TaxTMI 
TaxTMI 
2024 (3) TMI 1017
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.... 51% of the issued and paid-up equity share capital of the company to purchasers. Subsequently, a separate share purchase agreement was entered into between the parties for sale of remaining equity shares held by the promoters, thereby transferring 100% of issued and paid-up equity share capital of WMI Cranes Ltd. 4. Petitioner filed a Return of Income ("RoI") for Assessment Year ("AY") 2011-2012 on 30th July 2011 declaring an income of Rs. 58,12,98,387/-, which included Rs. 55,62,81,900/- as long-term capital gains on the sale of shares of the company. The capital gains had been originally computed by Petitioner taking into account the proportion of total sale consideration of Rs. 1,55,00,00,000/including a sum of Rs. 30,00,00,000/- kept in escrow, which had not been received by the promoters. Petitioner's assessment was processed under Section 143(1) of the Act accepting the returned income. 5. The background of sale and what happened subsequently, are similar to the case of other promoter of WMI Cranes Ltd. Dinesh Vazirani, whose Writ Petition No. 2475 of 2015 came to be disposed on 8th April 2022. The judgment reads as under : "1. Petitioner is an individual and ....
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....ares of the company. The capital gains was computed by petitioner taking into account the proportion of the total consideration of Rs. 155,00,00,000/-, including the escrow amount of Rs. 30,00,00,000/-, which had not, by the time returns were filed, received by the promoters but still parked in the escrow account. The assessment was selected for scrutiny and assessment under Section 143 (3) of the Act was completed and an order dated 15th January 2014 was passed accepting total income as declared by petitioner. 4. It is petitioner's case and which has not been disputed that subsequent to the sale of the shares of the company, certain statutory and other liabilities arose in the company which was about Rs. 9,17,04,240/-, for the period prior to the sale of the shares. As per the agreement, this amount was withdrawn from the escrow account and promoters, therefore, did not receive this amount of Rs. 9,17,04,240/-. 5. As assessment had already been completed taxing the capital gains at higher amount on the basis of sale consideration of Rs. 155,00,00,000/- and without reducing the consideration by Rs. 9,17,04,240/-, petitioner made an application to respondent no....
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....t income returned by an assessee is sacrosanct and cannot be disturbed and even annulment of the assessment would not have impacted the suo motu tax paid on the return income. (c) The contingent liability paid out of escrow account does not have the effect on "amount receivable" by the promoters as per the agreement which remains at Rs. 3,213.31 per share." 7. Being aggrieved by this order dated 13th February 2015 petitioner has approached this court under Article 226 of the Constitution of India. 8. Having heard the learned counsel and considering the petition, documents annexed thereto and affidavit in reply, we are satisfied that the impugned order passed by respondent no. 1 is not correct and has to be quashed and set aside. 9. Respondent no. 1 had erred in holding that the proportionate amount of Rs. 9,17,04,240/- withdrawn from the escrow account should not be reduced in computing capital gains of petitioner. Capital gains is computed under Section 48 of the Act by reducing from the full value of consideration received or accrued as a result of transfer of capital asset, cost of acquisition, cost of improvement and cost of transfer. Respond....
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.... 12. In the present case, the real income (capital gain) can be computed only by taking into account the real sale consideration, i.e., sale consideration after reducing the amount withdrawn from the escrow account. Respondent no. 1 has proceeded on an erroneous understanding that the arrangement between the seller and buyer which results in some contingent liability that arises subsequently to the transfer, cannot be reduced from the sale consideration as per Section 48 of the Act. We say this because the liability is contemplated in SPA itself and certainly the same should be taken into account to determine the full value of consideration. Therefore, if sale consideration specified in the agreement is along with certain liability, then the full value of consideration for the purpose of computing capital gains under Section 48 of the Act is the consideration specified in the agreement as reduced by the liability. For respondent no. 1 to say that from the sale consideration only cost of acquisition, cost of improvement and cost of transfer can be reduced and the subsequent contingent liability does not come within any of the items of the reduction and the same cannot be red....
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....the obligation of the revenue to tax an assessee on the income chargeable to tax under the Act and if higher income is offered to tax, then it is the duty of the revenue to compute the correct income and grant the refund of taxes erroneously paid by an assessee. 15. Reliance by respondent no. 1 on the provisions of Section 240 of the Act to hold that there is no power on respondent no. 1 to reduce the returned income, is fraught with error because the circumstances provided in the provisio to Section 240 indisputably do not exist in the present case. Provisio to Section 240 provides that in case of annulment of assessment, refund of tax paid by the assessee as per the return of income cannot be granted to the assessee, which is not the case at hand. There is no provision in the Act which provides, if ultimately assessed income is less than the returned income, the refund of the excess tax paid by the assessee would not be granted to such assessee. As regards the stand of respondent no. 1 that the income returned by petitioner is sacrosanct and cannot be disturbed, the only thing that is sacrosanct is that an assessee can be asked to pay only such amount of tax which is leg....