidence, the appellant has submitted that owing to the short span of time during which the effective re-assessment proceedings were concluded, she was not was not able to retrieve all the relevant documents at such short notice as they pertained to documents submitted in proceedings in 2009 or earlier, but filed whatever relevant documents that could be readily traced. That the additional evidence being submitted went to the root of the matter under appeal and may be admitted. Reliance was placed on various case laws in support of its claim of admission of additional evidence. I find that the initial notices u/s 143(2) and 142(1) were issued on 18.06.2014. However, proceedings were kept in abeyance as the appellant had filed a writ petition against the order of the Assessing Officer rejecting the appellant's objection to re-opening of assessment. On receipt of final order of the Hon'ble Bombay High Court, re-assessment proceedings were reinstated by issue of notice u/s 142(1) dated 23.02.2015 and the reassessment was completed on 30.03.2015. There is ,therefore, adequate merit in the appellant's contention that relevant evidences could not be retrieved and submitted during re-assessment proceedings owing to paucity of time. And as the additional evidences are relevant to the grounds of appeal, they are being admitted. 7.1 During appellate proceedings, the appellant has reiterated her contention made during re-assessment proceedings that the Arbitration Award of Rs. 28 crores was received on account of her retirement from the partnership firm, M/s P.N. Writer & Co, and that the same is not taxable. This Arbitration Award was made as per the Consent Terms. Perusal of the Consent Terms shows that the amount of Rs. 28 crores was awarded to the appellant in lieu of the following:
(i) To consider all claims made against the Respondents ( Denzil D'Souza & 5 Ors) and partnership firm of M/s P.N. Writer & Co as duly satisfied and to have no further claims against them. (ii) Withdrawal of her rights in respect of the bequests made to her under the Will dated 16.09.1990 of her late father Shri Charles D'Souza. (iii) Withdrawal of all suits/legal proceedings filed by her against the respondents and against firms and entities owned or controlled by them. (iv) To execute all necessary documents to facilitate transfer of properties ( listed a to f under para 9 of Consent Terms) presently standing in the names of the claimant (appellant) and her husband Mr. Etienne Pinto either to the Respondents and/or to persons nominated by them.
7.2 It is apparent from the conditions laid down in the Consent Terms as mentioned above that the Arbitration Award cannot be said to be given on account of retirement of the appellant from the partnership firm, M/s P.N. Writer & Co. It was a lump sum amount awarded to the appellant as consideration for giving up her various rights and interests as mentioned in the Consent Terms. Perusal of the Will of the late Mr. Charles D'Souza shows that the bequests made by him to the appellant included a share in fixed deposits besides the additional 5% share in the firm. Such forfeiture of her share in fixed deposits as bequeathed to her by her late father has no connection whatsoever with her interest in the firm or the assets of the firm. 7.3 In para 9 of the Consent Terms, it is mentioned that the appellant 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 Respondents and/or to persons nominated by them. During appellate proceedings, I had called for details of the properties mentioned in para 9 of the Consent Terms. Perusal of the details provided by the appellant shows that the properties/assets included inter alia the following; 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.
When the Arbitration Award was given in consideration of the appellant giving up certain rights and interests in assets which included rights and interests in Ramona Pinto 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. 7.4 The accepted practice when a partner retires from a firm is that his share in the partnership is worked out by drawing up accounts in the manner prescribed by the relevant provisions of the partnership law. His share in net partnership assets after deduction of liabilities and prior charges is determined on taking accounts on the basis of notional sale of partnership assets and given to him. In the instant case, no such determination regarding the share of the appellant in the partnership firm has been made. -During assessment proceedings, the Assessing Officer had specifically asked the appellant to give the basis of the Arbitration Award of Rs. 28 crores since the appellant had claimed that it was received on account of her retirement from the firm. The appellant ,however, was unable to provide the working of her share in the net assets of the firm and had generally stated that it was based on the market value of assets of the firm. During appellate proceedings also, no such working of the appellant's share in the net assets of the firm has been given except for submitting the valuation reports of the assets of the firm by way of additional evidence. 7.5 It is absolutely critical and of great significance to note that neither the Arbitration Award or the Consent Terms make a mention or a declaration or a decision or a finding that the appellant 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 appellant for her retirement from P.N.Writer & Co. It is also to be considered that the basis of the Arbitration Award was never given. Had it been the way the appellant has argued, then the Arbitration Award and the Consent Terms would have been explicit in stating that the appellant has retired from the firm and was entitled to her share in the firm to be computed as per accepted norms for an outgoing/retiring partner. The retirement of a partner from a firm is an evident fact and is not required to be indirectly inferred or to be guessed in substance. As observed by the Assessing Officer in the assessment order, it is seen that in the Consent Terms it is nowhere mentioned that the amount of Rs. 28 crores was given on account of the appellant's retirement from the firm. I find that the consideration was given to the appellant 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 respondents and against firms and entities owned or controlled by them. The Assessing Officer had also stated in the assessment order that even after the Arbitration
Ramona Pinto Award was granted, the appellant's name continued to appear as a partner in M/s P.N. Writer & Co in the records of Registrar of Partnership Firm.
7.6 The appellant has contended that the Assessing Officer had relied on the statement of Shri Denzil D'Souza without giving opportunity of cross examination in spite of such a request being made vide the appellant's letter dated 25.03.2015. I find that a copy of the statement of Shri Denzil D'Souza was duly given to the appellant. Moreover the fact that the statement given by Shri Denzil D'Souza was just an affirmation of what had already been gathered by the AO from the facts on record cannot be lost sight of. Further, the appellant's counter-assertions on the statement has been recorded in this order as above and considered. 7.7 In view of my observations at paras 7.1 to 7.6 above, I uphold the view taken by the Assessing Officer that the Arbitration Award of Rs. 28 crores was not on account of retirement from partnership firm.
7.8 Regarding taxability of the amount of Rs. 28 crores u/s 28(iv) of the Act, the appellant has relied on various judicial decisions including those of the Hon'ble jurisdictional High Court in the case of Mahindra & Mahindra Limited v CIT 261 ITR 501, Prashant S Joshi v ITO 324 ITR 154 and contended that section 28(iv) does not apply to the appellant's case since she has received the arbitration award in cash and not in kind. It is seen that the Hon'ble Bombay High Court in the case of Mahindra & Mahindra Limited (supra) has held that "The income which can be taxed under section 28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, section 28(iv) does not apply to benefits in cash or money." In the instant case, it is undisputed that the appellant has received the Arbitration Award in cash and section 28(iv) of the Act will not apply in view of the decision of the Hon'ble Bombay High Court in the case of Mahindra and Mahindra (supra). However, the fact remains that the appellant had received benefit by way of Arbitration Award of Rs. 28 crores as consideration for 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 respondents and against firms and entities owned or controlled by them. The consideration received, therefore, constitutes income of the appellant. It is judicially settled that the expression 'income' must be construed in its widest sense. The definition of 'income' is an inclusive one having a wide amplitude and, hence, it has been held that even if a receipt does not fall within any of the sub-clauses of section 2(24) of the Act, it may yet constitute "income". Section Ramona Pinto 56(1) of the Act provides that "Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income- tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E". I, therefore, hold that the Arbitration Award of Rs. 28 crores is taxable as "Income from other sources" u/s 56(1) of the Act. 7.9 Regarding the Assessing Officer's stand that the Arbitration Award was alternatively taxable as capital gains as per provisions of section 2(47) and 45(4) of the Act, the appellant has referred to the provisions of section 45(4) and contended that under section 45(4),it is only the firm which can be taxed on the distribution of assets of the firm, on dissolution or otherwise. That section 45(4) does not apply to the appellant at all and that if at all any person was to be taxed on such retirement u/s 45(4), it was the partnership firm of P N Writer & Co., and not the appellant. However, this issue needs no further adjudication as I have already held that the Arbitration Award of Rs. 28 crores will be taxable u/s 56(1) of the Act. 8.1 I have gone through the assessment order. I find that the conclusion drawn by the Assessing Officer is that the amount of Rs. 28 crores received by the appellant was not for retirement from partnership firm as the issue of whether the appellant had retired from the firm in 1997 as alleged by the respondents and contested by her was not addressed in the Consent Terms. That the amount was received in lieu of relinquishment of all her rights, claim and demand of any nature whatsoever against the partnership firm M/s P.M.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 has not been held by the Assessing Officer that the amount of Rs. 28 crores received by the appellant was in respect of a family settlement. This ground of appeal is accordingly dismissed. 9.1 The matter has been considered. I find that this contention of the appellant that she had retired from the firm in November 1997 is inconsistent and contrary to facts in as much as she had contested her alleged retirement from the firm in 1997 by filing various suits against the partners, firm and various entities held by the firm and partners. Even otherwise, the claim made by the appellant was mired in complex litigation, both in terms of admissibility and quantum. Be it as it may, the pertinent fact is that the Arbitration Award was granted on 25.09.2009 and the same has been rightly taxed in A.Y. 2010-11.
Against the above order, the assessee is in appeal before us.
Ramona Pinto 15. We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that the reopening in this case is bad inasmuch as the factual information which has been stated to be the reason for the reopening was already there in the notes in the original return filed. Hence, he pleaded that no fresh tangible material has been received by the Assessing Officer. That there is no live link from the information that there is an escapement of income. In this regard, the ld. Counsel of the assessee placed reliance upon several case laws in support of his proposition.
As regards the merits of the case, the ld. Counsel of the assessee reiterated that it was receipt upon the retirement from the firm, hence not chargeable to tax.
Alternatively, he pleaded that it was a receipt pursuant to family arrangement and, hence, also not chargeable to tax. In this regard, he placed reliance upon the several case laws.
Per contra, the ld. Departmental Representative submitted that the reopening in this case is perfectly valid. He submitted that earlier the return was processed u/s. 143(1) and the reopening was done within 4 years. The ld. Departmental Representative placed reliance upon the ld. Commissioner of Income Tax (Appeals) and the Hon’ble Apex Court decision relied upon by him in support of the validity of the reopening. As regards the merits of the case, the ld. Departmental Representative relied upon the orders of the authorities below.
Ramona Pinto 18. Upon careful consideration, we find that the information was received by the Assessing Officer from the ITO - 17(3)(3), Mumbai, that an amount of Rs.28,00,00,000/- was agreed to be paid to the assessee as settlement through Arbitration Award by M/s, P.N. Writer & Co. out of which an amount of Rs.7,05,04,72/- was paid to the assessee in the A.Y. 2010-11. The Assessing Officer called for the case records of M/s. P.N. Writer & Co. from ITO - 17(3)(3), Mumbai, and after going through them it was observed by the Assessing Officer that prima facie there was material on record which showed that income had escaped assessment.
Therefore, after recording reasons, a notice u/s.148 of the Act was issued on 19.03.2014 which was duly served on the assessee. Subsequently, notices u/s 143(2) and 142(1) dated 18.06.2014 were also issued and served on the assessee. The assessee had filed objections against the reopening of assessment which were disposed off vide order dated 21,08.2014. The assessee had filed a writ petition against this order dated 21.08.2014 which was treated as dismissed by the Hon'ble Bombay High Court as the same was withdrawn.
In the above factual scenario, we note that on the basis of the information and the fact that an amount of Rs.7 crores was not offered to tax in the return of income, the Assessing Officer formed a reason to believe that income chargeable to tax has escaped assessment. In our considered opinion, undoubtedly there is a live link between the information received and the escapement of income. Such reopening of assessment also cannot be said to be on account of change of opinion as the return of Ramona Pinto income and assessee was processed only u/s. 143(1) of the Act wherein the issue of taxability of arbitration award was not considered. A mention in the fine prints can by no stretch of imagination be considered sufficient information given in the original return. Hence, there can be no question of change of opinion, when no option on the issue was formed in the first place. In this regard, in our considered opinion, the ld. Commissioner of Income Tax (Appeals) has passed a reasonable order by appreciating the facts and law in this regard. The reliance by the ld. Commissioner of Income Tax (Appeals) upon the decision of Hon’ble Apex Court in the case of DCIT vs Zuari Estate Development & Investment Co. Ltd [2015] reported in 63 taxmann.com 177 (SC) and the decision of the Hon’ble Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500 are germane and duly support the case of the Revenue. The decisions referred by the ld. Counsel of the assessee are distinguishable on facts and moreover, since the reopening has to be found to be valid on the touchstone of the above Hon’ble Apex Court decisions, the decisions referred by the ld. Counsel of the assessee do not oxygenate the case of the assessee. Hence, in the above factual scenario and the case law of the Hon’ble Apex Court, we are of the considered opinion that the ld. Commissioner of Income Tax (Appeals) has passed a reasonable order upholding the validity of the reopening. Hence, we do not find any infirmity in the same. Hence, the assessee’s challenge to the reopening fails.
Ramona Pinto 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:
(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.
Ramona Pinto (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
Ramona Pinto 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 : 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 Ramona Pinto 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 the case of Mahindra & Mahindra Limited v CIT 261 ITR 501, section 28(iv) cannot be invoked. However, the ld. Commissioner of Income Tax
Ramona Pinto (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).
The alternate claim of the ld. Counsel of the assessee that the receipt is actually receipt on account of family settlement has not been arising out of the grounds raised by the assessee. Except for making the claim, no detail has been furnished whatsoever by the ld. Counsel of the assessee as to how the receipt from the arbitration award
Ramona Pinto amount to a family settlement. There is no mention whatsoever in the arbitration award as to how the said amount has been determined or that it is a family arrangement. In the absence of any detail thereof, the amount received cannot be held to be a receipt on account of family arrangements. Accordingly, in the background of the aforesaid discussion and precedent we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the same.