SUNIL CHIMANLAL GANDHI,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-8(3) (ERSTWHILE ACIT CC-46), MUMBAI

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ITA 7181/MUM/2017Status: DisposedITAT Mumbai27 June 2018AY 2006-074 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the disputed maintenance and interest charges were incurred wholly and exclusively in connection with the transfer of the capital asset. Therefore, these expenses were allowable deductions under Section 48 of the Income Tax Act.

What were the facts?

The assessee declared income of Rs. 3.67 lakhs, but the AO determined it at Rs. 6.98 crores. The AO disallowed Rs. 68.36 lakhs claimed as expenditure related to the sale of office premises, considering it as unpaid maintenance and interest.

What were the issues?

Whether unpaid maintenance and interest charges related to office premises are allowable as expenditure in computing capital gains upon sale of the property.

Which sections of the Income-tax Act were involved?

Section 48

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order dated, 29/09/2016 of CIT(A)-20 Mumbai, the Assessing Officer (A.O) has filed the present appeal.Assessee – company,engaged in the business of leasing of building, plant and machinery, filed return of income on 28/09/2013, declaring income at Rs. 3.67 lakhs.The AO completed the assessment,on 25/01/2016,u/s. 143(3) of the Act, determin -ing the income of the assessee at Rs.6.98 crores. 2.Effective ground of appeal is about deleting the addition of Rs.68.36 lakhs. During the assessment proceedings, the AO found that the assessee had shown Short-Term Capital Gains (STCG) of Rs. 6.26 crores. As per his direction,the assessee furnished details in that regard. It was found by him that the assessee had sold office premises for a consideration of Rs. 7.05 crores, that it had claimed expenditure of Rs.76.28 lakhs (Rs. 68.36 lakhs under the head maintenance and interest + Rs.7.92 lakhs under the head brokerage). He asked the assessee to explain as to why the maintenance and interest paid by it should not be disallowed since that was the liability which remained unpaid over several years. After considering the submission, he disallowed an amount of Rs. 68,36,313/- u/s.48 of the Act. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA) and made detailed submissions. It also relied upon certain case laws.After deliberating upon the assessment order and the submissions of the assessee,he observed that the claim was disallowed by the AO because the disputed liability remained unpaid over several years,that the assessee had a dispute with the society about the 7181/M/16 M/s. D.C. Polyester P.Ltd.

1.

maintenance charges of its office premises,that it had not paid maintenance to the society for many years, that at the time of sale of property the society had,vide its letter dated 02/06/ 2012, agreed to transfer the premises on the condition that old maintenance with interest had to be paid,that the buyer of the premises directly paid the arrears of maintenance charges of Rs.66.97 lakhs upto the month of March 2012, that the buyer deducted the same from the sale proceeds, that the fact of direct payment was evident from the sale agreement, that the maintenance and interest from the period April 2012-June, 2012, amounting two Rs. 1.38 lakhs was paid by the assessee directly to the society, that the assessee had claimed an expenditure of Rs. 68.36 lakhs from the working of the STCG. Referring to the provisions of section 48 of the Act, the FAA observed that expenses incurred wholly and exclusively in connection with transfer of property, while computing capital gains had to be allowed. He referred to the order of the Tribunal, delivered in the case of Ram & Co Mumbai (ITA/ 3050/Mumbai/2015, dated 08/01/2016). He also relied upon the case of Shakuntala Kantilal (190ITR56) and held that the expenses incurred by the assessee,in order to effect the transfer of property to the buyer,were allowable and were covered under section 48 of the Act, that the disputed amount was incurred in connection with transfer of property. Finally, he allowed the appeal of the assessee.

4.

Before us,the Departmental.Represnetative(DR)supported the order of the AO and relied upon the case of Smt.Smiti Goliyan(ITA/556/Del/2013,dtd.21.02.1014).The Authorised Representative(AR)stated that expenditure incurred by the assessee / purchaser of the premises was directly related with the transfer of the capital asset.He referred to the case of Shakuntala Kantilal(190 ITR56). 5.We have heard the rival submissions and perused the material before us.Section 48 of the Act,provides for the computation of income chargeable under the head “Capital gains”.It stipulates that income chargeable under that head has to be computed in a particular manner. From the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts: viz., (i) expenditure incurred wholly and exclusively in connection with such transfer; and (ii) the cost of acquisition of the asset and the cost of any improvement thereto,have to be reduced.

7181/M/16 M/s. D.C. Polyester P.Ltd. In other words,what can be deducted under section 48(i) is expenses incurred wholly and exclusively in connection with transfer of property. It is said that the words "in connection with" used in cl. (i) of s. 48 of the Act,dealing with the deductions in computing the income chargeable under the head "Capital gains", are very wide in their ambit and hence there is no warrant for importing a restriction to qualify for deduction.The crucial test to be applied is whether the expenditure was incurred wholly and exclusively in connection with the transfer.In the case under consideration,the AO has not challenged the fact that,because of the dispute with the society,the assessee had to pay earlier dues on account of maintenance charges and that pre condition laid down by the society for transfer of the property to the purchaser was clearance of earlier dues.It is a fact that the purchaser had paid Rs. 66. 97 lakhs to the Society towards pending maintenance charges,so that it could have a clear title.The assessee had paid Rs 1.38 for maintenance charges and interest.Clearly,the expenditure incurred by the assessee and the purchaser towards earlier dues was intrinsically linked with the transfer of the asset. Therefore,in our opinion the FAA had rightly held that the disputed amount was an expenditure that was incurred wholly and exclusively in connection with the transfer of a capital asset by the assessee and that the same had to be allowed u/s. 48(i) of the Act. We would like to mention that the facts of the case of Smt.Smiti Goliyan(supra)were different from the present case.In that matter expenditure was incurred to improve the valuation of the property.In the instant case disputed maintenance charges were paid by the purchaser and the assessee.Without the payment of charges the Society would have not transferred the property. In light of above,we confirm the order of the FAA and decide the effective ground of appeal against the AO. As a result,appeal filed by the AO stands dismissed. फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 27th June, 2018. आदेश क� घोषणा खुले �यायालय म� �दनांक 27 जून, 2018 को क� गई । Sd/- Sd/- (सी. एन. �साद / C.N.Prasad ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांक/Dated : .06 .2018. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ�

2. Respondent /��यथ� 3 7181/M/16 M/s. D.C. Polyester P.Ltd.

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