CASE LAWS
2018-TIOL-774-HC-ORISSA-CUS
DHAMRA PORT COMPANY LTD Vs UoI: ORISSA HIGH COURT (Dated: March 13, 2018)
Cus - Petitioner praying for quashing of the order dated 11.8.2017 of Commissioner of Customs, Bhubaneswar, and directing him to pass an order under proviso to para 10 of the customs notification no.16/2015-Cus, dated 1.4.2015 [the said notification], permitting the petitioner to clear the imported Grab Type Ship Unloaders [GSTU] through Dhamra Port and the spares under the EPCG scheme, and directing opposite party no.3 to extend the validity of EPCG Licences, which remained unutilised due to inaction of Customs Authorities - whether the Commissioner of Customs was right in rejecting the petitioner's application under proviso to para-10 of the said notification for import of goods at zero customs duty at Dhamra port under the EPCG Scheme.
HELD - It appears that the Commissioner has acted on an understanding that since the goods in question being imported under the EPCG Scheme had already been 'unloaded' at Dhamra Port, the 'Special Order' that he would issue would have to be retrospective to cover the date of unloading - this is not consistent with the requirements of the Customs Act, 1962 [Act] nor with the said notification - the Commissioner of Customs has been vested with the necessary authority under the proviso to para-10 of the said notification to permit import through any other sea-port within his jurisdiction not covered under Table-2 - applying the ratio decidendi as laid down by the Supreme Court in the cases of Indian Tourist Development Corporation Ltd. Vs. Assistant Commissioner of Commercial Taxes & Another [(2012) 3 SCC 204] and Kiran Spinning Mills Vs. Collector of Customs [(2000) 10 SCC 228] to the facts situation of the present case, it may be seen that admittedly, the goods in question though physically unloaded at Dhamra port, remains in the course of import since no clearance of the said goods have yet been granted - consequently, the Commissioner of Customs ought to have granted the prayer made by the petitioner instead of rejecting the same on an erroneous conclusion that the goods have already been imported/technically imported - the Act does not conceive of any technical import - the import of goods is not possible without necessary clearance being given by the Customs authority - consequently, the finding of the Commissioner, in this regard, is wholly erroneous and not in accordance with law - on perusing the conditions stipulated under the EPCG Scheme and under the said notification, there appears to be no requirement of a licensee to inform the Customs Authorities [about the importation and clearances under the EPCG scheme] in advance and that to 'in anticipation of getting the EPCG License' - it cannot be asserted by the Customs Authorities that the unloading took place either without the knowledge of the Customs and, on the contrary, the berthing of the vessel and unloading of the cargo was done by following all customs procedure and after getting express permission for berthing of vessel as well as unloading of cargo from the authorities vested with the necessary power of the Customs Department - apart from the above, no sooner the vessel sought for berthing, the petitioner-company 'registered the cargo' under the EPCG Scheme with Paradeep Authorities (registering Port) who granted the petitioner-company with a Transfer Release Advice [TRA] for unloading at Dhamra Port - consequently, the finding of the Commissioner of Customs to the effect, that the vessel had arrived in the territorial waters and had been berthed at Dhamra port and goods have been unloaded, without necessary lawful sanction by the Customs Authorities, is factually wholly incorrect - consequently, this Court has no hesitation in coming to hold that the mere factum of the vessel arriving at Dhamra port or unloading of the imported cargo at Dhamra and all such actions having been taken only after the necessary permissions being granted by the appropriate Customs Authorities, at various levels, no objections can be raised by the Commissioner on the aforesaid account for refusal for grant of 'special order' under the EPCG Scheme - in terms of the said notification, it is the Commissioner who is vested with the necessary authority and jurisdiction for considering any application for issue of any 'special order' under the proviso to para-10 of the said notification and there was no scope for the Commissioner to seek the advice of the CBEC in such matters since the same would have tantamounted to abdicating its own quasi judicial authority and jurisdiction - the failure on the part of either the Government of India in the Ministry of Finance or the CBEC to render any assistance/clarification to the Commissioner cannot form the foundation or basis for denying the petitioner-company the relief that it sought for, without reasonable cause - in the case at hand, it is found that the Commissioner has failed to exercise its jurisdiction as vested in it under the Act as well as the said notification and has also without necessary jurisdiction directed quashing of the TRA issued by the Paradeep Port Customs Authorities on 7.6.2016 while being wholly without jurisdiction is not inconsonance with law - the petitioner-company i.e. Dhamra Port is admittedly a 'customs port', at the relevant time though the Dhamra Port did not find mention in Table-2 to the said notification and, consequently, even in its EPCG License had mentioned Paradeep Port (as the port of registration) - accordingly, when the imported goods under the EPCG License arrived at the outer harbour of Dhamra port, necessary permission were sought for from the Customs Authority for berthing of the vessel and necessary permissions were obtained - thereafter, the 'import manifest' was placed with the Dhamra Customs Authorities and necessary permission was granted - in the meantime, the Customs Authorities at the port of registration i.e. Paradeep had granted the necessary TRA for the imported cargo and the cargo commenced unloading on 9.5.2016 (evening) i.e. admittedly, the very same day the Commissioner of Customs claims to have received the petitioner's application for grant of 'special order' as contemplated under proviso to para-10 of the said notification - as on date of passing of the impugned order dated 11.08.2017 under Annexure-1 by the Commissioner of Customs, the goods were and still remain within their lawful custody, since no clearance of the goods has been sought for nor granted in favour of the petitioner - therefore, the assumption on the part of the Commissioner that granting of a 'special order' would be retrospective in effect is wholly without sanction of law - this Court calls upon the Finance Ministry of the Union of India to take note of the fact situation that arises in the present case and pass necessary instructions/guidelines either through the Ministry or the CBEC as it may deem appropriate, in order to ensure that such large scale wastage of time and public money does not occur in future cases - the Assistant Solicitor General, on instruction, submitted before this Court that since the goods had already arrived at Dharma Port, within the period specified in the license, there possibly would be no requirement of any further extension of time of the EPCG Licenses - he further submitted that in the event, any formal correction/extension is required in the licenses, the DGFT would grant any such extension, if any required, to comply with the directions of this Court - accordingly, the impugned order dated 11.8.2017 under Annexure-1 stands quashed with a further direction to the Commissioner of Customs to issue the necessary 'special order' in favour of the petitioner forthwith - the writ application is allowed in terms of the directions issued herein above : HIGH COURT [para 17, 18, 20, 21, 22, 24, 26, 27, 29, 33, 34, 35]
Writ Application allowed
2018-TIOL-773-HC-MAD-IT
LRN FINANCE LTD Vs ACIT: MADRAS HIGH COURT (Dated: April 9, 2018)
Income Tax - Section 115JA.
Keywords - Book profits - Deduction - Loss of assets.
THE assessee company filed returns for the relevant AY. On assessment, the AO disallowed the provisions created for sub-standard, doubtful and for loss of assets claimed as a deduction, when computing book profits. Subsequently, the Tribunal held that such provisions could not be allowed when computing book profits u/s 115JA of the Act. It also upheld the disallowances made.
On hearing the matter, the High Court held that,
Whether provisions created for sub-standard, doubtful and loss of assets on which deduction has been claimed, can be considered when computing book profits u/s 115JA - YES : HC
++ it is not in dispute that the questions of law, which arise for consideration have been decided in favour of the assessee and against the Revenue in two decisions of the Supreme Court, first of which being in the case of State Bank of Patiala vs. Commissioner of Income Tax. The question, which arose for consideration in the said case was, whether the Tribunal was right in law in holding that the amounts provided by the assessee for bad and doubtful debts in the balance sheet of the relevant previous year qualified as reserves. The Supreme Court pointed out that, if the sums set apart in the balance sheet are only "provisions", the assessee will not be entitled to the relief claimed by it. If, on the other hand, the sums set apart are "reserves" within the meaning of the Act, the assessee will be entitled to appropriate relief. In this decision, the Supreme Court pointed out that, the question is, whether the liability was "known" or "anticipated" on the date when the balance sheet was prepared and the question is not whether the assessee "can anticipate" or "reasonably anticipate" on the date when the balance sheet was prepared about "the bad and doubtful debts". Further, the Hon'ble Supreme Court pointed that the High Court was in error in surmising that the assessee being a banking company is bound to get 'bad and doubtful debts';
++ also considering the decision of the Apex Court in Commissioner of Income Tax vs. HCL Comnet Systems & Services Ltd., it was pointed out that an assessee's case would fall within the ambit of Clause (c) of Section 115JA(1) of the Income Tax Act, 1961 only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liabilities, that is, it should be for an unascertained liability. The decision squarely covers the case on hand and the decision relied on by the ITAT in the case of Deputy Commissioner of Income Tax vs. Beardsell Ltd. pertains to a case not arising in respect of a banking company. Following the decisions in both cases, the issue stands settled in favor of the assessee.
Assessee's appeal allowed
2018-TIOL-772-HC-DEL-IT + Case Story
ARJUN MALHOTRA Vs CIT: DELHI HIGH COURT (Dated: April 20, 2018)
Income Tax - Sections 52, 54F, 271(1)(c) & Code of Civil Procedure - Order XLI Rule 27.
Keywords: Accumulated book loss - Actual consideration - Concealment of income - FMV of shares - Finance Act, 1987 - Gift Tax Act, 1958 - Income Tax Act, 1922 - Non-cumulative preference shares - Oral hearing - Sale of shares - Stock exchange - Transfer of shares & Under-statement of consideration.
For the AY 1998-99:
The assessee is an individual, had filed his return for the relevant AY, which was again revised on 29th June, 1999. In the course of the assessment period, the AO noted that under the head 'long term capital gain', the assessee had disclosed transfer consideration of Rs.5 Crores on sale of one lakh equity shares of NIIT to M/s Glad Investment Pvt. Ltd. on 14th August, 1997. The assessee had claimed deduction u/s 54F on account of having purchased immovable property on 8th August, 1998. However, the AO held that the said shares were sold and transferred to M/s GIPL on 30th September, 1998 i.e., in the subsequent AY 1999-2000. After referring to the term 'transfer' in relation to capital assets, the AO held that income from capital gains from transfer/sale of one lakh equity shares of NIIT would be assessable in the AY 1999-2000. Accordingly, the assessee's claim would be considered in the AY 1999-2000.
For the AY 1999-2000:
The assessee had filed his return for the relevant AY declaring income. During the assessment proceeding, the AO held that the transaction of sale/transfer of shares to M/s GIPL was not on arm's length. The assessee's father and spouse were the directors of M/s GIPL and shares of M/s GIPL were held by the assessee's wife, children, parents. Further, the investment companies were operating from the the assessee's residence. As per the NIIT's records, the transfer of shares in favour of M/s GIPL was made on 30th September, 1998, more than a year after the agreement was signed between the assessee and GIPL. The M/s GIPL paid the transfer consideration by way of 5 lakh 5% non-cumulative preference shares of Rs.100/- each which were issued to the assessee on 25th August, 1997 and were redeemed on 31st July, 1998 for Rs.5 Crores. The AO also found that M/s GIPL had failed to file annual accounts and balance sheets with RoC till the passing of the assessment order. The assessee's explanation for such delay was rejected by the AO. However, the AO held that the assessee had backdated the transaction of transfer of shares as the market price of NIIT shares in September, 1998 were increased. If one lakh NIIT shares were sold at the market price in September, 1998, they would have exceeded the purchase value of the immovable property which was bought by the assessee. During the relevant AY 1999-2000, the assessee had sold 65,552 equity shares of NIIT to M/s GIPL resulting in capital gains of Rs.5,87,09,331/-. Further, as per return for the AY 1998-99, M/s GIPL had a book loss and any profit in future on sale of the transferred NIIT shares would be adjusted against such accumulated book loss.
Notices u/s 131 were issued to NIIT so as to investigate the genuineness of the transaction. The said investigation had revealed that the assessee had lodged 76,000 and 24,000 equity shares which were sold to M/s GIPL on 14th August, 1997 with Deutsche Bank AG on 22nd August, 1997 and 25th September, 1997, respectively. Again, these shares were transferred in the name of the said bank on 28th August, 1997 and 29th September, 1997 respectively. Since, the value of the shares were more than the instruction issued by the RBI, the same were transferred to M/s GIPL by the bank on 30th September, 1998. The AO held that the letter dated 14th August, 1997 was received before 5th May, 1998. In reply to the summons u/s 131, M/s GIPL had accepted that as per the provisions of the Companies Act, 1956, they had not filed Form 2 with the RoC. Accordingly, the AO concluded that non-cumulative preference shares were not allotted and was a sham. Further, the AO observed that the shares were pledged on 20th August, 1997 with Deutsche Bank AG by the assessee as his own property. Accordingly, transfer deeds for shares on 10th September, 1997 and 14th August, 1997, made in favour M/s GIPL were sham documents. Similarly, the AO held that the agreement to sell dated 14th August, 1997 was a pretence and allotment of 5 lakh 5% non-cumulative shares of M/s GIPL were not proven. The AO took the date of sale/transfer for the purpose of capital gains wherein, he observed that the full value of the consideration received by the assessee were not a bona fide transfer. M/s GIPL had financed assessee's foreign trips without any reason hence, there was a possibility that M/s GIPL might have compensated the assessee for shares purchased. Accordingly, the AO computed the value of capital gains and deduction claimed u/s 54F towards purchase of house was allowed and the balance amount was treated as LTCG. On appeals, the assessee was not granted relief by the CIT(A).
On appeal, the High Court held that,
Whether the High Court can accept written submissions challenging various grounds and issues, which were not pressed at the time of oral hearing - NO: HC
++ we would deprecate and would not accept written submissions raising grounds and issues, which were not pressed at the time of oral hearing. Further, documents and papers cannot be filed with the written submissions. These documents are not part of the appeal record. In case fresh documents or papers were to be filed, recourse by filing an application under Order XLI Rule 27 of the Code of Civil Procedure or permission to file was required and mandated;
++ therefore, reject and not take into consideration the factual contention that the transfer deeds were received by NIIT on 22nd August 1997, which contention even otherwise is rather strange, if not incongruous for Deutsche Bank AG has stated that the assessee had deposited the said shares as security with the bank on 10th September, 1997 for a loan of Rs.2 Crores which was extended to M/s GIPL. If the shares had been deposited by the assessee with NIIT on 22nd August, 1997, then the shares would not have been pledged by the assessee as security with Deutsche Bank AG on 10th September, 1997. Shares were certainly not pledged by M/s GIPL. This is undisputed. The letter purportedly dated 14th August, 1997 also appears to be back dated for the first paragraph of the letter states that "I had provided 100,000 shares of NIIT as collateral security for grant of loan to Glad Investments. Shares are currently registered in your name". The shares were pledged with the bank on 10th September, 1997 and this fact was acknowledged and accepted in the letter dated 17th March, 2001. Therefore, it should be accepted that the letter though dated 14th August, 1997 was in fact issued after the shares pledged were registered in the name of M/s GIPL, sometimes after 10th September, 1997. The findings recorded by the Tribunal as to the date of transfer are primarily based on facts;
++ the decisions made in the cases of George Henderson and Company Limited and Gillanders Arbuthnot and Company did not examine the proviso to Sec. 12B(2) of the Income Tax Act, 1922, which was incorporated as Sec. 52 of the Income Tax Act, 1961. Subsequently, the first proviso was numbered as sub-section (1) with insertion of sub-section (2) w.e.f. 1st April, 1964. However, Sec. 52 was deleted/omitted by Finance Act, 1987 w.e.f. 1st April, 1988 in view of the judgment of the Supreme Court explaining both sub-sections 1 and 2;
Whether when fair market value is higher than the amount received in respect of the transfer of capital asset, it is open for the AO to assume under-statement of such an amount as the "full value of consideration" - NO: HC
Whether when the assessee has disclosed the actual consideration received by him towards transfer of capital assets, it is still a fit case for invocation of the provisions of Section 52(2) of the Income Tax Act, 1961 - NO: HC
++ interpreting Sec. 52(1) in the case of K.P. Varghese, it was held that the said provision applies where an assessee transfers a capital asset in respect of which (i) the transferee was a person directly or indirectly connected with the assessee; and (ii) the AO has reasons to believe that the transfer was given effect with the object of avoid or reduce liability of the assessee to tax on capital gains. When the two conditions were satisfied, the FMV of the capital asset on the date of transfer was to be taken as the full value of consideration for taxing capital gains. Secondly, it was held that an under-statement of consideration in respect of the transfer than what was actually received must be shown. Under-statement of consideration cannot be assumed because the FMV was higher than the amount received. Higher FMV by itself cannot be a ground and reason to assume and hold that there was under-statement of consideration. It was only when there was under-statement of consideration i.e., when consideration actually received was higher and more than actually declared, that the FMV of the capital asset on the date of transfer was to be taken as the full value of consideration. Therefore, under-statement should be first established and then the AO could take the FMV of the share capital asset as the full value of consideration;
++ the Supreme Court held that the scope of Sec. 52(1) was extremely limited, and applied when the transferees were directly or indirectly connected with the assessee and to cases where there was actual under-statement, in the sense that the income/consideration paid was in fact higher and more than declared. Interpreting sub-section (2) and not accepting the strict literal construction, it was held that sub-section (2) would apply only when the consideration in respect of transfer was under-stated by the assessee by 15% and in that event the AO could take the market value instead of the consideration declared or disclosed by the assessee as the full value of consideration received or accrued. Sub-Section (2) would not apply where the consideration declared or disclosed by the assessee was the actual consideration received by it, but this actual consideration was less than the FMV. Where the assessee had declared truly and correctly the consideration received by him, sub-section (2) would not apply and cannot be invoked to substitute the actual consideration received with the FMV of the consideration;
++ we fail to fathom how the Tribunal had distinguished the decision of K.P. Varghese solely and entirely on the ground that in the present case the transaction was not at arm's length. K.P. Varghese's case holds that sub-sections (1) and (2) relate to transactions, which were not at arm's length between related parties and third parties respectively, but the two provisions were integrally connected inasmuch as they would apply when there was evidence and material to show that the consideration declared and disclosed was under-stated and not the actual consideration received by the assessee. Only when the said pre-condition was satisfied, the AO was entitled to treat the FMV as the full value of consideration. Difference between the consideration actually received and market value of consideration by itself would not justify invoking the said Section. The said ratio has been followed by the Supreme Court in the case of CIT vs. Shivakami Company Private Limited, which observes that the provision would apply only when there was consideration and which consideration actually received was more than the consideration disclosed or declared. Further, onus was on the Revenue to prove under-statement of the said consideration. Sec. 52 was not meant to apply to tax capital gains on the basis that the assessee might have gained or could have gained a higher price which in fact was not received;
Whether the difference betwen fair market value and the actual consideration declared towards the transfer of capital asset can be taxed as 'gift' under the Gift Tax Act, 1958 - YES: HC
Whether capital gains u/s 48 can be computed based on the market value of the non-cumulative preference equity shares as quoted in the stock exchange - NO: HC
++ Sec. 52 was omitted by Finance Act, 1987 w.e.f. 1st April, 1988. The said provision, therefore, was not applicable in the AY 1999-2000. We have referred to the said judgment in K.P. Verghese as this judgment was referred to and distinguished by the Tribunal in the disputed order. We have also referred to K.P. Verghese to elucidate that the legal ratio propounded with reference to then applicable Sec. 52 would be against the Revenue even if the said Section was applicable. It is obvious that when Sec. 52 itself was not applicable, the AO could not have substituted the actual sale consideration received by the assessee with another figure stating that this was the FMV. The said discussion would also take care of the argument that M/s GIPL had paid for foreign travel of the assessee. The fact that M/s GIPL had incurred any such expenditure would not be a ground and reason to substitute the actual consideration received with the figure relying upon the market quotation of the share as the FMV;
++ the difference between the FMV and the actual consideration declared could have been taxed as gift under the Gift Tax Act, 1958 which was applicable till 1st August, 1998. However, for some reason which Revenue is unable to explain, provisions of the Gift Tax Act, 1958 were not invoked and applied. Thus, what was apparent and simple to adopt and tax the under-statement of FMV, was strangely ignored and allowed to lapse. Addition was made, indirectly invoking Sec. 52, which provision was not in the Statute, and which provision as per Judicial pronouncement in K. P. Vergese could not have been invoked;
++ the assessee had acquired non-cumulative preference shares on transfer of 100000 equity shares of NIIT. This is not in debate or doubt. This is not the case of the Revenue that the market value of the non-cumulative preference equity shares were issued by M/s GIPL were of a higher value. Non-cumulative preference shares did not have right of conversion. Non-cumulative preference equity shares were redeemed at par during the relevant period and payment of Rs. 5,00,00,000/- was received. Accordingly, the substantial question of law in ITA No. 405/2005 is answered in favour of the assessee and against the Revenue. Decision of the Tribunal to this extent is set aside and reversed. Tribunal was not correct in holding that the market value of the shares quoted in the stock exchange on 5th May, 1998 can be taken as a basis for computing capital gains u/s 48.
Assessee's appeal partly allowed
2018-TIOL-771-HC-DEL-IT + Case Story
KAUSHALYA DEVI DECEASED Vs CIT: DELHI HIGH COURT (Dated: April 20, 2018)
Income Tax - Sections 48(i), 48 (ii) & 51.
Keywords - Indexed cost of acquisition - LTCG - Liquidated damages - Refund back of amount received - Sale of immovable property & subjective commercial expediency - wholly & exclusively.
The assessee, an Individual, Kaushalya Devi, since deceased, was represented by her legal representative. The assessee had filed return for relevant AY and declared long term capital gains of Rs. 5,42,000/- from sale of certain immovable property. The assessee had purchased the property on 1st August, 1971 for Rs.30,000/-. The property was sold by a tripartite agreement to sell in 1993 amongst the purchaser who had paid Rs.45,00,000/- to the tenant to vacate the property and transfer possession, and Rs.55,00,000/- to the assessee for transfer of title and ownership rights in the property. Rs 55,00,000/- received by the assessee was treated as the sale consideration for transferring the property.
The dispute was relating to deduction of Rs. 25,00,000/- paid by the assessee to Anil Kumar Sharma, with whom the assessee had entered into an earlier agreement to sell the property. Under the said agreement, the assessee had received Rs.7,50,000/- as advance and part payment from Anil Kumar Sharma. As per mutual agreement the assessee had paid Rs.25,00,000/- to Anil Kumar Sharma for foregoing his right and claim under the agreement. Rs 7,50,000/- was refunded by the purchaser by cheque to Anil Kumar Sharma and reduced from payment of Rs. 55,00,000/-, being actual sale consideration received by assessee. The assessee had treated the payment of Rs.25,00,000/- to Anil Kumar Sharma as expenditure incurred wholly and exclusively in connection with transfer under Section 48 (i) of the Act. In the alternative, it was submitted that the expenditure was incurred for improvement of the asset and was deductible under Section 48 (ii) of the Act.
During assessment the AO held that Rs. 25,00,000/- paid as liquidated damages could not be allowed as a deduction for computation of capital gains as this payment was not incurred wholly and exclusively in connection with the transfer of the property to the purchaser. The amount paid was not towards cost of improvement or to remove an encumbrance. The AO applied Section 51 in respect of Rs. 7,50,000/- received from Anil Kumar Sharma in the FY 1989-90 to re-work the indexed cost of acquisition which was reduced from Rs.17,08,000/- to Rs.9,58,000/-. On appeal, reduction of cost of acquisition by Rs 7,50,000/- by the AO by applying Section 51 of the Act was upheld by CIT(A). The CIT(A) accepted the contention of the assessee that payment of Rs.25,00,000/- was in connection with the transfer of property and, therefore, should be reduced from the full value of the consideration while computing capital gains. Both the assessee and Revenue preferred appeals before the Tribunal. The tribunal held that the amount of Rs. 25,00,000/- paid by the assessee to Anil Kumar Sharma for non-fulfillment of first agreement to sell was not incurred in connection with the transfer of property and, therefore, could not be deducted from the sale consideration for computing long term capital gains. Aggrieved assessee filed appeal before the High Court. Tribunal also held that Rs. 7,50,000/- could not be deducted from cost of acquisition u/s 51 of the Act. But this issue was not under challenge before High Court.
After hearing parties, the High Court held that,
Whether when there is a clear connect between the expenditure incurred and the transfer of property to the purchaser, such expenses are allowable deduction u/s 48(i) for the purpose of LTCG tax - YES: HC
++ the words "wholly and exclusively" require and mandate that the expenditure should be genuine and the expression "in connection with the transfer" require and mandate that the expenditure should be connected and for the purpose of transfer. Expenditure, which is not genuine or sham, is not to be allowed as a deduction. This, however, does not mean that the authorities, Tribunal or the Court can go into the question of subjective commercial expediency or apply subjective standard of reasonableness to disallow the expenditure on the ground that it should not have been incurred or was unreasonably large. Tribunal and Courts cannot decide commercial expediency by putting themselves in the arm chair of the assessee to examine and consider whether they would have or the assessee should have incurred the said expenditure including the quantum having regard to the circumstances. Excessive expenditure cannot be disallowed when it is "wholly and exclusively" in connection with the transfer, on the ground that prudence did not require the assessee to incur the expenditure. Disallowance on such grounds must be specified and provided by the statute;
++ in case of Commissioner of Income Tax versus Abrar Alvi, a demand of Rs. 2 lacs made in respect of the former transaction was allowed as a deduction holding that there were impediments against the transfer by way of litigation and unless the amount were paid, litigation would not have been settled enabling the assessee to transfer the property in favour of the assessee giving up clear title and acknowledgement. Similar view has been taken by the Calcutta High Court in Commissioner of Income Tax, Kolkata-XI versus Satyabrata Dey, wherein the assessee was allowed deduction of Rs.72 lacs paid pursuant to an award to a third party with whom the assessee had entered into agreement to sell for transfer of flats. Calcutta High Court followed the judgment of the Bombay High Court in Shakuntala Kantilal and Madras High Court in Bradford Trading Company Private Limited;
++ assessee had always stated that the purchaser was aware of the agreement to sell with Anil Kumar Sharma and had directly paid Rs.7,50,000/- by way of cheque to him. The assessee and Anil Kumar Sharma had jointly located the purchaser, who had agreed to pay total consideration of Rs. 1 crore, which included Rs. 45,00,000/- to be paid to the tenant and Rs. 55,00,000/- to be paid to the assessee. Rs. 25,00,000/- was paid by the assessee to Anil Kumar Sharma vide cheque dated 16th December, 1993, which is after the agreement to sell dated 4th November, 1993. The assessee has also placed on record copy of the agreement dated 16th December, 1993 with Anil Kumar Sharma with regard to payment of liquidated damages as per the settlement. Anil Kumar Sharma was a signatory as a witness to some of the documents executed in favour of the purchaser at the time of transfer;
++ there was a close nexus and connect between the payment of Rs. 25,00,000/- and the transfer of the property to the purchaser resulting in income by way of capital gains. There was proximate link and the expenditure incurred was in furtherance and to effectuate the transfer/sale of the property and was not remote and unconnected. Expenditure of Rs.25,00,000/-, therefore, has to be treated as expense incurred wholly and exclusively in connection with the transfer of immovable property and, hence, allowable as a deduction under clause (i) of Section 48 of the Act. However, Rs. 7,50,000/- which was paid by Anil Kumar Sharma and subsequently refunded, cannot be allowed as a double deduction. In other words, refund of Rs.7,50,000/- would mean that the earlier payment made by Anil Kumar Sharma was squared off. The assessee had in fact incurred expenditure of Rs.25,00,000/- which was paid to Anil Kumar Sharma to forego and give up his right under the agreement to sell dated 10th April, 1989. Hence substantial question of law is passed in favour of the assessee and against the Revenue. Rs. 25,00,000/- paid by the assessee would be deducted under clause (i) to Section 48 of the Act while computing capital gains.
Assessee's Appeal allowed
2018-TIOL-770-HC-MUM-CX + Case Story
JUBILANT LIFE SCIENCES LTD Vs CCE: BOMBAY HIGH COURT (Dated: April 16, 2018)
CX - No independent application of mind by the Tribunal - Tribunal is not expected to endorse legal findings by the Adjudicating Body/Authority and that of the First Appellate Authority but expected to apply its independent mind and particularly on the question/issue of interpretation of the Rule - Tribunal was expected, as the last fact finding authority, to render specific finding - case could not have been disposed of, even if the revenue involved was not substantial, by a mere endorsement of the Appellate Authority's finding, particularly on the interpretation of the Rule prevailing at the relevant time – Order quashed and the appeal restored to the file of the Tribunal for a decision afresh: High Court [para 19, 21]
Matter remanded
