2016 (4) TMI 864

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....e-holding to a common buyer, returning long-term capital gain (LTCG) u/s. 45 of the Act. The principal and the only valuable assets in the two companies was land, being vacant industrial plots at Dyavasandra Phase I, Industrial Area, Bangalore, South Taluk. In computing the same, deduction in respect of legal and brokerage expenses, paid to the solicitors and a broker, were claimed u/s. 48(i) of the Act, which reads as under: 'Mode of computation. 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; (ii) the cost of acquisition of the asset and the cost of any improvement6 thereto.....' The brokerage being paid to a real estate broker, M/s. Hanu Reddy Realty India Pvt. Ltd., was disallowed by the Assessing Officer (A.O.) in-as-much as the subject matter of the sale, on which capital gain is returned, is shares. In appeal, the ld. CIT(A) found no reason to disallow the assessee's claim f....

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....0 held that in appeal to the Appellate Commissioner, the Appellate Commissioner is entitled to direct additions in respect of items of income not considered by A.O. On this issue reliance is also placed in the cases of : - Deoria Oxygen Co. Ltd. vs. CIT 210 CTR (All.) 509, - Smt. Ishrawati Devi vs. ITO (2008) 114 TTJ (All.) 541, - CIT vs. K. S. Dattatray (2011) 241 CTR (Kar.) 227 - 187 ITR 86 (Ker) - 280 ITR 318 (All.) - 276 ITR 411 (Guj.) - 258 ITR 735 (Mad.) Since the A.O. wrongly/incorrectly allowed appellant's claim of deduction of legal expense i.e. payment of solicitor fees, the mistake committed by A.O. is hereby rectified/corrected and the appellant's claim of deduction of legal expenses is disallowed. By making this disallowance the undersigned has not tried to find a new source of addition/income in assessment order and therefore, the decisions in the cases of Shapoorji Pallonji 44 ITR 891 (SC) and Sardarlal & Co. 251 ITR 864 (Del.) are not applicable. The A.O. is directed to re-work out the capital gain on sale of shares by disallowing appellant's claim of legal expenses/solicitor fees. The A.O. is d....

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....d were shares, the expenses in relation to transfer of property could not be allowed. This is not the issue decided in Compagnie Financiere Haman, In re (supra), where the legal expenses held deductible u/s. 48(i) were in relation to the capital asset transferred, i.e., shares. 4. We have heard the parties, and perused the material on record. 4.1 Our first observation in the matter is that there is no basis for the ld. CIT(A) to hold that the services rendered by the real estate broker, M/s. Hanu Reddy Realty India Pvt. Ltd., were in respect of transfer of shares. Why would, one may ask, anyone be interested in purchasing shares in a private limited company (transferability of which is severely limited by law), without any business or business proposal, and without any tangible or intangible asset, save the plot of land, which is in fact a common plot (# 7A of Dyavasandra Phase I, Industrial Area), with each company holding a part thereof, except where he intends to acquire the land or interest therein. The broker is a real estate broker and the buyer was interested in acquiring land. It is only for this reason that the services of a real estate broker were required. There is....

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....pellate jurisdiction in relation to the assessment before him, not extending to a new source of income - as also clarified by him. We, therefore, find no infirmity in the exercise of his power of enhancement, and toward which he relies on, inter alia, CIT v. Nirbhayram Duleram [1997] 224 ITR 610 (SC). 4.3 Coming to the merits of the case, i.e., the deductibility of the legal expenses u/s. 48(i) of the Act in the facts and circumstances of the case, we examine the relevant bills by the law firm, M/s. Fox Mandal Services Private Ltd. (forming part of the paper-book). The same, similarly worded, read as under: 'Mr. Haresh Melwani, 27 D.N. Road, Fort, Mumbai 400 001 B ILL Re: Sale of Shares of Hemson Softech Pvt. Ltd. Towards consulting charges for sales of shares held by Mr. Haresh Melwani in Hemson Softech Pvt. Ltd. Attending meeting with the prospective buyers as requested by Mr. Melwani from time to time, attending discussing the matter; attending drafting and vetting necessary agreement for the said transaction, including all incidental attendance and correspondence. Consolidate fee Rs.7,50,000.00 Service Tax @12.24% R....

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....t unable to persuade ourselves to agree that the services rendered in respect thereof would not be deductible in-as-much as the sale of shares is not an independent transaction; rather, is only to enable transfer of interest in land. Though, in law the titular ownership continues to be with the two companies, the beneficial interest therein is with the buyer-company, which now holds the entire shares therein. We, accordingly, find no dichotomy in the two sets of facts, i.e., of the transaction being, in principle, for the sale of land and the capital asset/s transferred being shares, the two forming part of the one, composite transaction. There is no question of dissecting it into two parts, which together constitute one integrated whole. The impugned expenses are clearly allowable u/s. 48(i) in the facts of the case, for which we also draw support from the decision in Compagnie Financiere Haman, In re (supra), even as in that case the legal expenses were directly in relation to the sale of the capital asset transferred. The issue, we may clarify, is primarily factual, so that any expenditure incurred in connection with the transfer of a capital asset is allowable u/s. 48(i) in com....