The amount received by a partner upon retirement from a partnership firm is not chargeable to tax as income under the Income Tax Act.

JUDGMENT :

K.R. SHRIRAM, J.

1. In this appeal filed under Section 260A of the Income Tax Act, 1961 (the Act) appellant is impugning an order dated 2nd April 2018 passed by the Income Tax Appellate Tribunal (the Tribunal). By the impugned order, the Tribunal upheld the validity of the reassessment proceedings and also upheld the assessment of a sum of Rs. 28 Crores receivable by appellant pursuant to an arbitration award as in the nature of income. The appeal pertains to Assessment Year 2010-2011.

2. In the previous year relevant to Assessment Year 2010-2011, i.e. on 17th September 2009, consent terms were reached between appellant, her brother and other members of the family, pursuant to which, the disputes between them have been settled. Consequent thereto, an arbitration award dated 25th September 2009 came to be passed in terms of the consent terms. Pursuant thereto, appellant became entitled to receive an amount of Rs. 28 Crores in full and final settlement of all disputes and claims raised by her against her brother and the other family members and/or P.N. Writer & Co. and/or any claims in respect of the bequest made under the Will dated 16th September 1990 of her late father Mr. Charles D'souza. The said amount of Rs. 28 Crores was assessed to tax in reassessment proceedings initiated by respondent no. 1 under Section 147 of the Act which assessment stands upheld in further appeal by both the CIT(A) and the Tribunal. The present appeal is against the impugned order dated 2nd April 2018 passed by the Tribunal. This Court was pleased to admit the appeal by its order dated 25th February 2019 on the following substantial questions of law:

(i) Whether the Tribunal ought to have held the Respondent No. 1 had assumed jurisdiction under section 147 of the Act without fulfilling the jurisdictional pre-conditions and hence, the reassessment proceedings were without jurisdiction?

(ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal ought to have held that the amount of Rs. 28 crores received by the Appellant as per the arbitration Award was not chargeable to tax?

3. A partnership firm by name M/s. P.N. Writer & Co. (the said Firm) was established in or about the year 1954 between appellant's late father Mr. Charles D'Souza and one Mr. P.N. Writer. The said Firm was reconstituted from time to time and the last partnership deed in this regard, according to appellant, was executed on 18th January 1979. As per the partnership deed, appellant alongwith her late father and brothers were the partners in the said Firm. Appellant was entitled to a share of 20% in the profits or losses made by the said Firm.

4. Appellant's father Mr. Charles D'Souza expired on 24th November 1997 leaving behind his last Will and Testament dated 16th September 1990. Appellant was bequeathed a further share of 5% in the profits and losses of the said Firm. Accordingly, appellant became entitled to a 25% share in the profits and losses of the said Firm. This fact has been also mentioned in the application for probate filed by appellant's brother.

5. It is appellant’s case that somewhere circa 2005, appellant realised that the said Firm was reconstituted vide a Deed of Partnership dated 25th November 1997 entered into between appellant's brothers, viz. William D'Souza and Denzil D'Souza. According to the said Deed, appellant was treated as having retired from the Firm as and from the close of business on 24th November 1997. The said Firm had filed its return of income for Assessment Year 1998-1999 enclosing reconstituted Deed of Partnership and financial showing appellant as an erstwhile partner.

Appellant's case was she continued to be a partner in the said Firm.

6. Since disputes arose, appellant and the continuing partners of the said Firm decided to refer their matter to arbitration. Finally, by an interim order dated 20th July 2007 the Apex Court directed the said Firm to pay an amount of Rs. 50,000/- per month to appellant. Subseque