COMMISSIONER OF INCOME TAX Vs. CHETANABEN B SHETH

JUDGEMENT

(1.) THE Tribunal has referred the undermentioned question to this Court while exercising the jurisdiction under S. 256(1) of the IT Act, 1961 : Whether, on the facts and in the circumstances of the case, the amount of Rs. 40,000 received by the assessee by way of share in goodwill and in appreciation of the value of assets of the partnership firm of M/s. Security Equipment in which the assessee was admitted to the benefits, is exigible to tax as benefit or perquisites under S. 28(iv) of the IT Act, 1961?"

(2.) THE assessee in question was a partner in the firm of M/s Security Equipment Manufacturers, which came to be dissolved from 9th Dec., 1972. On the dissolution of the above said firm the assessee had received an amount of Rs. 40,000 which represented the goodwill amount of Rs. 20,000 and premium on account of revaluation of assets for Rs. 20,000. The return of the income was filed on 6th March, 1975. In this connection a show cause notice was issued and served upon the assessee through the learned advocate representing her. The notice required the assessee to show cause within a stipulated period, as to why the amount as stated above should not be included in the assessable income of the assessee. The assessee had filed the reply to the above said show cause notice dt. 16th Feb., 1977, contending that the above said income cannot be taxed under S. 28(iv) of the IT Act, 1961, because it could not be said to be the value of the benefit arising from the business carried on by the firm, namely M/s Security Equipment Manufacturers, in which the assessee was a partner. It was noticed that the firm came to be dissolved w.e.f. 9th Dec., 1972, but prior to the abovesaid date the assessee had received the abovesaid amount of Rs. 40,000 from the firm for which the credit entry was placed in the account books prior to the dissolution of the firm. Since the dissolution deed could be drawn later on and it was actually drawn only after finally adjusting the account of the partners, the ITO had taken the view that the above said amount of Rs. 40,000 received by the assessee was a benefit arising from the business within the meaning of S. 28(iv) of the IT Act, 1961. On the basis of the above said reasoning the said amount was taken as the includible income of the assessee which would again be taxable under S. 28(iv) of the Act of 1961. Being aggrieved and dissatisfied with the above said orders of assessment, the assessee had carried the matter in the appeal before the AAC Ahmedabad Range. On the consideration of the facts before the Commissioner, a view was taken that following a decision of the same office in Appeal No. IT/Co. Cir. IX/1009/7677 dt. 16th April, 1978, there was no cause or case for the addition of the above said amount as the income of the assessee. In view of this finding, the addition of amount of Rs. 40,000 was ordered to be deleted. The matter was proceeded with further by the Revenue by approaching the Tribunal, Ahmedabad Range. On the consideration of the facts and also taking into consideration the decision as mentioned above, the view was taken that the AAC was justified in his order of deletion of the above said amount from the taxable income of the assessee. Having taken this view, the Tribunal had preferred to dismiss the appeal filed by the Revenue. Later on, the reference application was made to the Tribunal for referring the abovementioned question to this High Court under S. 256(1) of the IT Act, 1961. It is in the background of the abovesaid facts and circumstances that this question requires to be answered and replied by us.

(3.) THE contention raised by Mr. Thakore, the learned counsel who appears on behalf of the Revenue is that, the assessee was a partner in the abovesaid firm which came to be dissolved w.e.f. 9th Dec., 1972, but in fact the assessee had received an amount of Rs. 40,000 which comprised of two components, firstly, one in sum of Rs. 20,000 representing the goodwill, while secondly an amount of Rs. 20,000 representing the premium or the amount of revaluation of the assets. Placing reliance upon the provisions contained under S. 28(iv) of the IT Act, 1961, the learned counsel has urged that the above said amounts, represent the value of the benefits derived by the assessee, which again were arising from the business of the firm, in which, she was a partner. It is broadly on these basis that the learned counsel Mr. Thakore has urged that the view taken by the Tribunal is not a justifiable one, and therefore, the question referred to us requires to be replied and answered in favour of the Revenue and against the assessee.