Amounts received by Partner upon retirement from Partnership Firm in terms of Arbitration Award is not chargeable to tax under Income Tax Act, 1961 – Ramona Pinto Vs. Deputy Commissioner of Income Tax – Bombay High Court
Hon’ble High Court held that:
(i) The law is very settled in as much as the belief formed by the Assessing Officer has to be based on the information/material available with him at the time of formation of the belief.
(ii) It is also well settled that for the purposes of adjudicating the validity of assumption of jurisdiction under Section 148 of the IT Act, one has to only look at the reasons recorded by the Assessing Officer before reopening the assessment. Such reason cannot be supplemented or improved subsequently.
(iii) Reassessment proceedings cannot be initiated with a view to enquire or investigate on the aspect of whether any income chargeable to tax had escaped assessment.
(iv) The arbitration award was receivable by appellant in respect of her retirement from the Partnership Firm. In any event, the same would be on the estate and not on a legatee. Even the provisions of Section 56(2)(vii) which seek to tax an amount received without consideration specifically excludes from the ambit of the charge any amount received pursuant to a bequest.
(v) The mere rejection of an assessee’s explanation without any positive finding as to the true character of the receipt cannot justify a conclusion being reached by an Assessing Officer that the amount is of an income nature.
