TaxTMI 
TaxTMI 
2013 (2) TMI 938
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.....2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2007-08 in the case of Shri Sagar Anand. ITA No. 466/Agr/2011 is appeal filed by the Revenue against the order dated 10.05.2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2007-08 in the case of Shri Hemant Anand. Some of the grounds raised in all the appeals are based on identical set of facts, therefore, for the sake of convenience all the appeals are decided by this common order. Learned Representatives of the parties submitted that the facts of these appeals lead in the case of Shri Ajay Agarwal, ITA Nos. 405 & 348/Agr/2011 which are Cross appeals filed by the Revenue and assessee. They have argued these appeals accordingly. In the light of the facts, to know the exact grounds of appeal, we reproduce the grounds raised by the Revenue in ITA No. 405/Agr/2011 and by the assessee in ITA No. 348/Agr/2011 as under:-- ITA No. 405/Agr/2011 by the Revenue 1. That the Ld. CIT(A)-I, Agra has erred in Law and on facts in deleting the addition of Rs. 3 crores made by the AO by disallowing the payment made to M/s. Churu Trading Co. Pvt. Ltd., relying upon the principle laid down by the Hon'ble AAR in the case Compag....
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....ion of Rs. 2,50,000 under section 48(i) for payment made to Rabo India Securities (P) Ltd. The disallowance made is liable to be deleted. 2. Because the learned Authorities below have erred on facts and in law in disallowing a deduction of Rs. 6,65,000 under section 48(i) for payment made to Mrs. Bina Gupta, Advocate. The disallowance made is liable to be deleted. 3. Because the learned CIT(A) has erred on facts and in law in enhancing the disallowance of Mrs. Bina Gupta, Advocate by Rs. 40,000 without issue of specific notice under section 251(2) of the Income Tax act, 1961. 4. Because the learned authorities below has erred on facts and in law in disallowing a deduction of Rs. 1,50,000 under section 48(i) for payment made to Mr. Sudipto Sarkar, Advocate. The disallowance made is liable to be deleted. 5. Because the learned authorities below has erred on facts and in law in charging interest under section 234C. The assessee was prevented by sufficient cause to deposit the second installment of advance tax on or before 15.12.2006 as no capital gains was payable as the assessee intended to deposit the same in notified bonds in terms of section 54E....
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....y the assessee, the A.O. allowed only Rs. 87,71,800/- as expenses incurred in connection with the transfer of shares eligible for deduction under section 48(i) of the Act and balance amount of Rs. 3,18,38,200/- was disallowed holding that they are not incurred in connection with transfer of shares and thus the LTCG on sale of shares in the assessment order was determined at Rs. 54,03,98,303/- and therefore, the assessment order was completed at an assessed income Rs. 54,92,51,000/-. The details of computation of LTCG as found are as under:-- 3. The A.O. disallowed Rs. 3,18,38,200/- out of Rs. 4,06,10,000/-. The Agarwal Group itself consisted of two families i.e. Ajay Agarwal family and Kamlesh Agarwal (widow of elder brother Shri Anil Agarwal) family. Members of each family who received sale consideration of shares of two companies are detailed as under:-- 4. The whole expenditure of Rs. 11,35,59,600/- was divided between two families of Agarwal Group as noted in the order of the CIT(A) at pages No. 18 & 19. The expenditures were divided between the three members of each family, the details noted from the order of the CIT(A) is reproduced below for ready reference as under:--....
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....uring the remand stage are as under: 5.1 "Amarujala" a hindi newspaper was started by Late Shri Dorilal Agarwal and Late Shri Murari Lal Maheshwari sometime in the year 1948. While Shri Dorilal Agarwal had 53% stake and Shri Murari Lal Maheshwari had 47% stake under the name and style of the firm as National Journal. The said firm was inter alia engaged in the publication of news paper. 5.2 On 31.08.1979, the said firm was dissolved and two new firms viz. M/s. Amarujala Publications and M/s. Amarujala Prakashan were formed. While M/s. Amarujala Publications was operating in Agra and publications centres at Moradabad, Allahabad, Banaras, Jhansi and Kanpur were added later on. M/s. Amarujala Prakashan carried on the work of publishing newspapers in Bareilly with Meerut, Panchkula (Chandigarh), Jalandhar, Noida, Dehradun and Haldwani came to be added later. The two partnership firms had the members of only the two families of Agarwals and Maheshwaries with the respective stakes continued in the ratio of 53% and 47% respectively in both the said firms. 5.3 On 29.03.2001 the said two firms were converted into two separate Public Limited Companies and registere....
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....rious publications which were taken out from Agra, Jhansi, Jalandur, Meerut, Panchkula (Chandigarh), Kanpur, Allahabad, Varanasi, Moradabad, Bareilly, Noida, Dehradun and Haldwani, however, for convenience these publications were managed by different members of the Board of the Company. For example the Agra Edition was looked after by Shri Ajay Agarwal since 1984 as he was stationed at Agra from the very beginning, Shri Atul Maheshwari was discharging the responsibility of the Editor of Meerut Edition. The publications units of Jalandur, Noida, Panchkula (Chandigarh) which were managed by Atul Maheshwari turned out to be loss making units. Hence somewhere in 2004, members of Agarwal family mooted the idea of shutting these publications, particularly after realising that these units even did not show any prospects of improvements. This suggestion was not approved by members of the Maheshwari family. In the meantime Shri Ashok Agarwal of Agarwal family joined hands with the Maheshwari family and upset the equilibrium and then he mooted the idea to appoint his son Shri Manu Anand as whole time Director with substantial power in the Company. This was opposed by the rest of the members ....
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....ped in arriving at the settlement. Finally on 2.12.2004, a final and concluded agreement was arrived at between the parties at the office of Shri Dayal Saran. Under the said agreement the following issues were concluded. (i) The two of the family companies i.e. M/s. Amarujala Publications Ltd. and M/s. A & M Publications (P) Ltd. were to be restructured, while the former shall go to Agarwal Group and the latter shall go to Maheshwari Group. The shares were to be transferred at book value and the Directors would resign. (ii) That apart, a new company was to be incorporated for giving equal rights on the title of Amarujala to both the Companies. (iii) While M/s. Amarujala Publications Ltd. was to retain Agra, Jhansi and part of Noida (Delhi & Haryana), Kanpur, Allahabad, Varanasi and Lucknow and M/s. A & M Publications (P) Ltd. was to get part of Noida (UP Belt), Meerut, Bareilly, Jalandur, Panchkula, Dehradun, Haldwani and Moradabad. (iv) To overcome the problem of newsprint outstanding it was decided that the amount of Rs. 15 Cr. will be introduced as call money from which the family deposits will be deducted. (v) The restructuring proce....
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....004 which otherwise was not possible since both companies were closely held companies and their shareholding was in minority too. In the above mentioned petitions, the Agarwal Group mainly prayed for implementation of the settlement arrived at between the families of both group vide agreement dated 02.12.2004 and to declare the various resolution passed in the meeting of the Board of Directors of the company on 07.03.2005 as illegal, null and void including the appointment of Shri Manu Anand as whole time Director. 5.13 On 22.03.2005 the Hon'ble Company Law Board passed an injunction order restraining the Maheshwari Group from giving effect to the resolution passed in the Board Meeting dated 7.03.2005 regarding Bank operations, directing Shri Ajay Agarwal to continue as Editor of the Agra Publication and restraining the appointment of Shri Manu Anand as whole time director. Against this order, the Maheshwari Group preferred an appeal before the High Court of Allahabad and the Hon'ble High court vide order dated 08.04.2005 directed the Company Law Board to pass a reasoned order. Thereafter the Hon'ble Company Law Board after giving opportunity to both Groups pas....
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....roup (the Maheshwari Group) by the petitioner (the Agarwal Group) shall be completely paid within 9 months of the passing of the order and as per the schedule contained hereinabove. No default in the schedule given hereinabove shall be made by the petitioner group. It is further provided in clause (5) of the para 2 that in case of default in payment and in non-compliance of the Schedule of payment as provided in clause 4, the Agarwal Group shall not only immediately cease to have the management control and the control shall automatically vest in the Maheshwari Group but also the Agarwal Group shall immediately transfer their shareholding in the companies to the Maheshwari Group on the basis of the same valuation of Rs. 390 crore. The Maheshwari Group will have the liberty to forfeit 10% of the total consideration payable to them. 5.15 Subsequently, it was found that the Agarwal Group was arranging fund for purchase of share holding of the Maheshwari Group from Zee Tele Films (Essel Group) and 5% of the consideration amounting to Rs. 12.5 crore was paid from the current account of M/s. Media West India Ltd. owned Zee Group arranged by a financial consultant M/s. Ch....
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....roup to pay Rs. 155 crore to Agarwal Group for purchase of their share holding. Extract of this final order is reproduced as under: As per the compromise terms arrived at between the parties, the respondents were to pay a sum of Rs. 155 crores to the petitioners towards their shares and this amount was to be deposited in the escrow account maintained in the State Bank of Patiala, Shastri Branch, New Delhi, as a per my earlier order. The respondents are arranging for depositing this money. Yesterday, I had passed an order directing the bank to transfer a sum of Rs. 17 crores out of the escrow account to the personal accounts of the petitioners and simultaneously hand over 65.33 shares belonging to the respondents to the respondents. I further direct: 1. On receipt of the balance of Rs. 138 Crores in the escrow account, the Manager, State Bank of Patiala will release the balance shares of the petitioners now held in escrow to the respondents. 2. The petitioners are at liberty to withdraw the said sum of Rs. 138 crores or transfer the same to any account that they desire and the Manager, State Bank of Patiala will permit them to do so on receipt of ....
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....200/- disallowed by the AO out of Rs. 4,06,10,000/- while computing the LTCG, the details of these expenses as explained by the Ld. AR during the assessment proceeding as well as appellate proceeding are discussed in this para. In fact Agarwal Group itself consisted of two families i.e. Ajay Agarwal Family and Kamlesh Agarwal (widow of elder brother Anil Agarwal) Family. Members of each family who received sale consideration of shares of two companies mentioned in para 3.1 are as under: Ajay Agarwal Family Kamlesh Agarwal Family a) Ajay Agarwal (i) Kamlesh Agarwal b) Renu Agarwal (ii) Sagar Anand c) Hemant Anand (iii)Saurabh Anand 6.2 The whole expenditure of Rs. 11,35,59,600/- was divided between two families of Agarwal Group as under: 6.3 Further the above expenditures were divided between the three members of each family as under:-- 7.1 In para 12 of the assessment order, the AO has discussed the nature of various expenditure incurred by the appellant on payment of various legal and professional fees to decide about the claim of the appellant for deduction u/s 48(i) out of these expenses and the same are reproduced as under: ....
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.... Halbe & Associates, Mumbai: A payment of Rs. 2,24,24,000/- have been claimed on account of fees paid to M/s. S. R. Halbe and Associates, Mumbai for formulation of the strategy for filing petition before the CLB for protection of the interest of minority shareholders, appearance and attending the proceedings before CLB, briefing the lawyers and attending the hearing before Hon'ble Allahabad High Court and Hon'ble Supreme Court, advising and drafting the terms of settlement in connection with transfer, holding discussions and conferencing with minority shareholders. The payment of Rs. 2,24,24,000/- is a lumpsum payment for the services rendered by M/s. S.R. Halbe. Since there is no item wise billing for various activities and considering that major portion of fee is attributable to the proceedings before CLB in connection with transfer of share, the payment of Rs. 2,24,24,000/- is accepted that it has been incurred in connection with the transfer of shares. However, in addition to above, Rs. 3,13,200/- has been shown as reimbursement of traveling, lodging and boarding expenses to M/s. S.R. Halbe & Associates. On perusal of documents on record and bill of M/....
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....Agarwal family and Kamlesh Agarwal family) has been shown as fee for consultation taken from time to time in respect of the transfer of shares. However, there is no evidence on record showing such expenditure being distinctly related and integrally connected with the transfer of shares. There is no evidence which can corroborate that any legal services have been extended in the process of valuation of share or in the process of compromise concerning the transfer of shares. Such a legal expense does not find any place that they are intrinsically linked with the transfer of shares and therefore it cannot be allowed as deduction. 7.2 In view of above discussion as contained in para 12 of the assessment order, the AO has held following expenditures as not distinctly related to and integrally connected with the transfer of shares for being admissible as deduction u/s 48(i) of the IT Act and hence disallowed by him. Sl. No. Name of Party to whom payment is made Amount (Rs.) (i) M/s Churu Trading Co. Pvt. Ltd. Rs. 8,50,00,00/- (ii) Rabo India Securities Ltd. Rs. 2,50,000/- (iii) Mr. Sudipto Sarkar Rs. 1,50,000/- (iv) Mr. Dayal Saran Rs....
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....hey were in minority, they filed petition before the Company Law Board, Principal Bench, New Delhi. It was further explained by the Ld. AR that if they would have exited from the company, they would have realized miniscule price of their shareholding. Therefore, it was mutually decided by Agarwal Group to move to the CLB, agitate jointly so that they obtain proper price and share the expenses incurred on the litigation. In order to clarify the whole circumstances under which the Agarwal Group moved to CLB, it has been explained by the Ld. AR that it is to be understood that CLB is a dispute resolution mechanism constituted under section 10E of the Companies Act, 1956 and it is regulated by the Company Law Board Regulations, 1991. He further explained that in view of the petition filed by the Agarwal Group and after many rounds of the hearings before the CLB, the Principal Bench, New Delhi on 25.01.2006 passed order requiring the Respondents-Maheshwari Group to quote a price of total shareholding and Petitioners-Agarwal Group will have first right to acquire. Thus Agarwal Group adopted a strategy to enhance/improve the value of the shares and this could only be done with the help an....
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....w Board passed an order dated 01.11.2006 for the compromise between both parties without any restrictive covenants as the Agarwal Group was being paid the value of shares and the Maheshwari Group were acquiring the same. Pursuant to the final order of the CLB, Rs. 160 crore was paid to the Agarwal Group which was Rs. 22 crore more than the initial value of Rs. 138 crore for 35.33% share holding of the Agarwal Group as determined by the Maheshwari Group in view of the order dated 25.01.2006 of the CLB and hence it was argued by the Ld. AR that all these enhancement of the value of the shares became possible because of the strategy of the Agarwal Group planned on the advice and help of various lawyers and professionals to whom fees were paid as per the details given in para 6.2. After receipt of full amount of Rs. 160 crore, it was divided among the six members of Agarwal Group in the ration of their share holding as given in the chart in para 5.16. 8.2 In order to further clarify the strategy of the Agarwal Group in going to CLB to get the value of shares enhanced, following submissions were made by the Ld. AR on 08.03.2011: Members of the Agarwal Group sought advi....
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....ing is held by close family members. Moreover, the respondent company is a result of conversion of pre existing partnership firm, therefore, prima facie the principle of partnership firm should apply in this case as decided by this Board in the case of M/s. Tirath Ram Ahuja Ltd. and Ors. (CP No. 57/99). The case of the petitioners is that the power structure which was being maintained for 20 years is being tilted in favour of respondent in the garb of so called professionalism so as to marginalise the petitioners. The respondents on other hand are relying on the articles of association as well as the resolutions passed in the Board Meeting of 7.03.05 where the petitioners were also present. The petitioners having participated in the Board Meeting have to follow the principles of "Majority decision". In case of the respondent company was not looking to be a partnership firm on the face of it, most of the arguments advanced by the respondents would have come to their rescue. However, as already stated the majority decision is not applicable in the case of partnership firm, as stated earlier. It is a matter of detailed discussion and final stage as to whether the rel....
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....d M/s. A & M Publications (P) Ltd. at Rs. 390 Crores. To further put the Maheshwari Group unaware of their dealings with Zee Group they opted to buy the share holding of the majority shareholders i.e. Maheshwari Group so that the price may not be back tracked again as previously it was Maheshwari Group who had back tracked the MOU for settlement which was their proposal. Thereafter the Hon'ble Company Law Board constituting the Bench of the President on 24.01.2006 passed the following order. 1. With a view to resolve the disputes amicably, the parties had agreed on 30.11.2005 that the respondents would indicate the value of the company with the first option to the petitioners either to buy the shares held by the respondents or sell the petitioners' shares to the respondents on the basis of the value of the company indicated by the respondents. In the hearing held on 17.01.2006, the respondents indicated the value of the company including that of A&M Publications Pvt. Ltd. at Rs. 390 crores. In the hearing held on 23.01.2006, the petitioners elected the option of purchasing the shares held by the respondents. 2. It has been agreed by the parties th....
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....ner Group shall not only immediately cease to have the management control and the control shall automatically vest in the respondent Group but also the petitioner Group shall immediately transfer their shareholding in the companies to the respondent Group on the basis of the same valuation of Rs. 390 crores. The respondents will have liberty to forfeit 10% of the total consideration payable to the respondents. 6. Since the management of the company will be handed over to the petitioners only after receipt of 40% of the consideration, the respondents shall ensure the following: (a) There shall be no additional capital commitments. (b) There shall be no sale or purchase of assets. (c) There shall be no closure or starter of new additions. (d) All payments beyond Rs. 50,000/- shall be with joint signatures of one of the petitioners as also any contract of value of more than Rs. 50,000/-. (e) There shall be no change in the senior management. (f) There shall be no change in the board of directors. (g) There shall be no change in the capital structure. (h) There shall be no fresh borrowings. 7. Aft....
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....avention to the consent order, meaning thereby that the earlier order of the Board became ineffective, unenforceable and non est and the right to purchase the shares reverted to Maheshwari Group with the same binding terms that they shall not borrow or make financial arrangements. The relevant portion of the order of the Hon'ble Company Law Board dated 10.07.2006 is reproduced as under. 12. I have considered the pleadings and arguments of the counsel. Before dealing with the merits of the case, it would be appropriate to summarize, point wise, the recitals in the MOU between the petitioners and Media West. a. The subject matter of the MOU is financing the acquisition of 64.67% shares presently held by the respondents. b. Immediately after the value of the company was disclosed by the respondents on 17.1.2006, the petitioners held discussions with a well known undisclosed merchant banking institution which had indicated that purchase of 64.67% shares was eminently a bankable proposition and the petitioners could divest their own 35.33% holding in the market at an appropriate time. While the merchant banker was agreeable to fund major part of t....
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.... the joint name of the lenders and the petitioners will pay 15% interest per annum right from the beginning repayable within a period of 48 months from the date of the loan. During the currency of the loan, 64.67% shares shall continue to be retained as collateral security by the lenders. j. If the interest on the loan remains unpaid for more than a year, after notice to the petitioners, the lenders may offer for sale to public or by private placement, the 35.33% shares and the proceeds shall be appropriated proportionately by the lenders first towards interest and thereafter the principal. k. If the remaining principal amount and the interest is not paid within 48 months, the lenders shall have a right to make a public offer of such number of shares out of 64.67% shares so that the petitioners continue to retain 51% shares. l. In the event, public offer for sale does not take place within a period 12 months from the date of acquisition, the parties may renegotiate and the new agreement shall provide for public offer by the petitioners for repaying the loan by the lenders with simple interest at 15% per annum. m. The lenders may transfer their ri....
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....ited their shares with the escrow account. In my order dated 04.04.2006, I held that there was no specific stipulation in the consent order that the petitioners could not borrow to pay for the consideration and a such, borrowing per se, cannot be considered to be in breach of the consent terms. I had also expressed a prima facie view in that order that a perusal of the MOU with Media West indicated that none of the terms in the same was in breach of the consent terms. However, after hearing the counsel for the parties now, I find that the respondents are justified in claiming that they had been induced to enter into the MOU without full disclosure of vital facts and that the MOU read as a whole, would reflect, as detailed below, to be in breach of the consent terms. 15. It was argued by Shri Sarkar, that the petitioners did not and could not have entered into any arrangement with the lenders before the Company Law Board passed the consent order as they would not have known the terms of the consent. This argument is contrary to facts. In the MOU itself, it is stated that after the respondents disclosed the value of the company, the petitioners had held discussions with the ....
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....t order also. In paragraph 2(d) of the consent order, it is not stated that the petitioners are at liberty to divest their shares through public offer but it is stated that they are at liberty to go for public issue indicating the understanding of the respondents that the IPO would be for new shares. Shri Datar contended that if the respondents had known that the petitioners were to fund the acquisition by sale of their own shares, the respondents would not have agreed to the consent terms. I find full justification in this argument. 16. The above argument would become relevant only if the terms of the MOU indicate the possibility of the shares being sold to repay the loans. In CA 148 of 2006, the respondents have elaborately dealt with their objections and apprehensions on the terms of the MOU. However, in the reply to this application, the petitioners have not addressed on any of these objections and apprehensions of the respondent. In terms of the MOU, the petitioners have the right to repay the entire loan of Rs. 252 crores along with interest at the rate of 15% per annum within a period of 6 months of acquisition of shares. When Shri Datar pointed out that when the pe....
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.... against shares, especially those of an unlisted closely held company, due diligence is carried out of the company to find out the fair value of the shares, but, in the present case, admittedly, nothing was done. Even though the respondents have raised all these issues in CA 148, the petitioners have not responded to the same in their reply. The motive of a company, having no cash resources, in lending such a huge amount, cannot be but for an oblique purpose. Considering the fact that Media West has been used as a special purpose vehicle by Essel Group, the claim of which has not been denied by the petitioners, to acquire other newspaper companies, it appears that even the present funding to the petitioner is with the object of taking over control of the company. The very fact that the MOU provides that whatever might be the consideration that the lenders would receive on sale of 49% shares, the same would release the petitioners of all their liabilities, obligations etc. would indicate that the present lending arrangement by the lenders is not based either on commercial or financial consideration, especially when no due diligence of the company has been carried out. It is rather a....
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.... establish their financial strength to pay of the loans within the stipulated time, that the liberty given to the lenders to sell the shares by private placement and their right to transfer their rights under the MOU to any party, that the petitioners have refused to produce the MOU with the Merchant Bankers who had suggested the name of Media West to the petitioners, etc lead only to the strong presumption that there is more to the understanding expressed in the MOU than what the eyes meet. In other words, the whole arrangement of financing for the acquisition of shares of the respondents does not appear to be a straight forward one and it is only a prelude to the final take over of the company after the period of 3 years. This adverse presumption is inevitable in the light of the refusal of the petitioners to disclose the MOU with the Merchant Banker, who has agreed to fund a huge sum of Rs 152 crores even without a due diligence. 19. Thus, I find that not only the consent order is vitiated by non disclosure of material facts by the petitioners and inducement to agree for IPO, even the spirit of the order is found to have been flouted by the petitioners. The terms of the....
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....he petitioners cannot do so. Therefore, since, I have come to the conclusion that the consent order was obtained by concealment of material fact and that the petitioners have breached the terms of the said order, even in the absence of any stipulation in the consent order to the specific effect, the respondents will have the right to purchase the shares of the petitioners. In this connection, I may refer to the decision of the Supreme Court in Rambahadur Thakur's case wherein the Supreme Court has held that when a consent order is recorded by this Board, it is its duty to interpret the terms of the consent order with a view to ensure that the same is worked out. Therefore, the contention of Shri Sarkar that only if there is a default in payment of the installments of consideration, the respondents will have the right to purchase the shares of the petitioners and not otherwise is not correct as the basic premises under which the parties decided to end the disputes was that only one Group would continue with the company. Now that it is established that the petitioners cannot acquire the shares of the respondents, the latter has the right to purchase the former. Likewise, his cont....
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....l orders to be strictly complied with by both the parties. 23. This order is stayed upto 31.7.2006 to enable the parties prefer appeal's, if so advised. Thus Agarwal Group had the option to file appeal before the High Court, which they chose not to, since their purpose according to the planned strategy was being served and they were able to realise higher best value of their share holding. Further the perusal of the agreement dated 2.02.2006 with M/s. Churu Trading Co (P) Ltd. who were the arrangers involved by Zee Group were entitled arranger fees of Rs. 8.50 Crores. However said fees was due on achieving the financial closure of Rs. 252 Crore (to the value of acquisition of shares of Maheshwari Group), which was to be paid within 30 days from the date of acquisition of the shares or 31st December 2006, whichever is earlier. This particular saving clause was purposely added by Agarwal Group as a part of planned strategy since the plan to acquisition was a safeguard to ensure the high value realisation of the shares owned and held by Agarwal Group. It would not be out to place to mention here that this action is further substantiated with the fact tha....
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....matter has been compromised, the petition is closed with liberty to revive in case of any difficulty in working out the terms of this order. It may be noted that the compromise order has been passed within the limitation period when the parties had the option to file appeal against the order dated 10.07.2006 of the Hon'ble Company Law Board. This compromise could be entered into with the intervention of all those involved including arranger of funds, legal consultants Shri S.R. Halbe, Smt. Bina Gupta, Shri Dayal Saran etc. and it was agreed amongst the parties that since Agarwal Group was realising sizeable amount more than even in their offer, they would accept the same and not raise any questions as the manner by which Maheshwari Group was raising the funds which were to be paid as consideration for the shareholding of Agarwal Group. The perusal of the record will reveal that the Agarwal Group was able to realise Rs. 160 Crores towards the total value of their share holding in M/s. Amarujala Publications Ltd. and M/s. A&M Publications (P) Ltd., which over more by Rs. 22 Crores than the earlier amount of Rs. 138 Crores in the order of the Hon'ble Company ....
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....g before Supreme Court of India 8. Advising and Drafting the Terms of Settlement in connection with transfer including Transfer Deeds. 9. Holding discussions and conferences from time to time with minority shareholders. The perusal of the submissions above, evidences placed on record and the proceedings before the Hon'ble Company Law Board will reveal that there was a well planned strategy to augment the value of the shares and all the payments being in the nature of expenditure are intimately related and integrally connected with the transfer and also in the nature of the cost of improvement resulting in the enhancement in the value of the share holding of Agarwal Group in the Companies M/s. Amarujala Publications Ltd. and M/s. A & M Publications (P) Ltd. and correctly claimed as deduction under clause (i) and or (ii) of section 48 of the Income Tax Act, 61. 8.3 After explaining the strategy of the Agarwal Group to move to CLB for getting the value of their share holding enhanced before they are sold and sale of their share was carried out smoothly, the Ld. AR has drawn my attention to the written arguments put forward by him in the submissi....
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.... not qualify for deduction. In the light of the above exposition of law, it is clear that the legal expenses distinctly related to and integrally connected with the transfer of shares is admissible for deduction under section 48(i) of the Act. The sole object of the expenditure incurred towards legal fees should be in connection with the transfer of shares. Legal fees for seeking advice on the modalities of transfer and the drafting of agreement or deed of transfer would undoubtedly qualify for deduction. As per this Section cost of acquisition of asset and cost of any improvement is to be deducted from the consideration received as a result of transfer of the capital asset. It is held by the Bombay High Court in the case of Commissioner of Income Tax Vs. Shakuntala Kantilal [(1991) 190 ITR 56] that the expression used in Section 48 of the Act, viz., "expenditure incurred wholly and exclusively in connection with such transfer" has wider connotation than the expression, "for the transfer". This view has been accepted by the Madras High Court in the case of Commissioner of Income Tax Vs. Bradford Trading Co. P. Ltd. [261 ITR 222]. By reason of employing su....
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....nonymous with as to "concerning with" and "pertaining to". The expression "pertaining to" is an expression of expansion and not of contraction." In the decision of British Columbia Appellate Court, Vancouver in Nanaimo Community Hotel ltd. vs. Canada, which arose under the Excise Profits Tax Act, 1940, the following passage is instructive of the real import of the phrase "in connection with": Mr. Cunliffe argues that section presupposes that an assessment has been made, and that as I understand him, the words "in connection with" mean "consequent upon". I do not think that is the correct construction to be put upon these words. One of the very generally accepted meaning of "connection" is "relation" between thing one which is "bound up with or involved in another"; or again " having to do with". The words include matters accruing prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase " having to do with" perhaps gives as good a suggestion of the meaning as could be had? I think section 66 is sufficient to oust the jurisdiction of this Court to deal with a decision on which an assessment is subsequently m....
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....aking any additions or alterations to the capital asset amounts to the cost of the improvement. In the case of the assessee's it is beyond doubt that there has been an actual payment to the arranger, strategist, legal counsels with whose help and guidance including expertise, the assessees were able to enhance and alter the value of the shares. Thus there was an improvement to the asset and not to the title of the asset. The title of the assessee's was never in dispute. The word improve has various shades of meaning and it includes everything by doing which is an enhancement in the value of the asset or there is a rise in its price or the asset is to grow better or it is even followed up by something better. The improvement in the value of the asset was on account of the reasons that the * Seed capital was available at the right time * Effective and diligent skills were made available by way of expert * There was always the assistance of merchant bankers, Financier and arranger Had this strategy would not been adopted the value would have been much lower as will be evident from the breakup up value calculated on the basi....
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....nsaction of transfer of an asset inter parties the fixation of the consideration or price is an integral part of the transaction. This fixation of the consideration for the transfer was finally effected only by the decision of the Company Law Board and thus forms an integral part of the process of transfer. On account of share being of unlisted company, restrictions on transfer in the market, the assessee had no alternative but to plan a strategy to get maximum sale price of share by moving to Company Law Board/arranging of arranger/financer/merchant banker which ultimately lead to realization of the sale consideration on transfer of shares. This is elaborately and fully proved with reference the perusal of the orders of the Hon'ble Company Law Board which will reveal that the assessee and the other members of the family termed as "Agarwal Group" were minority shareholders and collectively held 35.33% shares in both the companies. On account of the dispute with the other shareholders, who collectively held 64.67%, since the latter wanted to oust them they jointly moved petition before the Hon'ble Company Law Board. These minority shareholders, who were the petitioners were ....
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....d that while the voting rights on 64.67% shares shall not be exercisable in any manner which would be prejudicial to the interests of the Financier and Merchant Banker. The Financers have agreed in terms of the above agreement to advance a sum of Rs. 101 Crores equivalent to 40% of the consideration due to the Agarwal and Maheshwari families in terms of the settlement between the Acquirers and the said families on the following further terms. 4. The Acquirers shall execute an undertaking accepting that they shall not transfer or create any charge or other encumbrance on the 35.33% shares held by them and also affirm that apart from the stipulation in the agreement recorded by the CLB that in the event of non performance of the terms of the settlement by the Acquirers the said shares shall be transferred to the Agarwal and Maheshwari families, no restraint or encumbrances on the said 35.33% shares exist as of date. 5. When the entire consideration due on the 64.67% shares are paid the agreed pledge of 35.33% shares held by the Acquirers shall be executed by an appropriate pledge document as advised by the legal advisers of the Financers and the Merchant Bankers and....
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....ng the disallowance of the payment made to M/s. Churu Trading Company Pvt. Ltd. has relied merely on the one of the clauses of the agreement dated 01.02.2006 between them and the assessee which is reproduced as under: * Agarwal Group in consideration of arranging Rs. 252 Crores for the acquisition of 64.67% shares of the Companies shall pay Rs. 8.5 Crores (All inclusive) towards Arranger fees to us. The Arranger fees shall be due on achieving the financial closure of Rs. 252 Crores not withstanding whether the Agarwal Group shall be able to draw down the arranged funds or not. It will be an all inclusive and non refundable fees. He has ignored the last clause of the said agreement which provided for the payment of the arranger fees, which is reproduced as under: * The payment of the said fees shall be made to us within 30 days from the date of the acquisition of 64.67% shares held by Maheshwari Group by way of the transfer in the name of Agarwal Group or 31st December, 2006, which ever is earlier. However, as the acquisition never took place in view of reversal of orders by the Company Law Board, the agreement relied upon by the learned Assessing....
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.... maximum price/value of the shares. In respect of the payments made to Mr. Sudipto Sarkar, Advocate. Mrs. Bina Gupta, Advocate and Mr. Dayal Saran, Advocate the learned Assessing officer's observation are incorrect as these legal luminaries were involved in strategizing the actions of the assessee to enable him to extract the maximum price and in connection with the transfer of the capital asset. Had these action not been taken by the assessee he would parted with miniscule amount or made there would have been a serious deadlock in the management and how the CLB would have interfered is cannot be stated in actual terms. Even per se the expenses paid to the Mrs. Bina Gupta, Advocate and M/s. S.R. Halbe & Associates were in the nature of reimbursement and for logistics then they ought to have been allowed in particular when the payments made to M/s. S.R. Halbe & Associates, Advocate have been held to have been incurred in connection with the transfer of the shares by the learned Assessing Officer himself. As regards payment Mr. Dayal Saran, Advocate the copy of his bill evidencing the payment made by the assessee was filed, which amply prove the nature of servic....
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.... has been shown in Column 3(b)(ii), the same may be taken as corrected in that column to the extent stated above and the remaining be considered in Column 3(b)(iii) of the Schedule. The reason for showing the entire amount in Column 3(b)(ii) was on account of the data input in the software. It is reiterated that there is no impact on the computation of capital gain as per the return filed on account of the reason that assessee has not claimed indexation on the cost of improvement. Thus the facts beyond doubt that-- a. The minority group were being ousted by the major shareholders, which compelled them to approach the Hon'ble Company Law Board. The petition with the Company Law Board can only be filed by shareholders having more than 10% holding, thus collectively the assessee and other members of the family held 35.33%. b. The assessee's status in the company M/s. Amarujala Publication Ltd. and M/s. A & M Publications Ltd. was a shareholder. c. The gain which has been offered for taxation on sale of shares (Capital asset) is a long term Capital gain. d. Whatever has been spent by the assessee in connection with/pertaining to the ....
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....uilding 135, Dr A.B. Road, Mumbai They were involved in the formulation of strategy to act as arranger assist for arrangement of the funds to the tune of Rs. 252 Crores for Agarwal Group including tying up with Media West (P) Ltd. and other Merchant Bankers to acquire the shares of the majority share holders on the basis of the option exercised by the Agarwal Group in pursuance to the order of the Hon'ble CLB dated 25.01.2006. It was always an understanding between them and Agarwal Group that since the latter had no financial capacity to fund the acquisition the entire funding was to be secured by the holding of 35.33% in the companies, which was kept as a mortgage/pledged with the financer. It was also known as discussed as a part of the strategy between them and Agarwal Group that this act of financing may be subject to diligence by Maheshwari Group but by building the action to seek option to acquire the companies before the CLB was primarily to freeze a price of the shareholding and seek valuation, which by any other act could not have arisen since they were minority shareholders and both the companies had restriction of transfer of the shareholdi....
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....ny, Agra Preparation of the petitions before CLB including appearances before CLB, high Court and Supreme Court and involved till the time of the transfer of shares. It was only after her letter was issued to the bankers that payments were made of the consideration by the bankers to Agarwal Group. Mr. Sudipto Sarkar Advocate, 33 Broad Street Kolkatta Appearance before CLB on various dates as will be evident from the orders in particular on 17.01.2006, 24.01.2006 and 25.01.2006 Mr. Dayal Saran Advocate, 63, Nehru Nagar, Agra Involved in the planning and strategy right since the inception i.e. when the MOU was agreed upon by the parties including consultation upto the period of the receipt of the sale consideration by Agarwal Group. The whole transfer consideration was finalized in his presence and he was wholly involved in the finalization of strategy in discussion with Shri S.R. Halbe. The Ld. AR in next para of his submission filed on 14.03.2011, has further summarized all the actions of the Agarwal Group from the date of filing of petition before the CLB till the date of passing of order dated 01.11.2006 by the CLB to emphasis....
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.... * Agarwal Group strategically compelled Maheshwari Group to file a fresh applications petition before the CLB to set the ball rolling in their court to direct CLB to make Maheshwari Group to take over the shares of the minority as per the order dated 10.07.2006 thereby reversing its earlier dated 25.01.2006 but invoking similar conditions of funding such payout as were put in the original order of CLB dated 25.01.2006. * After the receipt of the aforesaid order Agarwal Group could file appeal before the High Court but chose not to do the same since their purpose had been solved by bringing an enhanced valuation to their shareholdings. * Further Agarwal Group did not insist in pursuing in any litigation with Maheshwari Group to ensure that the terms of the conditions of funding as were originally placed on them the payout which were same for the Maheshwari group had been violated or not. This goes further to prove and establish the point that Agarwal group always wanted an exit route at a good value which was only achieved by litigating before CLB and strategically planning with the help of various parties to whom payment was made only after the receipt of the co....
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.... the case of the appellant that all these expenses are interrelated and connected with the transfer of shares. For the ready reference, the arguments taken by the Ld AR with respect to various case laws relied upon by the AO and the case laws relied upon by him are reproduced as under: 6. That the learned Assessing Officer has relied on the decision following decisions whose facts are not applicable to the case of the assessee a. Smt. Sita Nanda vs. CIT (2001) 251 ITR 575 (Del) Whether, therefore, payment of interest being in shape of damages for late payment of unearned increase was inadmissible as deduction under section 48(i)-Held, yes b. B.N. Pinto vs. CIT (1974) 96 ITR 306 (Mys.) Assessee, on death of her husband received certain amount from firm in which her husband was a partner on her executing release deed-Assessee gave break up of consideration amount and claimed deduction towards lawyers fees, travelling expenditure and damages for mental worry and suffering on account of wrongful withholding and detention of property by firm-Whether, since there was no evidence to support claim of assessee, it was liable to be rejected-Held, ....
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....see is, in any manner, incorrect. We have carefully considered the order of the Tribunal and we find that the Tribunal had taken into account all the relevant facts to conclude that the claim made by the assessee cannot be sustained. Similarly the perusal of the decision of the Authority of Advance Rulings in the case of Compagnie Finacriere Hamom (2009) 310 ITR 1 (AAR) relied upon by the learned Assessing Officer wherein in it has been held that- legal expenses distinctly related to and integrally connected with the transfer of shares is admissible for deduction under section 48(i). The sole object of the expenditure incurred towards legal fees should be in connection with the transfer of the shares. Legal fees for seeking advice on the modalities of transfer and drafting of agreement or deed of transfer would undoubtedly qualify for deduction. It must be noted that the expression 'in connection with such transfer' is wider and more liberal in meaning than the phraseology 'for the transfer'. By reason of employing such a wide expression i.e. 'in connection with' something more than what is attributable to the final act of transfer of....
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....in India bequeathed by her father-Executors of Will, who resided abroad, had incurred certain expenses to obtain probate and letter of administration and to secure order of eviction against unauthorized occupant-While computing capital gains, assessee claimed deduction of those expenditure - Whether amounts paid by executors as Court fee at time of obtaining letter of administration and to secure an order of eviction against unauthorized occupant had to be treated as expenditures in connection with transfer of property and, therefore, assessee was entitled to claim deduction of expenditures incurred by executors - Held, yes Commissioner of Income-tax v. R. Ramanathan Chettiar [1985] 152 ITR 489 (MAD.) Assessee sold lands by converting them into plots, and for this purpose, maintained separate office for preparing lay-out plans, etc.--assessee claimed deduction of expenditure incurred on traveling, stationary, salary and repairs to office premises, in computing capital gains - whether impugned expenses could be considered as solely incurred in connection with transfer of land and were accordingly deductible - Held, Yes. V.A. Vasumathi v. Commissioner of In....
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....upport from decision in CIT v. Shakuntala Kantilal [1991] 190 ITR 56/58 Taxman 106 (Bom.) in which it was held that an expenditure incurred in removing encumbrance would be deductible in computation of capital gain. This case was affirmed in CIT v. Abrar Alvi [2001] 247 ITR 312/117 Taxman 95 (Bom.). As such, the case was decided in favour of the assessee in Gopee Nath Paul & Sons v. Dy. CIT [2005] 278 ITR 147/ 147 Taxman 629 (Cal.) 9. All the submissions made by the Ld. AR to justify the payments made to various lawyers and professionals in connection with their legal and professional services were in connection with transfer of shares being a part of strategy because before they were sold, their value was substantially enhanced, even from the initial value of Rs. 138 crore (value of 35.33% share of the Agarwal Group as determined by the Maheshwari Group initially) with the services and help provided by them and hence completely allowable u/s 48(i) instead of part allowance made by the AO, were forwarded to AO for his comment and to justify as to why only part allowance of such expenses were made in the light of the decision of the Authority for Advance Rulings in th....
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....ed transfer of shares of the Indian Company borne legal expenses to the tune of Euros 1,49,445 (equivalent to Rs. 8,902,063). The applicant has not furnished any break up of the said figure or the details pertaining to the expenses. The applicant's counsel has relied on the decision of Kerala High Court in V.A. Vasumathi v. CIT (1980) 123 ITR 94 wherein the expenditure incurred for the purpose of litigation in the Civil Court, pursuant to a reference under section 20 of the Land Acquisition Act, was allowed as deduction under section 48(i). 13. In order to appreciate the above issue, it is desirable to refer to the provisions of section 48 of the Act which read as under:-- Mode of computation-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 assets 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 improvement thereto; 14. The above section broadly contemplates ....
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....gful withholding and detention of her property cannot, by any stretch of imagination, be said to be expenses incurred wholly and exclusively in connection with the transfer. The claim in respect of lawyer's fees is also indefinite and vague and is not specific that it was in connection with the transfer, like, for example, drafting of the deed or such purposes intimately connected with the transfer. Similarly, regarding the traveling expenses, it is not specific that it was in connection with the transfer. 15. In the light of the above exposition of law, it is clear that the legal expenses distinctly related to and integrally connected with the transfer of shares is admissible for deduction under section 48(i) of the Act. The sole object of the expenditure incurred towards legal fees should be in connection with the transfer of shares. Legal fees for seeking advice on the modalities of transfer and the drafting of agreement or deed of transfer would undoubtedly qualify for deduction. It must also be noted that the expression 'in connection with such transfer' is wider and more liberal in meaning than the phraseology 'for the transfer.' (Ref: CIT v. Shak....
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....transfer. Requirement mentioned in point (a) above is not under contention in the present case. Requirement mentioned in point (b) above i.e. the 'connection' is to be examined. The expenditure after being proved in 'connection' has to be further checked whether it is "wholly and exclusively" for such transfer or not. Only when these three criteria are satisfied in succession can the expenditure be allowed. This examination follows below:-- 1. The assessee approached the CLB for the express purpose of resolving the dispute and protecting his minority shareholder interest and also for acquiring the shares of Maheshwari Group. There is nothing on record and no evidence to suggest that the assessee was actually trying to sell his shares. In the case of Compagnie Financiere Hamon (2009) 177 Taxman 511 (AAR-New Delhi) as discussed above, the expenses relating to filing the appeal U/s 397 & 398 with the CLB were disallowed as it was not disallowed as it was not wholly and exclusively linked with the transfer even though they had a nexus with the transfer. These expenses were held to be for protecting minority shareholder interest and not for transfer. So....
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....transfer is required for allowability of the expenditure. 3. Assessee's contention about a larger game plan of selling is based on conjectures and surmises without any proof. 4. The expenditure paid by the assessee to Churu Trading Co. includes interest expenses incurred to Media west and other merchant bankers for raising a war chest of Rs. 12.5 Crores for acquisition of shares. This interest expenditure by any stretch of imagination cannot be judged for selling the shares The para wise comment on the above observations is as under: 1. That there is no admit of doubt as to the minority shareholding of the assessee and the fact that in the year 2004 a settlement for the MOU was drawn between the Agarwal and the Maheshwari Group by which division of the various publication units was made on the insistence of the latter. Both the companies were closely held unlisted Companies converted from partnership firm in existence since 1962 and hence it was strategized to seek the CLB route for the maximum realisation of the price. But Agarwal group already having a past experience of backtrack by the Maheshwari Group had to be cautious in its moves even....
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....rity share holders to the tune of Rs. 252 Crores but still was strategically creating feelers in the market that they would acquire the company which was being done merely to freeze the valuation of the companies to Rs. 390 Crores as quoted by Maheshwari Group. * Agarwal Group did not deposit their share certificates with State Bank of Patiala, Shastri Bhawan as was done by Maheshwari Group, evident from order of CLB dated 04.04.2006 * Agarwal Group strategically compelled Maheshwari Group to file a fresh applications petition before the CLB to set the ball rolling to direct CLB to make Maheshwari Group to take over the shares of the minority as per the order dated 10.07.2006 thereby reversing its earlier dated 25.01.2006 but invoking similar conditions of funding such payout as were put in the original order of CLB dated 25.01.2006. * After the receipt of the aforesaid order Agarwal Group could file appeal before the High Court but chose not to do the same since their purpose had been solved by bringing an enhanced valuation to their shareholdings. * Further Agarwal Group did not insist in pursuing in any litigation with Maheshwari Group to ensu....
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....erusal of the memorandum of understanding agreement between the Agarwal Group and M/s. Media West (which has been reproduced in the order of the CLB dated 10.07.2006) will reveal that they were entitled to interest on certain conditions, however after this order of the CLB wherein directions were issued to refund the amount of Rs. 12.50 Crores deposited in the escrow account the bank has paid interest to them on the deposit made, no interest has been paid by the assessee. This fact is amply proved with reference to the order of the CLB dated 01.11.2006 and para 5 is reproduced as under. 5. On an earlier occasion, the money deposited in the escrow account by the petitioners was directed to be paid to M/s. Mediavest Private Limited and the bank had issued TDS certificate and the bank had issued TDS Certificate in the name of Amarujala Publication Limited for the interest accrued thereon. The Manager, State Bank of Patiala is directed to issue a fresh TDS in the name of the Mediavest Private Limited in lieu of one issued in favour of Amarujala Publication Limited after observing the necessary formalities in this regard. Further the learned Assessing officer has compl....
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.... discussed in para 8.2 and 8.4) should also be accepted. In the remand report of the AO, regarding payment made to M/s. Churu Trading Co., it has been reported that it includes interest expenses incurred to M/s. Media West and other Merchant Bankers for raising a war chest of Rs. 12.5 crore for acquisition of shares. During discussion, the AO admitted that there is no documentary evidence to show that this payment includes interest paid to M/s. Media West but he contended that for arranging certain funds from M/s. Media West, as per business practice, certain interest should have been paid to M/s. Media West and since M/s. Churu Trading Co. arranged fund from M/s. Media West, the appellant should have paid interest to M/s. Media West through M/s. Churu Trading Co. and therefore in view of the present AO, the amount paid to M/s. Churu Trading Co. should include the interest payable to M/s. Media West and the same should be calculated at the rate prevailing in the market at that time. However, he could not quantify the amount of alleged interest amount included in the payment made to M/s. Churu Trading Co. supported by any documentary evidence. In the agreement with M/s. Med....
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.... that there was restrictive clause in the Memorandum and Article of Association of both companies because of that they could not have sold the shares. Therefore, as a part of strategy, the Agarwal Group bid for the acquisition of the shareholding of majority shareholders to enhance and fix the valuation of the shares and once this purpose was achieved then they exited with the valuation determined. Citing this strategy, He again contended that the expenses incurred in connection with such proceedings before CLB was in connection with the transfer of the shares which was the resultant to the strategic movement of the Agarwal Group. In this submission, it was also contended that due to moving to CLB and passing of the order by the CLB, the restrictive clause against the transfer of shares in the Memorandum and Article of Association of both companies got removed and shares were transferred and resulted in the capital gain and therefore all the expenses incurred on lawyers and professional in connection with the proceeding before CLB was pleaded to be allowed. For a ready reference, this submission of the Ld. AR is also produced for ready reference:-- That it has been explain....
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....nhance and fix the valuation and once purpose was solve then exit with the valuation. Thus expenses have been in connection with the transfer of the share which was the resultant of the strategic movement of the Agarwal Group. It was only subsequent to the order of the CLB that this restrictive right got removed and the shares were transferred in both the Companies which resulted in the capital gain which has been shown as income of the assessee. With regards observations of the learned Assessing Officer for the alternate submissions of the assessee it is submitted that there is no doubt that the expenditure incurred alternatively can be considered admissible under section 57(iii).There is in fact nothing in the language of section 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of section 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. However the claim of assessee is that the expenditur....
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.... The AO argued that CLB gave option to the Agarwal group, either to buy majority shares holding (64.67%) or sell their share holding (35.33%) but they first choose to buy majority share holding and hence whatever expenditure was incurred for arranging the finance should not be considered to have been incurred in connection with the transfer of shares. Therefore in view of the AO, since M/s. Churu Trading Co. was engaged to arrange the fund, payment made to them are for arranging the fund and not in connection with the transfer of shares and hence payment of Rs. 8.5 crore made to M/s. Churu Trading Co. should not be allowed as deduction u/s 48(i). The AO also pointed out that the intention of the Agarwal Group was initially not to sell the shares, otherwise they would have not pledged the 35.33% of their shares holding as security for obtaining the fund. Therefore in his opinion, initially the intention of the appellant was to buy the majority share holding and hence the expenditure incurred for arranging the fund for buying the majority share holding should not be allowed and hence he contended that the payment made to M/s. Churu Trading Co. and other consultants for arranging....
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....e, an understanding was reached between both Groups that both companies should remain with either of two Groups and with this understanding value of the shares of both companies was determined by the Maheshwari Group at Rs 390 crore with value of share holding with the Maheshwari Group at Rs. 252 crore (64.67%) and with the Agarwal Group at Rs. 138 crore (35.33%). With such sequence of events, there appears to be formulation of some strategy at the part of Agarwal Group on the advice of Shri S.R. Halbe to go to CLB on the pretext of protecting the minority right u/s 397 and 398 of the Companies Act and create such atmosphere that ultimately value of company is determined at its market value and then giving them an opportunity to sell their share holding at the market determined price. Such strategy as formulated by Shri S. R. Halbe has even been recognized by the AO in the assessment order wherein in para 12.2 he has held that the payment of Rs. 2,24,24,000/- to him is a lump-sum payment for the services rendered by him and since there is no item-wise billing for various activities and considering that major portion of fees is attributable to the proceedings before CLB in connectio....
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....claim of the Ld. AR that knowing very well that they do not have capacity to buy the majority share holding, it was decided as per the strategy that the Agarwal Group would first elect to buy the share holding of the Majority Group to get the value of shares further enhanced and fixed before selling of their part of shares and ultimately succeeded in realizing Rs. 22 crore more than the value of their share holding initially determined at Rs. 138 crore. This strategy was explained by the Ld. AR that the Agarwal Group did not have financial capacity to buy the share holdings of the Maheshwari Group and their intention was always to sell their shareholdings and they also did not trust the Maheshwari Group for selling shares to them because earlier agreement of partitioning of family business was back tracked by them and therefore, they entered in a strategic financial arrangement with Essel/Zee Group through its front company M/s. Media West by which it was planned to get the finance of Rs. 252 crore arranged to buy the company. This financial arrangement was made through M/s. Churu Trading Co. but since the intention of the Agarwal Group was not to buy and run the company and they a....
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....else without interest is not clear. For lending such a huge amount to the petitioners there are no terms in the MOU relating to security, either financial or otherwise to be provided by the petitioners. The security is obviously only the shares of the company, whether it is 35.33% or 64.67% or the whole 100%. The said security in the form of shares, covers the lending by both Media West and the unnamed Merchant Banker. Normally, when a large amount of money is lent against shares, especially those of an unlisted closely held company, due diligence is carried out of the company to find out the fair value of the shares, but, in the present case, admittedly, nothing was done. Even though the respondents have raised all these issues in CA 148, the petitioners have not responded to the same in their reply. The motive of a company, having no cash resources, in lending such a huge amount, cannot be but for an oblique purpose. Considering the fact that Media West has been used as a special purpose vehicle by Essel Group, the claim of which has not been denied by the petitioners, to acquire other newspaper companies, it appears that even the present funding to the petitioner is with the obj....
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....spondents that the funding for acquisition would be arranged on the basis of the existing shares of the company and therefore, mere continuing with the 51% shares by the petitioners is of no justification. 18. The facts that Media West, without any financial resources of its own agreeing to fund a huge sum of Rs. 101 crores, that Media West is a Group company of Essel which has been acquiring news paper companies, that the petitioners have not been able to establish their financial strength to pay of the loans within the stipulated time, that the liberty given to the lenders to sell the shares by private placement and their right to transfer their rights under the MOU to any party, that the petitioners have refused to produce the MOU with the Merchant Bankers who had suggested the name of Media West to the petitioners, etc lead only to the strong presumption that there is more to the understanding expressed in the MOU than what the eyes meet. In other words, the whole arrangement of financing for the acquisition of shares of the respondents does not appear to be a straight forward one and it is only a prelude to the final takeover of the company after the period of 3 years....
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....all the consent order, but, I do not propose to recall the same but, try to work out the said order in the spirit under which the same was passed. 20. As far as the right of the respondents to acquire the shares of the petitioners is concerned, reference to the chronology of events is necessary. Even though, initially the petitioners were against the suggestion of their going out of the company and were only interested in the division of the company, later, it was only at the suggestion of the counsel for the petitioners, the consent order resulted. The foundation of the suggestion of the counsel for the petitioners is that one of the two Groups should control the company in exclusion of the other Group. Both in the replies to the applications and during the arguments, there was not even a whisper that the petitioners would be able to mobilize funds to avoid the lenders from taking over the control of the shares. Instead, their stand has been that there is no provision in the consent order restraining the petitioners from raising funds on the strength of the shares of the company. Thus, it is crystal clear that the petitioners are not in a position to fund the purchase of ....
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.... with such unrealistic financial arrangement as analysed by the CLB in its above mentioned order, it appears that after acquiring both companies with the finance arranged through Essel/Zee Group, they planned to sell the shares of both companies to Essel/Zee Group because they did not trust Maheshwari Group for the reasons already discussed. However, during the proceeding before the CLB, the initial understanding between both Groups was that the Amar Ujala publication business should not go out of the control of either of two Groups but the Agarwal Group also wanted to extract the maximum value for their shareholding and therefore, they compelled the Maheshwari Group to buy their share holding by entering into a MOU with a rival group (Essel/Zee Group) through its front company apparently showing that they are interested in buying the company, even though this MOU was just a ploy to force the Maheshwari Group to buy their share holding at a value more than what was offered by them. The MOU with M/s. Media West was not viable at all for getting the desired fund, has been clearly observed by the Hon'ble CLB in its order dated 10.7.2006 wherein, it is discussed by them that the te....
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.... Sudipto Sarkar, Mr. Dayal Saran, contributed to make the strategy of the Agarwal Group successful to realize the best value of the shares held by them in both companies and therefore, it was argued by the Ld. AR that payments made to all of them should be fully allowed u/s 48(i) as expenses incurred in connection with transfer of shares as claimed by the appellant while computing the capital gain in the return of income instead of allowing only part of the payments made to Shri. S.R. Halbe and Smt. Bina Gupta in the assessment order as discussed in para No. 7 of this order. I also find force in the argument of the Ld. AR that the Maheshwari Group agreed to pay Rs. 22 crore extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group. For this purpose the arranger M/s. Churu Trading Co. demanded for 50% of the extra amount realized by the Agarwal Group but ultimately as per the initial agreement, only Rs. 8.5 crore was paid. In view of the above background of the facts of the case, the Ld. AR argued that since because of intervention of M/s. Churu Trading Co., the share value was further got enhanced by Rs.....
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....d. was made in contravention to the terms of the CLB order under a plan of strategy to show that the Agarwal Group is interested in buying the shares to compel the Maheshwari Group to buy the shares at enhanced value, appears to be more credible because the end result of the proceedings before the CLB proves the strategy as explained by the Ld. AR. The whole strategy has been summarised by the Ld. AR in para No. 5 of his submission filed on 14.03.2011 and the same has been reproduced in para 8.4 of this order on page No. 53 & 54. Therefore, payment made to M/s. Churu Trading Company Pvt. Ltd. appears to be very much part of the strategy of the Agarwal Group to get the value of shares enhanced before these shares are sold. Since the shares of the Agarwal Group were pledged with lender (M/s. Media West) that was arranged by M/s. Churu Trading Company Pvt. Ltd. and it has also been admitted by the AO that these shares were pledged, therefore, the argument of the Ld. AR that the Maheshwari Group agreed to pay Rs. 22 crore extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group and for this purpose the arra....
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.... details of expenditure towards professional fees to lawyers, the AO was asked to allow a reasonable amount towards this item. Considering the argument of the AO that the payment made to M/s. Churu Trading Co. Pvt. Ltd. and other consultants for arranging the fund and preparation of CLB petition and appearing before the CLB for arguing the case of the appellant should not be allowed u/s 48(i), the allowability of deduction u/s 48(i) for payments made to these professionals and lawyers has been examined keeping in view the facts and circumstances of the case so far analysed in this para and the principles as laid down in para 15 of the order of AAR. My decision for allowability of deduction u/s 48(i) for each payment made to various Lawyers and Professionals is as under: 12.10.1 Payment of Rs. 8,50,00,000/- to Churu Trading Co. Pvt. Ltd. Mumbai & Rs. 2,50,000/- to Rabo India Securities Pvt. Ltd., Mumbai Both these parties were engaged by the Agarwal Group for providing financial advisory services and assisting them to arrange funds to acquire shares of Majority Group in both companies. In this process, the Agarwal Group first approached Rabo India Securiti....
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.... of shares and hence such expenditure cannot be considered as expense distinctly related and integrally connected with the transfer of shares. Applying the principle laid down by the Hon'ble AAR in the case of Compagnie Finance Ham on(supra) also, the payment made to M/s. Rabo India Securities Pvt. Ltd. would not be allowable as deduction u/s 48(i) because its services did not extend to the process of valuation of shares or the participation in the deliberations that led to the settlement concerning the transfer of shares. Therefore, I confirm the decision of the AO to disallow deduction of Rs. 2,50,000/- u/s 48(i) for payment made to Rabo India Securities Pvt. Ltd. Similarly, during the process of acquisition of majority share holding of Maheshwari Group, the Agarwal Group also entered into another agreement with M/s. Churu Trading Pvt. Ltd. that acted as arranger for arranging Rs. 252 crores to acquire majority shareholding in the companies. As per the terms of agreement dated 01.02.2006 with M/s. Churu Trading Co. Pvt. Ltd., the Agarwal Group was to pay Rs. 8.5 crores as arranger fee to it for arranging the fund. The arranger fee was to become due on achieving the f....
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....ounting to Rs. 8.5 crore should be considered to have been paid for transfer of shares and hence should be allowed as deduction u/s 48(i). In order to understand the nature of payment made to M/s. Churu Trading Co., the agreement dated 01.02.2006 made with this party is produced as under: Further to our letter dated 20.01.2006 and subsequent meeting we had you, therein our have given us the copy of the Company Law Board Order dated January 25, 2006 recording the terms of agreement between you on one hand and Maheshwari Group on the other hand, to acquire 64.67% shares of Amar Ujala Publication Ltd. and A & M Publications Pvt. Ltd. (hereinafter referred to as Companies) held by Maheshwari Group for a consideration of Rs. 252 Crores. We would like to state that we have carefully examined the said CLB Order dated January 25, 2006 and also sought legal advice to understand the various implications emerging out of the said order. We have arrived at conclusion that the proposal of acquiring 64.67% shares held by Maheshwari Group in the Companies, by Agarwal Group is a bankable proposition. However, it is important to bring to your kind notice that due to certai....
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....p by way of the transfer in the name of Agarwal Group or 31st December, 2006, whichever is earlier. Thus it is very clear from this agreement that condition for payment of arranger fees was making of arrangement of full amount of Rs. 252 crore by M/s. Churu Trading Co. and its payment was to be made irrespective of acquisition of 64.67% shares, if shares had been acquired, it should have been paid within 30 days from the date of the acquisition of these shares otherwise payment was to be made by 31st December 2006. With such terms in the agreement, the question of payment of such arranger fees would have arisen only when the fund of Rs. 252 crore was arranged. Such agreement is in form of a Contingent Contract as provided in the section 31 of the Indian Contract Act, 1872, which depends on happening or not happening of some event, collateral to such contract. In the present case, liability to pay the arranger fees by the Agarwal Group to the M/s. Churu Trading Co. Pvt. Ltd. would have arisen only in case of the event of arranging the fund of Rs. 252 crore had happened. But by the time M/s. Churu Trading Co. Pvt. Ltd. could arrange fund of Rs. 12.5 crore, the Hon'ble CLB on the ....
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..... Taking into account all these facts and circumstances of the case, I find that participation of M/s. Churu Trading Co. in the strategy formulated by the Agarwal Group helped them in the deliberations before the Hon'ble CLB from 04.04.2006 onwards till final settlement on 01.11.2006 to realize Rs. 22 crore more sale consideration and ultimately led to finalizing the sale of shares by the Agarwal Group and therefore, I am of the considered view that the payment of Rs 8.5 crore made to M/s. Churu Trading Co. should be allowed as deduction u/s 48(i) because as per the principle laid down by the Hon'ble AAR in the case of Compagnie Finance Hamon(supra) also, such payments should be allowed as deduction u/s 48(i) being paid for services extended by it to the process of valuation of shares by helping the Agarwal Group during the participation in the deliberations before the Hon'ble CLB that led to the settlement concerning the transfer of shares. Therefore, the AO is directed to allow deduction of Rs. 3,00,00,000/- u/s 48(i) for payment made to M/s. Churu Trading Co. Pvt. Ltd. as part of the share of appellant out of total payment of Rs. 8.5 crore. In view of my abo....
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....y and exclusively in connection with the transfer of shares. As against this decision of the AO, in the Ground No. 5, the appellant has contended that when the fees paid to him is held to have been incurred in connection with the transfer of shares, other incidental expenses reimbursed to him in connection with proceeding before CLB should also be allowed. It has been argued by the Ld. AR that even per se the expenses of Rs. 3,13,200/- paid to Shri S.R. Halbe were in the nature of reimbursement and for logistics then they ought to have been allowed in particular when payments of fees made to him is held to have been incurred in connection with the transfer of shares by the AO. I also consider that once the AO has found that the services rendered by Shri Halbe was mainly related to the proceedings before CLB in connection with transfer of share and allowed the full fees paid to him for deduction u/s 48(i), there is no logic to deny the deduction for the reimbursement of incidental expenses on travelling, lodging, boarding etc., which he incurred while visiting Delhi in connection with the proceeding before CLB that was seized with the matter of settling the dispute between the Agarw....
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....this disallowance, the appellant in Ground No. 6 contended that all payments have been made wholly and exclusively in connection with the transfer of the capital asset and hence the addition made is liable to be deleted. In order to examine the allowability of deduction u/s 48(i) for payments made to Smt. Bina Gupta, the bill wise details of payments made to her is given as under: Looking to above details of the bills, it is clear that while disallowing, Rs. 6,25,000/- out of above expenses, the AO has wrongly held these bills as raised only for travelling, lodging, boarding and other logistics while, it can be seen from the above chart that these bills were mainly raised by Smt. Bina Gupta in connection with the proceedings before the CLB after petition u/s 397 & 398 of the Companies Act was filed before it. Looking to the facts of the case as discussed in detail in para 5 of this order, initially when petition was filed before the CLB, the Agarwal Group mainly wanted the publication business being partitioned among the family members as per the initial agreement arrived between them on 02.12.2004 but only after many rounds of hearing before the CLB, it became clear that ....
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....mbers. Such payments to Smt. Bina Gupta had nothing to do with the transfer of shares as held by the Hon'ble AAR in case of Compagnie Finance Hamon(supra),that such legal fees etc. paid to the lawyers for filing the petitions under sections 397 and 398 in the Company Law Board and for making appearance before the Board prior to the passing of final order giving green signal for the transfer of shares are not admissible for deduction. Since final decision for transfer of shares from either of two groups was taken in the CLB order dated 25.01.2006, any payment made to Smt. Bina Gupta for the bills raised for her services on or prior to this date would not be allowable as deduction u/s 48(i). Sum of such payments comes to Rs. 6,65,000/- on adding all bills of Smt. Bina Gupta raised for services rendered on or before 25.01.2006 and listed in the chart shown on page No. 90 & 91 of this order. In the assessment order, the AO has not given any computation as to how he arrived to the amount of disallowance of Rs. 6,25,000/- and since after adding all the bills for which deduction u/s 48(i) cannot be allowed, it comes to Rs. 6,65,000/-, AO is directed to disallow deduction u/s 48(i) for....
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.... of Maheshwari Group on behalf of petitioners (Agarwal Group). The consolidated payments also included expenses on account of logistic provisions and therefore he held that such expenses are not distinctly related to and integrally connected with the transfer of shares and hence, it cannot be treated as the expenses incurred wholly and exclusively in connection with transfer of shares. Therefore, he did not allow deduction for payment of this amount u/s 48(i) of I.T. Act. The appellant disputed this disallowance contending that the AO has ignored the fact that acquisition of shares was strategy only to enhance the valuation of the companies. The payment has been made exclusively in connection with the transfer of the capital asset and the appellant prayed for deletion of this addition. After taking into account all the facts of the case so far discussed in this order in para No. 5, 8,11 and from 12.1 to 12.9, I find that all the persons who helped the Agarwal Group to achieve their ultimate aim of selling the shares at best price remained involved in the whole process till the final order dated 01.11.2006 was passed by the Hon'ble CLB ordering the Maheshwari Group to p....
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....that he was paid Rs. 1,50,000/- for appearing before the CLB on 17.01.2006, 24.01.2006 and 25.01.2006 in which he argued the case of the Agarwal Group for acquisition of majority share holding and since not being part of the strategy of the Agarwal Group (that they were not interested in acquisition of shares but ultimately wanted to sell the shares by enhancing their value by creating actions and drama to show that they are interested in acquiring the shares of the majority shareholders with the help of such concern which was front for Zee Group and hence trying to create a fear in the mind of the Maheshwari Group that company may go in the hand of Zee Group and compelling them to agree for purchasing their share holding at a higher sale consideration), he only received his fees on 02.04.2006 for his appearance before the CLB for proceedings relating to acquisition of shares and did not wait for the final outcome of the strategy formulated by the Agarwal Group. Therefore, I agree with the AO that such payments made to Shri Sudipto Sarkar are not distinctly related to and integrally connected with the transfer of shares and hence, it cannot be treated as the expenses incurred wholl....
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.... settling the dispute till a compromise was reached between both Groups and final order was passed by the Hon'ble CLB on 01.11.2006 for sale and transfer of shares of the Agarwal Group, cannot be denied and therefore, his payment was settled only after passing of final order by the Hon'ble CLB giving green signal for the transfer of shares similar to Shri S.R. Halbe and therefore, in my considered opinion payment made to Shri Dayal Saran is also allowable for deduction u/s 48(i) on the basis of bill raised by him being for the services provided for consultation in respect of the transfer of shares unless any contrary finding is given by the AO, which he has failed to bring on record in the assessment order. Therefore, the AO is directed to allow deduction for Rs. 5,00,000/- u/s 48(i) being half portion of the payment made to Shri Dayal Saran and claimed by the appellant in the return of income. Accordingly Ground No. 8 is allowed. 12.11 In view of my decision for Ground No. 4 to Ground No. 8 discussed in previous sub-paras, certain disallowance made by the AO are deleted and certain disallowances were confirmed/enhanced as presented below in a chart: In vi....
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....with the transfer as envisaged in Explanation 5 to Section 54E of the Income Tax Act, 1961. Accordingly even otherwise the Ld. AR argued that the amount of expenses incurred and claimed against capital gain is allowable against the gross receipts on transfer of shares and the remaining amount left, attracts the capital gain tax liability. He also contended that it would also be appreciated that the major part has been assessed in the hands of the recipients. I have considered this plea of the appellant also. In Explanation 5 to section 54E for computation of net consideration also, only those expenditure are reduced from the value of sale consideration, which are incurred wholly and exclusively in connection with the transfer of a capital asset and this provision in respect of claim of deduction for expenses are similar to the provision of section 48(i) which have already been considered by me while deciding the Grounds from 4 to 8 in previous para and hence no separate decision is required on this Ground. Therefore, for statistical purposes, this Ground may also be treated as partly allowed. 13.2 While filing rejoinder to the remand report of the AO, the Ld. AR took alter....
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.... law in ignoring that the consideration received by him is in pursuance to family settlement towards an amicable settlement of the disputes and the same is not a transfer and taxable under the head 'Capital Gains'. Further in view of the appellant the definition of family given in the explanation to section 10(5) of the Income Tax Act' 61 as taken by the AO in the assessment order is for a limited purpose only. In support of this ground in the written submission filed by the Ld. AR on 15.10.2010, he contended that the section 10(5) applies to leave travel concession or assistance received by a person and hence this definition of family is for a limited purpose only. He also referred to a decision of the Supreme Court in the case of M.N. Arumurthy vs. M.L. Suvvrayia Setty AIR 1972 SC 1279, narrating the salient features of a family settlement in the following words: i) There must be an agreement amongst the various members of the family intended to be generally and reasonably for the benefit of the family. ii) The agreement should be with the object, either of compromising doubtful or disputed rights, or for preserving the family property, or the peace ....
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....d by the Ld. AR that the claim in respect of family settlement arose for the first time during the course of the assessment proceedings on the pretext of the learned Assessing officer and it was the assessee who himself had shown the amounts under the head long term capital gains and had paid tax there on. 14.3 It is not understood as to why this ground was raised in appeal when the appellant himself offered the capital gain arising on sale of shares for taxation and also paid the full tax considering that his case is not of family settlement. Even if the AO has raised this issue during the course of assessment proceeding, this issue was conclusively dealt by him in the assessment order and there was no need for raising this issue further in appeal to plead that income offered by the appellant under the head "Income from Capital Gains" is not taxable when this income was offered by him voluntarily for taxation. However, since the appellant has raised this issue during appeal, I have dealt with the Ground No. 10. In the assessment order, the AO has dealt with this issue in para No. 9 and finally he has also given finding in para No. 10 of the assessment order that the asses....
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....this order, both companies went into exclusive control of the Maheshwari Group and the Agarwal Group ceased to have any role in these two companies after they got price of their share on sale/transfer of these shares to the Maheshwari Group. They are: 3. The respondents (Maheshwari Group) are at liberty to manage the affairs and shareholding of the company in any manner without any interference by the petitioners' group 4. The petitioner's group (Agarwal Group) shall cease to remain either as shareholder/s office bearer/s or director/s of the company and shall have no concern whatsoever with the company. All the members of the Agarwal Group (including the appellant) were conscious of this fact that there was no family settlement in the final order dated 01.11.2006 of the Hon'ble CLB and as per their strategy, they have extracted best price of their shares by selling them to the Maheshwari Group and therefore, they consciously computed LTCG on sale of these shares and paid taxes and accordingly showed this LTCG in their return of income. Now it appears, the appellant is raking up this issue only because the AO during the assessment proceeding r....
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....claring this income and paying tax voluntarily, raising of such ground at appellate level that the receipt on sale of shares is capital receipt in view of loss of livelihood is a futile exercise. In support of this ground, the Ld. AR relied on a decision of Hon'ble Supreme Court in the case of Oberoi Hotel P Ltd. vs. CIT (1999) 236 ITR 903 (SC) wherein it has been held that where certain amount was received because the assessee had given up its right to purchase and/or operate certain hotel and it was loss of source of income to the assessee, amount received by assessee would be capital receipt and therefore, it was argued by him that the transfer of shares pursuant to the settlement between the family groups is a capital receipt not liable to tax. In the case law cited by the Ld. AR, the assessee was running a hotel on contract, which was sold by its owner and on sale of the hotel, compensation was paid to the assessee. Since on sale of hotel, the assessee lost source of its income which it was receiving on running of hotel in form of fee, the Hon'ble Supreme Court held the receipt of compensation as capital receipt because the amount received by the assessee was in form a....
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....9; for the purposes of Section 54EC of the Income Tax Act, 1961. However, after the date of sale i.e., 03.11.2006, there were no such bonds available. The CBDT vide Notification No. 380 of 2006 dated 22.12.2006 provided a condition of capping such bonds to Rs. 50,00,000 and hence the assessee was precluded from making complete investment and save his tax liability as originally envisaged under section 54EC as will be evident with reference to the correspondence filed. Thus the assessee was prevented by sufficient cause from depositing the second instalment of the advance tax. 16.2 I have considered the above submission and I find that the appellant became aware of the capital gain accruing to him after the order of the Hon'ble CLB was passed on 01.11.2006 well before the due date of the instalment of advance tax due on 15.12.2006. As far as the bonds to be specified for 54EC was concerned, it was notified well in advance on 29.06.2006 before the date of accruing of capital gain to the appellant on 01.11.2006, the date on which the order of the CLB was passed. If by subsequent notification, investment in bonds was caped at Rs. 50,00,000/-, it cannot be said to be suffic....
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....ower by the Central Board of Direct Taxes to reduce or waive such interest under certain condition. But the assessing authority under no condition can decide to waive or reduce charging of interest under these sections, if the assessee is at default in paying the advance taxes or filing the return late. It has already been discussed by me that the appellant was at default in not paying the advance tax on 15.12.2006 despite the capital gain has accrued to him well before this date. The interest u/s 234C would be computed by the AO after determining the final assessed income after giving effect to this appeal order However, as far as the ground no 13 challenging the levy of interest is concerned, it is dismissed. 7. We have heard the ld. Representatives of the parties. The assessee claimed expenditures under section 48(i) of the Act in calculation of long term capital gain. The CIT(A) partly allowed assessee's claim, therefore, both assessee and Revenue are in appeal before us. The summary of disputed amount in case of Shri Ajay Agarwal through various grounds of appeal are as under:-- 8. The issue under consideration whether such expenses are allowable under section 48(i) ....
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....e transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section :] [Provided also that no deduction shall be allowed in computing the income chargeable under the head "Capital gains" in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.] Explanation.-For the purposes of this section,- (i) "foreign currency" and "Indian currency" shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973); (ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf; (iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or f....
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.... (i) Commissioner of Income-tax vs. Dr. P. Rajendran, 127 ITR 810 (Ker.) - The brief facts of this case are that the State Government acquired in March 1967, the assessee's immovable property and awarded a compensation of Rs. 47,000/-. The assessee claimed before the Civil Court an enhanced compensation of Rs. 2,58,233/-. While this claim was still pending before the Sub-judge, the ITO treated the said amount of Rs. 2,58,233/- as the full value of the consideration for the transfer of the property and determined the capital gains at Rs. 2,35,233/- after deducting Rs. 23,000/- as its cost of acquisition and improvement. On appeal, the AAC negated the assessee's contention that the capital gain computation should not have been made by the ITO on the basis of his claim for enhanced compensation as the court's decision was unpredictable. He, however, reduced the capital gains of Rs. 1,06,773/- (comprising Rs. 1,19,773/- as the transfer consideration less Rs. 10,000/- as cost of its improvement). The Revenue appealed to the Tribunal. However, by the time the Tribunal heard the Revenue's appeal, the High Court had rendered the final decision. The Tribunal, accord....
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...." transfer " will include the compulsory acquisition of a capital asset under any law. Hence, the compulsory acquisition of property under the Land Acquisition Act has to be treated as a transfer for the purposes of computation of capital gains under the Act. Under the scheme of the Kerala Land Acquisition Act, the consideration for such a transfer is to be fixed in the first instance by the Land Acquisition Officer by the award to be made by him under section 11 of the said Act and in case the owner of the property is dissatisfied with the award the quantum of compensation is to be finally fixed by the civil court to which a reference is to be made under section 20 of the Act. In a case where the matter is so taken to the civil court by way of reference under section 20 of the Land Acquisition Act, the fixation of the quantum of consideration for the transfer is finally effected only by the decision rendered by the civil court. Such fixation forms an integral part of the process of transfer by way of compulsory acquisition provided by the Land Acquisition Act. The expenditure incurred by the assessee in conducting the land acquisition reference proceedings before the civil court c....
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....evenue was directed to determine the nature of the amount and pass appropriate order". (See also CIT v. Smt. M. Subaida Beevi (1986) 160 ITR 557 (Ker) and CIT v. R. Ranga Setty (1986) 159 ITR 797(Ker)-legal expenses allowable) (iii) Commissioner of Income-tax vs. R. Ramanathan Chettiar (Mad)152 ITR 489 (Mad.) - The brief facts of the case decided by the Madras High Court are that the assessee sold certain lands after converting them as house sites and for this purpose, maintained an office for preparing lay-out plans and for locating prospective purchasers. In the computation of capital gains, the assessee claimed deduction of expenditure incurred on travelling, stationery, salary and repairs to office premises. The ITO held that the deduction was not allowable, either as cost of improvement or as expenses incurred solely in connection with the transfer of the land. Though the Commissioner (Appeals) held that the assessee will be entitled to deduction of fifty percent of the expenses incurred, the Tribunal allowed the claim in full. It also rejected the revenue's reference application under section 250(1). The court held that it was not the dispute that the as....
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....red under section 10(2)(xv). (v) CIT v. Dhanarajgirji Narasingirgi, 91 ITR 544 (SC).- The Court held as under:-- All that the court has to see is whether the legal expenses were incurred by the assessee in his character as a trader, in other words, whether the transaction in respect of which proceedings are taken arose out of and was incidental to the assessee's business. Further, we have to see whether the expenditure in question was bona fide incurred wholly and exclusively for the purpose of business-It was the duty of the assessee to see the prosecution was properly conducted. He was interested in successfully prosecuting the case. The fact that he did not leave the carriage of the case in the hands of the prosecuting agency of the Government is no ground for disallowing the expenditure. It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best. (vi) Siddho Mal & Sons vs. ITO (Delhi), 122 ITR 839 (Delhi) - The Hon'ble Delhi High Court has held as under:- (Head note) Held, on the fa....
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....f there are abnormalities attaching to such transactions. It is not for the court to go into appreciation of evidence of circumstances attaching to a transfer to determine whether the Tribunal was justified in arriving at the finding that a certain payment was not exclusively for the purpose of the business of the assessee as this is wholly a question of fact and not of law. (vii) Commissioner of Income Tax Vs. Shakuntala Kantilal [(1991) 190 ITR 56] (Bomb). In this case, it is held by the Bombay High Court that the expression used in Section 48 of the Act, viz., "expenditure incurred wholly and exclusively in connection with such transfer" has wider connotation than the expression, "for the transfer". Similar view has been taken by the Madras High Court in the case of Commissioner of Income Tax vs. Bradford Trading Co. P. Ltd. [261 ITR 222]. 11. From the above discussions, we find that what is allowable expenditure under section 48(i) depends upon the facts of each case. When a case is to be decided on its facts, then the entire facts, circumstances including surrounding circumstances and commercial expediencies all are required to be considered toget....
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....Trading Co. Pvt. Ltd. was engaged to arrange the fund, payment made to them are for arranging the fund and not in connection with the transfer of shares and hence payment of Rs. 8.5 Crores made to M/s. Churu Trading Co. Pvt. Ltd. should not be allowed as deduction under section 48(i) of the Act. The A.O. also pointed out that the intention of the Agarwal Group was initially not to sell the shares; otherwise they would have not pledged the 35.33% of their share holding as security for obtaining the fund. Therefore, in his opinion, initially the intention of the assessee was to buy the majority share holding and hence the expenditure incurred for arranging the fund for buying the majority share holding should not be allowed and hence he contended that the payment made to M/s. Churu Trading Co. Pvt. Ltd. and other consultants for arranging the fund and preparation of CLB petition and appearing before the CLB for arguing the case of the assessee was not allowed u/s 48(i). 13. We have considered the payment-wise facts of the case under consideration as under:-- Payment of Rs. 2,24,24,000/- + Rs. 3,13,200/- to M/s. S.R. Halbe & Associates, Mumbai: 14. The payment of Rs. 2,24,24,....
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.... while visiting Delhi to attend these proceedings and the Agarwal Group reimbursed those expenses, they should also be allowed as being incurred in connection with the transfer of shares. As the full amount of these expenses being Rs. 3,13,200/- has been claimed by the assessee is allowable. We, therefore, find that the CIT(A) has rightly directed the A.O. to allow deduction for Rs. 3,13,200/- also under section 48(i) of the Act. Payment of Rs. 8,50,00,000/- to Churu Trading Co. Pvt. Ltd. Mumbai & Rs. 2,50,000/- to Rabo India Securities Pvt. Ltd., Mumbai- 16. Both these parties were engaged by the Agarwal Group for providing financial advisory services and assisting them to arrange funds to acquire shares of Majority Group in both companies. In this process, the Agarwal Group first approached M/s. Rabo India Securities Pvt. Ltd. that acted as strategic and financial advisor to Agarwal Group for acquisition of shares and through this party they were introduced to the second party i.e. M/s. Churu Trading Company Pvt. Ltd. that later played important role till the shares held by the Agarwal Group were sold instead of purchasing the shares of Majority share holder as per their st....
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....further moved to CLB to restrain the Agarwal Group to buy majority share holding and even agreed to pay Rs. 22 Crores extra amount over and above the 35.33% of valuation of shares of Rs. 390 Crores which comes to Rs. 138 Crores and finally as per their strategy as explained earlier, the Agarwal Group got Rs. 160 Crores by selling their 35.33% of share holding. That the excess realization of Rs. 22 Crores could be made possible primarily with the intervention of the arranger i.e. M/s. Churu Trading Co. Pvt. Ltd. That the Maheshwari Group agreed to pay Rs. 22 Crores extra so that the shares which were pledged as security with M/s. Media West could be lifted and shares are sold to the Maheshwari Group. For this purpose, the arranger M/s. Churu Trading Co. Pvt. Ltd. demanded for 50% of the extra amount realized by the Agarwal Group but ultimately as per the initial agreement only Rs. 8.5 Crores was paid. As per the agreement, arranger fees of Rs. 8.5 Crores was to become due on achieving the financial closure of Rs. 252 Crores, not withstanding whether the Agarwal Group draws down the arranged fund or not and only after arranging the full fund of Rs. 252 Crores, the arranger fees was t....
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....Gupta, Advocate, New Delhi 17. That the payment of Rs. 44,22,400/- was claimed to have been made to Smt. Bina Gupta as fee for preparation of petition, appearance before the CLB and fee for appearance before Hon'ble Allahabad High Court and Hon'ble Supreme Court including consultation from time to time in respect of transfer of shares. Out of total payment of Rs. 44,22,400/- made to Smt. Bina Gupta by all the members of Agarwal Group's share of payment made to her is Rs. 15,40,000/-. Out of the amount of Rs. 6,25,000/- claimed by the assessee as deduction under section 48(i) of the Act on account of payments made to Smt. Bina Gupta. It was noticed by the A.O. that certain expenses were incurred in cash on vouchers which are basically reimbursement of expenses related to traveling, lodging and boarding etc. totaling to an amount of Rs. 6,25,000/-. Looking at the supporting bills, the A.O. concluded that such payments fell under the category of various miscellaneous accounts of logistic expenses which are not distinctly related and integrally connected with the transfer of shares. Therefore, he held that Rs. 6,25,000/- is not admissible for deduction under section 48(i....
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....f bill raised by him being for the services provided for consultation in respect of the transfer of shares unless any contrary finding is given by the A.O., which he has failed to bring on record in the assessment order. Therefore, the CIT(A) directed the A.O. to allow deduction for Rs. 5,00,000/- under section 48(i) of the Act being half portion of the payment made to Shri Dayal Saran and claimed by the assessee in the return of income. In the light of detailed discussion made in Paragraph Nos. 8 to 18, we do not find any infirmity in the order of the CIT(A). 20. After examining item-wise payments of expenditures, we find that in principle, the A.O. and CIT(A) both agreed with the assessee that the claim of expenditures are allowable while computing capital gain under section 48(i) of the Act. But the A.O. has demarcated a line on presumption that part of the expenditures were incurred for acquisition of shares of majority holders. The CIT(A) also partly disallowed following an order of Authority for Advance Ruling in the case of Compagnie Financiere Hamon (2009) 310 ITR 1 (AAR) on the ground that the services for which payment made did not extend to the process of valuation of....
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....enditures incurred are wholly and exclusively in connection with such transfer. The Hon'ble Kerala High Court in the case of Dr. P. Rajendran (Supra) held that the words "in connection with" used in clause (i) of section 48 are very wide in their ambit and hence there is no warrant for importing a restriction that to qualify for deduction the expenditure must necessarily have been incurred prior to the passing of title. The crucial test to be applied is whether the expenditure was incurred wholly and exclusively in connection with the transfer and it is immaterial whether it was incurred prior or subsequent to the passing of title. As stated above, that the assessee was minor share holding in the company and was having no capacity to buy the majority share holding. That is the reason the minority share holder i.e. the assessee merely made the arrangement and such strategy can be said to be a part of strategy which an ordinary man of business can resort to in getting maximum consideration of minority share holding. In the case of CIT vs. Dr. P. Rajendran (Supra), the Hon'ble Kerala High Court held that the expenditure incurred by the assessee in conducting land acquisition p....
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....ttending the proceedings before the CLB. It is important to note that case before CLB was for business settlement between two groups. However, the A.O. did not accept reimbursement claim of expenses to M/s. S.R. Halbe & Associates whereas the nature of expenditures were same. How one can bifurcate such fee and its related expenditures separately first one fee is to allow and other part of reimbursement of expenses on the ground that these were not in connection with transfer of shares. This finding of the A.O. is on presumption basis and not on facts. Once it is found that fee paid to S.R. Halve & Associates for appealing before CLB is in connection with transfer of share then on the same reason and basis reimbursement of expenses are also carried same nature of expenditure. It can not be bifurcated artificially on presumption basis. Similar is the position of expenditure paid to M/s. Churu Trading Co. Pvt. Limited, Rabo India Securities Limited & others. For disallowing this expenditure the A.O. said that these expenditures were related to purchases of shares of Maheshwari Group whereas finally that was not the case. The final result of all these efforts was that the assessee was ....
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....tated above, that in such circumstances, each case is to decide on its facts, therefore, the order relied upon by the CIT(A) is distinguishable on facts. 23. If we consider the entire principles laid down in above judgments including accounting and principle of commercial expediency in the light of the provisions of the Act including section 48(i) of the Act, we find that the expenditures were incurred in commercial expediency which resulted into higher sale consideration. The settlement of business dispute and incurring expenditure related to settlement amounts to commercial expediency. Even otherwise also, on acceptance of Revenue's view the accounting principle suggest that the expenditures incurred for purchasing shares of Maheshwari group by the Agarwal group therefore such expenditures are allowable under section 48(i) of the Act because final outcome of expenditures incurred was for selling shares by Agarwal group and realization of higher sale consideration of holding of Agarwal group. We accordingly allow the claim of the assessee. We set aside the order of the A.O. and modify the order of the CIT(A) allowing assessee's claim where he sustained the additions. Th....
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.... Securities (P) Ltd. & Mrs. Bina Gupta. Ground No. 3 is in respect of enhanced disallowance of Rs. 40,000/- being payment made to Mrs. Bina Gupta. Ground No. 4 is in respect of disallowance of Rs. 1,50,000/- being payment made to Shri Sudipto Sarkar, Advocate. 34. As per the detailed discussions made in paragraph Nos. 8 to 24 of this order, we find force in the ground of appeal of the assessee and in the light of above discussions, addition sustained by the CIT(A) are deleted including the enhanced addition of Rs. 40,000/- in respect of disallowance of amount paid to Mrs. Bina Gupta, Shri Sudipto Sarkar and M/s. Rabo India Securities (P) Ltd. 35. In ground No. 5 the assessee has raised the issue pertaining to charging of interest under section 234C of the Act. The main contention of the assessee is that there was sufficient cause for not depositing the second installment of advance tax on or before 15.12.2006 as no capital gain was payable as the assessee intended to deposit the same in notified bonds in terms of section 54EC of the Act, but the same were not available timely. 36. Ld. Authorised Representative submitted that there was sufficient cause for not depositing th....
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....===== Document 1 (I) LTCG on Sale of Shares of Amar Ujala Publications Sale Proceeds Less (i)Indexed Cost of acquisition Rs.76,87,425/- Rs.49,95,32,495/- (ii). Expenditure in connection with share Rs.4,06,10,000/- Rs.4,82,97,425/- transfer Rs.45,12,35,070/- Less: Exemption u/s 54EC Rs. 50,00,000/- Rs.44,62,35,070/- (I) LTCG on Sale of Shares of M/s A & M Publications Ltd. Sale Proceeds Less Indexed Cost of acquisition Rs. 6,34,02,208/- Rs. 10,77,175/- Rs.6,23,25,033/- Total Long Term Capital Gain (i) On sale of shares of M/s Amar Ujala Rs. 44,62,35,070/- Publication Ltd. (ii) On sale of M/s A&M Publication Ltd. Total LTCG Add Share Transfer Expenditure disallowed in the Asst. Order TOTAL ASSESSED LTCG Rs. 6.23.25.033/- Rs.50,85,60,103/- Rs. 3,18,38,200 Rs.54,03.98.303 Document 2 Name of the Assessee Name & Address of person/party to whom payment made M/s Chura Trading Co Pvt Ltd. Continental Building. 135, Dr. A.B. Road, Mumbai Ajay Agarwal Remi Agarval Kamlesh Agarwal Amount (Rs.) & Amount (Rs.) & Amount (Rs.) & Amoun (Rs.) (D....
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....arwal 4.41% 1,76,500 Total 35.33% 14,13,333 35.33% 3,53,300 Maheshwari Group Ashok Agarwal 6.30% 2,51,867 7.00% 70,000 Daya Agarwal 6.00% 60,000 Manu Anand 11.37% 4,54,800 4.67% 46,700 Atul Maheshwari 8.87% 3,55,000 10.00% 1,00,000 Snehlata Maheshwari 14.63% 5,85,000 8.00% 80,000 Tanmay Maheshwari 5.50% $5,000 Rajul Maheshwari 23.50% 9,40,000 18.00% 1,80,000 Varun Maheshwari 5.50% 55,000 Total 64.67% Grand Total 25,86,667 | 64.67% 40,00,000 6,46,700 10,00,000 Document 4 Agarwal Group Late Shri Dorilal Agarwal (father) Maheshwari Group Late Shri Muraril lal Maheshwari (father) Shri Ashok Agarwal (son) Majority Majority Manu Anand (son) Shri Atul Maheshwari (son) Group Group Smt Snehlata Maheshwari (wife) Late Shri Anil Agarwal (son) Kamlesh Agarwal (wife) Shri Rajul Maheshwari (son) Minority Saurabh Anand Group Sagar Anand (son) Shri Ajay Agarwal (son) (son) Note: Family of Shri Ashok Agarwal later joined Maheshwari family as discussed in earlier para and thus forming ....
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....anking that the Minority cannot pay the price for acquisition of their 64.67% Reimbursement of travelling leading and 3.13.200 boarding expenses. 44,22,400 Fees for preparation of petition including appearance before the Company Law Board. Fees for appearance before the Hon'ble Allahabad High Court and Supreme Court including Consultation taken from time to time in respect of the transfer of shares being Escrow Agent. 150000 Appearance Fees before the Company Low Board en various dates vi: 17.01.2006, 24.01.2006 and 25.01.2006 2.50.000 Paid for Strategic and Financial advisory services Marg, Fort Mumbai Mr. Dayal Saran, 5,00,000 5.00.000 10,00,000 Advocate 63. Nehru Nagar Agra Total 5,75,89,200 5.59,70,400 11.35,59,600 Fees for the Consultation taken from time to time in respect of the transfer of shares Document 7 Name of the Assessee Name & Address of person I party to whom payment made Ajay Agarwal Reun Agarwal Amount (Rs.) Amount (Rs.) & (Date of & (Date of Payment) M/s Churu Trading Co. Pvt. 3,00,00,000 Ltd. Continental Building. 135 Dr. A.B. Ro....
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....arding lodging and travelling expenses) Note: this expense was fully dained by Shri Ajay Agarwal (appellaut) Rs. 30,60,400/- Rs. 5,25,000/- in the hand of Shri Ajay Agarwal (appellant) + Rs. 7,37,000/- in the hand of Smt. Renu Agarwal holding that these expenses falls under the various category of miscellaneous accounts of logistics expenses not distinctly related end integrally connected with transfer of shares Document 9 In relation to Cost of Improvement Goodwill of a business or a right to 'Nil manufacture, produce or process any article or thing or right to carry on any business. Capital asset, which became the property All expenditure incurred in making any of the previous owner or assessee before additions or alterations to the capital asset the 01.04.1981. In any other case on or after the said date (01.04.1981) by the previous owner or the assessee. All expenditure of a capital nature incurred in making any additions or alterations by the assessee after it became his property or by the previous owner. Document 10 M/s S.R. Halbe & Associates Advocates Founta....
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....d on various dates viz 17.01.2006, 24.01.2006 and 25.01.2006 Paid for Strategic and Financial advisory services Fees for the Consultation saken from time to time in respect of the transfer of shares As per the Assessing Officer The Agarwal Group entered into agreement for arranging 252 Crores to acquire majority shareholding in the companies. As per the agreement the arranger fees was due on achieving a financial closure of Rs. 252 Crore whether the Agarwal Group shall be able to draw down the arranged fands or not. This was as all inclusive and not refundable fees. Thus it is amply clear that the fee basically was in the nature of arrangement of the fund and no way was in the connection of transfer of shares of Agarwal Group to Maheshwari Group. The payment is accepted to have been incurred in connection with the transfer of shares These expenses do not find any place to be directly connected with the transfer of shares Out of these expenses it is noticed that certain expenses hes been incurred in cash on vouchers from the accounts of differen members of Agrawal Group which are basicall....