ORDER
B. Ramakotaiah, Accountant Member - This is a miscellanious application filed by the assessee under s. 254(2) of the IT Act, 1961 (the Act), pointing out that the order of the Tribunal dt. 9th Sept., 2010, suffers from certain apparent errors and in the interest of justice, the matter should be either recalled and/or referred to the Special Bench.
2. The issue that the Tribunal had to adjudicate in the above appeal was as to whether on retirement from the firm M/s D.S. Corporation, and receiving a sum of Rs. 35,59,84,050 in lieu of giving up all his rights as a partner and right, title and interest over the partnership assets, would give raise to transfer of a capital asset giving raise to incidence of tax on capital gain.
3. The sequence of events by which the assessee became a partner of the firm and retired from the firm were as follows :
1.
Assessee and Mr. Rakesh Kumar Wadhwan entered into a partnership under a deed of partnership dt. 1st Aug., 2005 for the purpose of development of the property.
2.
The name of the firm so formed was M/s D.S. Corporation.
3.
On 16th Sept., 2005, another deed of admission-cum-partnership of partners was executed admitting Smt. Hemlata S. Shetty as partner of the firm.
4.
On 23rd Sept., 2005, the firm M/s D.S. Corporation purchased from one Mr. Percival Joseph Pereira the property for a consideration of Rs. 6.50 crores. The said plot was occupied by 81 tenants. The stamp duty officer valued the said plot, which was occupied by 81 tenants, at that time at Rs. 6,50,00,000 and the stamp duty was paid on the basis of the said valuation. The conveyance was duly registered.
5.
On 26th Sept., 2005, another deed of admission-cum-reconstitution of partnership was executed. The following 2 more partners were admitted to the partnership :
(1)
Prithvi Realtors & Capital (P) Ltd.
(2)
Shri Sarang R. Wadhwan.
6.
The firm thereafter applied to the Maharashtra Tourism Development Corporation Ltd. and also to the Government of India, Ministry of Tourism to approve a proposal for setting up a five-star hotel on the said plot. The Maharashtra Tourism Development Corporation Ltd. vide their letter dt. 18th Jan., 2006, and the Government of India, Ministry of Tourism vide their letter dt. 8th March, 2006 granted their sanction for setting up a five-star hotel on the said plot. In the meantime, out of 81 tenants, 77 tenants were paid compensation and thus surrendered vacant possession.
7.
In the meanwhile Smt. Hemlata S. Shetty, for diverse reasons, expressed her desire to retire from the partnership which has been mutually agreed by the retiring and continuing partners. For settling the accounts of retiring partner, the assets of the partnership firm were revalued as mutually agreed between the retiring and continuing partners and whatever surplus available on account of revalution was credited to the capital account of retiring partners as well as continuing partners in their profit sharing ratio. The registered valuer one Mr. A.R. Nigam, inspected the property on 25th March, 2006 and gave a certificate of valuation dt. 5th April, 2006. As per the said certificate the property was valued at Rs. 1,93,90,60,000.
8.
A deed of retirement-cum-admission and reconstitution dt. 27th March, 2006 was entered into by which Mrs. Hemlata Sudhakar Shetty retired from the firm and Mr. Ashok Kumar Gupta, Mr. Waryam Singh, Mr. Kapil Rajeshkumar and Mr. Sunpreet Singh were admitted as incoming partners.
9.
Prior to retirement of Mrs. Hemlata Sudhakar Shetty, i.e., on 26th March, 2006, a P&L a/c was drawn. The property was revalued and the surplus on revaluation of the land of Rs. 1,54,39,90,435 was shown as profit and was appropriated to the capital accounts of the partners of the firm as on 26th March, 2006 in their profit sharing ratio which was as follows :
| |
Rakesh Wadhwan |
Rs. 54,03,96,652 |
| |
Sudhakar Shetty |
Rs. 30,87,98,087 |
| |
Hemlata Shetty |
Rs. 30,87,98,087 |
| |
Prithvi Realtors & Capital (P) Ltd. |
Rs. 30,87,98,087 |
| |
Sarang R. Wadhwan |
Rs. 7,71,99,522 |
10.
On 27th March, 2006, Mrs. Hemlata Sudhakar Shetty was paid a sum of Rs. 31,40,48,088 being the sum standing in her capital account. She retired from the firm D.S. Corporation as and from 27th March, 2006.
11.
As on 31st March, 2006, the capital account of the assessee in the firm M/s D.S. Corporation showed the following position :
| |
Opening balance as on 1st April, 2005 |
nil |
| |
Deposits during the previous year |
Rs. 4,45,00,000 |
| |
Interest |
Rs. 26,85,963 |
| |
Profit on revaluation |
Rs. 30,87,98,087 |
| |
Total |
Rs. 35,59,84,050 |
Thus as on 31st March, 2006 the sum standing to the credit of his capital account was Rs. 35,59,84,050.
12.
On 22nd May, 2006, the assessee retired from the partnership firm and was paid the sum standing to the credit of his capital account. But for the revaluation of the asset, the capital account of the partner would not have shown a sum of Rs. 35,59,84,050. To the extent of Rs. 30,87,98,087 the capital account has been artificially increased just to ensure that the retiring partner is paid consideration standing to the credit of his capital account.
4. On the above facts, the Tribunal held that it was a case where instead of quantifying the assessee's share by taking accounts on the footing of notional sale, parties agreed to pay a lump sum in consideration to the retiring partner assigning or relinquishing his share or right in the partnership and its assets in favour of the continuing partners. Thus the retiring partner was paid something over and above the sum standing to the credit of his capital account and therefore there was a capital gain.
5. In this miscellanious application the following mistakes have been pointed out in the order of the Tribunal :
"1.
That the Tribunal has discussed in pp. 7 to 20 about how people are avoiding taxes by bringing an asset in partnership and then retiring by taking money. According to the assessee, this discussion on the law is very well made but it is only academic because in the case of the assessee no asset was brought into the partnership by any partner who subsequently retired.
2.
According to the assessee, the property which was acquired by the firm continued to be the property of the firm and it is only the firm which will be liable to payment of tax on capital gain if it is transferred as a capital asset. According to him, if the partner instead of retiring and taking the money standing to his credit in his capital account had withdrawn the money from his capital account without retirement, then there would not have been any incidence of tax. Thus according to the assessee the income is taxed both in the hands of the partner and the firm and would amount to double taxation.
3.
It has further been alleged that the Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of
N.A. Mody v.
CIT [1986] 52 CTR (Bom) 149 : [1986] 162 ITR 420 (Bom) which was a decision rendered prior to the introduction of the provisions of s. 45(4) of the Act. After the introduction of the provisions of s. 45(4), if at all any sum is found taxable as capital gain, it has to be taxed only in the hands of the firm and not in the hands of the partner.
4.
That the Tribunal failed to appreciate the ratio laid down by the Hon'ble Bombay High Court in the case of
Prashant S. Joshi v.
ITO [2010] 230 CTR (Bom) 232 : [2010] 36 DTR (Bom) 227 : [2010] 324 ITR 154 (Bom) wherein the Hon'ble Bombay High Court while considering the validity of initiation of reassessment proceedings in the context of the provisions of s. 45(4) of the Act had categorically observed that under s. 45(4) charge to capital gain tax can only be in the hands of the partnership.
5.
The Tribunal has not followed the decision of the Hon'ble Bombay High Court in the case of
Prashant S. Joshi (
supra) by observing that the Hon'ble Bombay High Court had not considered in the said decision the earlier decision in the case of
N.A. Mody (
supra ). According to the assessee, it was not open to the Tribunal to say so and by doing so, the Tribunal which is a subordinate body has sat in appeal over the judgment of High Court. Thus the Tribunal by disagreeing with the view expressed by the Hon'ble High Court has committed a mistake which is apparent from the record.
6.
The Tribunal did not consider the argument of the learned counsel for the assessee that whatever is received by an assessee from the firm cannot be taxed in the hands of the partner in view of the scheme of taxation of firms which exempts the share of profits received by a partner from a firm from taxation in the hands of the individual partner. According to the assessee this argument raised by the learned counsel for the assessee by relying on the provisions of s. 10(2A) of the Act, has not been considered by the Tribunal.
7.
That the Tribunal failed to consider the decision of the Co-ordinate Bench rendered in the case of
ITO v.
Smt. Paru D. Dave, dt. 22nd Dec., 2006 in ITA No. 2583/Mum/1999 for asst. yr. 1994-95 reported in (2007) 111 TTJ (Mumbai) 288 in which the Tribunal has held that on retirement of a partner from a firm, there is no incidence of capital gain tax in the hands of the retiring partner. According to the assessee, if the Tribunal has not agreed with the view of a Co-ordinate Bench, then it was duty-bound to refer the matter to a Larger Bench/Special Bench.
8.
That the Tribunal has wrongly held that the assessee was paid a lump sum amount over and above the amount standing to his capital account."
6. The learned counsel for the assessee reiterated the stand of the assessee as stated in the miscellanious application. He submitted that the Tribunal when it disagrees with a view taken by another Bench rendered in the case of ITO v. Smt. Paru D. Dave [2007] 111 TTJ (Mumbai) 288 , in which the Tribunal has held that on retirement of a partner from a firm, there is no incidence of capital gain tax in the hands of the retiring partner, should have referred the matter to a Larger Bench and in this regard relied on the decisions of the Hon'ble Delhi High Court in the case of Dlf Universal Ltd. v. Commissioner Of Income-Tax [2008] 6 DTR (Delhi) 113 : [2008] 306 ITR 271 (Delhi) and Hon'ble Gujarat High Court in the case of Affection Investments Ltd. v. Assistant Commissioner Of Income-Tax [2009] 222 CTR (Guj) 387 : [2009] 19 DTR (Guj) 325 : [2010] 326 ITR 255 (Guj) . It was also submitted that failure to consider decision of Co-ordinate Bench cited at the time of hearing gives rise to a mistake apparent from the face of the record as held by the Hon'ble Supreme Court in the case of Honda Siel Power Products Ltd. v. CIT [2007] 213 CTR (SC) 425 : [2007] 295 ITR 466 (SC) .
7. The learned Departmental Representative submitted that the order of the Tribunal does not suffer from any mistake apparent from the record. It was his submission that in the garb of an application for rectification, the assessee is virtually seeking a review of the order of the Tribunal. He submitted that under s. 254(2) of the Act only mistakes apparent from the record can be rectified and the Tribunal has no power to review its order. According to him, the Tribunal has taken a possible view and therefore it cannot be said that there is a mistake apparent on the face of the record. In this regard he referred to the decision of the Hon'ble Delhi High Court in the case of Commissioner Of Income-Tax, Delhi-Ii. v. Kelvinator Of India Ltd. [2002] 174 CTR (Del)(FB) 617 : [2002] 256 ITR 1 (Del)(FB) wherein in the context of reopening of a concluded assessment on a mere change of opinion of the AO, it was held that if a possible view is taken then that view cannot be sought to be reviewed by resorting to the powers under s. 147 for reopening assessment. It was also submitted by the learned Departmental Representative that the decision in the case of Smt. Paru D. Dave (supra) was never discussed by the learned counsel for the assessee in the course of hearing of the appeal. In any event according to him the said decision was not applicable as it was a case of mere revaluation of assets and there was no retirement. He relied on the decision of the Hon'ble Supreme Court in the case of Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd. [1992] 107 CTR (SC) 209 : [1992] 198 ITR 297 (SC) for the proposition that one cannot pick and choose sentences from a judgment divorced from the context in which the said judgment was rendered. He submitted that the decision in the case of Prashant S. Joshi (supra) was a case on validity of initiation of reassessment proceedings and therefore not relevant to the case decided by the Tribunal. He submitted that s. 10(2A) of the Act had no application because in the case of the assessee what he received was not share of profits from the firm. According to him the miscellanious application is devoid of merit and should be dismissed as there is no apparent mistake on the face of the record of the Tribunal.
8. We have considered the rival submissions. We will deal with each of the objections raised by the assessee in the miscellanious application. The objection listed at serial No. 1 above is a general comment and does not require any specific consideration. With regard to objection at serial Nos. 2 and 3 above, we are of the view that such arguments based on hypothetical situation cannot be considered at this stage. While deciding the appeal, we have already held in paras 19 and 20 of the order that share or interest of a partner in the partnership and its assets would be property and therefore a capital asset within the meaning of s. 2(14) of the Act. Thereafter we have examined the question whether on retirement of a partner from the firm capital asset is transferred by the retiring partner to the continuing partner or the firm. It can thus be seen that the incidence on tax under s. 45(4) on the firm arises when the firm relinquishes rights over its assets in favour of the partner. When the partner relinquishes his rights over the assets of the firm in favour of the firm, the situation is not covered by s. 45(4) of the Act. These aspects have been dealt with in paras 33 and 34 of the order of the Tribunal. Therefore the objection in serial Nos. 2 and 3 above in our view is without any basis. These objections do not make out a case of mistake apparent on the face of the record.
9. With regard to the objection at serial Nos. 4 and 5 above, we have expressed our view that the decision of the Hon'ble Bombay High Court in the case of Prashant S. Joshi v. ITO [2010] 230 CTR (Bom) 232 : [2010] 36 DTR (Bom) 227 : [2010] 324 ITR 154 (Bom) was in the context of validity of initiation of reassessment proceedings. It was held in that case that where the reasons recorded did not justify reassessment notice, it cannot be supported by some other reason. It was also observed that where compensation received by a partner from the firm of which he was a partner was sought to be assessed as revenue receipt by way of a reassessment notice, the claim was sought to be supported by the fact, that it was allowed as revenue deduction in the hands of the firm, reassessment notice on this ground in the case of partner was found to be unsustainable. In fact, the treatment of the payment in the hands of the firm would not even otherwise be a relevant information for judging the character of receipt in the hands of partner. Since the reasons recorded were not sustainable, the notice was held to be not valid. The mode of retirement of the partner in that case was not the same as in the case of the assessee before the Tribunal. In fact, we have in para 38 of our order explained that the mode of retirement will be relevant and thereafter we have examined the mode of retirement of the partner and applied the ratio laid down by the Hon'ble Bombay High Court in the case of N.A. Mody (supra). The allegation in the miscellanious application that the Tribunal has refused to follow the decision of the Hon'ble Bombay High Court in the case of Prashant S. Joshi (supra) by observing that the Hon'ble Court had not considered an earlier judgment on the issue and that it was not open to a subordinate Court/Tribunal to disagree with the decision of Hon'ble High Court, is not correct. The view expressed by the Tribunal in para 52 of its order is that mode of retirement in the case of N.A. Mody v. CIT [1986] 52 CTR (Bom) 149 : [1986] 162 ITR 420 (Bom) was different from the mode of retirement in the case of Prashant N. Joshi (supra) and since the mode of retirement in the case of the assessee was same as was in the case of N.A. Mody (supra), the Tribunal followed the ratio laid down in that decision. In para 38 of the order, we have explained as to how the decision in the case of N.A. Mody (supra) would still be relevant even after the decision of the Hon'ble Supreme Court in the case of Tribuvandas G. Patel v. CIT [1999] 157 CTR (SC) 519 : [1999] 236 ITR 515 (SC) . It is therefore not correct to say that the order of the Tribunal suffers from an apparent mistake.
10. With regard to objection at serial No. 6 above, we are of the view that the same is without any basis. The amount received by the assessee from the firm was on retirement from the firm and it was not a share of profits of the firm. Therefore s. 10(2A) of the Act had no application whatsoever. The grievance of the assessee in this regard as projected in the miscellanious application is devoid of any merit.
11. With regard to objection at serial No. 7, we are of the view that the decision in the case of Smt. Paru D. Dave (supra) was not applicable as it was a case of mere revaluation of assets and there was no retirement. Therefore the objection that Co-ordinate Bench decision was not followed and in the event of the Bench not agreeing with the view expressed by a Co-ordinate Bench, a reference to a Larger Bench ought to have been made, are all allegations which in our view are devoid of any merit.
12. The last objection of the assessee is that the Tribunal has wrongly held that the payment by the firm on retirement of the partner was a lump sum consideration. The Tribunal in its order has given reasons for coming to this conclusion in paras 39 to 49 of its order. No apparent mistakes in these conclusions have been pointed out except stating that the same is erroneous. Therefore the objection on this count is also without any basis.
13. The scope of power of rectification under s. 254(2) is well-settled. The power of rectification under s. 254(2) is confined to rectifying any mistake apparent from the record. The Tribunal does not have inherent power of rectification or review or revision. Unless there is a mistake apparent from the record in the sense of patent, obvious, clear error or mistake, the Tribunal cannot recall its previous order. If the error or mistake is one which could be established only by long-drawn arguments or by way of process of investigation and research, it is not a mistake apparent from the record. Unless there is manifest errors which are obvious, clear and self-evident, the Tribunal cannot recall its previous order in an attempt to rewrite the same. Failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment. The Tribunal cannot in exercise of its power of rectification look into some other circumstances which would support or not support its conclusion. The Tribunal cannot redecide the matter and it has no power to review its order. The Tribunal has no power to rectify a decision on debatable point of law. The Tribunal does not have the power to review its own decision except what is authorised under s. 254(2). A decision on debatable point of law is not a mistake apparent from the record.
14. The circumstances under which Tribunal can exercise powers under s. 254(2) are where the Tribunal has overlooked the relevant material on record. In such a case it would be an error apparent from record which can be rectified by setting aside the order for fresh consideration. Where a material fact brought to the notice of the Tribunal has been lost sight of, the Tribunal has the power to rectify the mistake so committed; provided the material fact has an important bearing on the ultimate decision. In the present case both the aforesaid situations do not exist.
15. We are of the view that the present miscellanious application is devoid of any merit and the same is dismissed.
16. In the result, the miscellanious application is dismissed.