COMMISSIONER OF INCOME TAX vs GENERAL INSURANCE EMPLOYEES

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 1ST DAY OF OCTOBER 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.204 OF 2015 BETWEEN:

SHRI SRINIVASAN CHANDIRA KUMAR AGED ABOUT 65 YEARS S/O SHRI D. SRINIVASAN 596, 10TH CROSS, 7TH BLOCK JAYANAGAR, BENGALURU-560082. ... APPELLANT (BY SRI. B.S. NARASIMHA PRASAD, ADV.,)

AND:

THE ADDITIONAL COMMISSIONER OF INCOME-TAX RANGE-7(2) [ERSTWHILE RANGE-4] UNITY BUILDING ANNEXE MISSION ROAD, BANGALORE-560027. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - -

THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 28.11.2014 PASSED IN ITA NO.1061/BANG/2012 FOR THE ASSESSMENT YEAR 2009-10, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW THE APPEAL, DELETE THE DISALLOWANCE OF RS.20,97,600 ERRONEOULSY UPHELD BY THE TRIBUNAL IN ITS ORDER IN ITA NO.1061/BANG/2012, DATED 28.11.2014 AND

RESTORE THE DEDUCTION CLAIMED BY THE APPELLANT UNDER SECTION 48(I) OF THE ACT.

THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 03.08.2015 on the following substantial question of law: (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the Appellant’s claim for deduction of expenditure incurred wholly and exclusively in connection with the transfer of shares on the ground that the expenditure was incurred voluntarily, when section 48(i) of the Act makes no distinction between voluntary or involuntary expenditure.

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not considering the additional evidence filed by the Appellant in support of its claim of deduction under section 48(i) merely on the ground that the Appellant had not fulfilled a condition in a clause in the Share Purchase Agreement, without considering that the same expenditure had been allowed on identical facts and in identical circumstance in the hands of the other three shareholders who were parties to the same transaction.

Facts leading to filing of the appeal briefly stated are that assessee is an individual, who held 1,35,000 equity shares in a company viz., Trident Power Craft Pvt. Ltd. All the shareholders of the Trident including the assessee sold their shares to a company viz., EMR Mauritius Ltd. for a consideration of Rs.600 Crores. The consideration was received by the assessee for sale of his share in Trident, which was to the extent of Rs.27 Crores. The assessee filed the return of income

for Assessment Year 2009-10 and declared long term capital gain on sale of shares of Rs.26,07,28,826/-. The sale of shares of Trident by all the shareholders to EMR Mauritius Ltd. was made pursuant to an agreement dated 12.02.2009 viz., share purchase agreement. The Trident was required in terms of Clause 29 of the agreement a sum of Rs.3.45 Crores to a trust proposed to be set up by the EMR Mauritius Ltd. for the benefit of certain employees and ex employees of the aforesaid company. The assessee claimed a deduction of Rs.20,97,600/- while computing long term capital gains. According to the assessee the aforesaid sum was an expenditure incurred by the assessee wholly and exclusively in connection with transfer as contemplated under Section 48(i) of the Act. The Assessing Officer by an order dated 30.11.2011 disallowed an amount of Rs.50 Lakhs from out of the deduction of Rs.1 Crore claimed under Section 54EC of the Act and disallowed the deduction of Rs.20,97,600/- claimed under Section

48(i) of the Act towards expenditure. The assessee thereupon preferred an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 14.05.2012 affirmed the order passed by the Assessing Officer. The assessee thereupon approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal vide order dated 28.11.2014 inter alia held that the claim made by the assessee to the fund could at best be regarded as voluntary payment and not as expenditure wholly and exclusively with the transfer of shares. In the result, the appeal preferred by the assessee was dismissed. In the aforesaid factual background, this appeal has been filed.

Learned counsel for the assessee submitted that the Tribunal o ought to have appreciated that Section 48(i) of the Act does not make any distinction between voluntary or involuntary expenditure and the expenditure was incurred by the assessee to the fund for welfare of the employees and ex employees of the seller

company was incidental and directly attributable to the transaction of transfer of shares and therefore, the same should have been treated as expenditure incurred wholly and exclusively in connection with such transfer within the meaning of Section 48(i) of the Act. It is further submitted that the Tribunal invoked the additional evidence adduced by the assessee. It is also argued that similar expenditure was allowed in identical facts and in identical circumstances in the hands of other parties to the same transaction.

On the other hand, learned counsel for the revenue has submitted that in order to claim deduction under Section 48(i) of the Act, the expenditure has to be incurred wholly and exclusively in connection with the capital asset. It is further submitted that the expenditure incurred by the assessee has no bearing on the transfer of the asset and three share holders who were parties to the same transaction had not claimed the benefit of Section 48(i) of the Act, therefore, the

contention made on behalf of the assessee in this regard is misconceived.

We have considered the submissions made by learned counsel for the parties and have perused the record. Section 48(i) of the Act reads as under: 48. the income chargeable under the head “capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely-

(i) expenditure incurred wholly and exclusively in connection with such transfer.

Thus, under Section 48(i) of the Act the computation of capital gains has to be made by reducing from the full value of consideration or accruing as a result of transfer of the capital asset, expenditure wholly and exclusively incurred in connection with such transfer. Clause 29 of the share purchase agreement, reads as under:

Payment to Employees: Within 60 days following the closing date, the sellers, as condition to this agreement, convenant and agree that they shall pay a sum of Rs.3,45,00,000/- (Thirty Four Million five Hundred Thousand) to a Trust set up by the sellers for the benefit of the employees (including selective ex- employees) of the company.”

The Tribunal after taking note of Clause 29 in the agreement in paragraph 13 of its order has recorded a finding that even if the assessee has made payment as required under Clause 29 of the Share Purchase Agreement, the same cannot be termed as expenditure in connection with transfer of shares. It has further been held whether the expenditure is incurred wholly and exclusively in connection with transfer of an asset is a question of fact, which depends in the facts and circumstances of the case.

We agree with the aforesaid findings recorded by the Tribunal and hold that from careful scrutiny of the order passed by the Tribunal, it is evident that in fact, first substantial question of law does not arise for consideration in this appeal. Learned counsel for the assessee was unable to point out that three share holders who were parties to the same transaction had claimed the similar expenditure in their returns as was claimed by the assessee. Therefore, the second substantial question of law. framed by this court also does not arise for consideration in the obtaining factual matrix of the case. Thus, it is not necessary for us to answer the substantial questions of law.

In the result, we do not find any merit in the appeal. The same fails and is hereby dismissed.

Sd/- JUDGE

Sd/- JUDGE ss

COMMISSIONER OF INCOME TAX vs. GENERAL INSURANCE EMPLOYEES