TaxTMI 
TaxTMI 
2025 (5) TMI 2125
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....ties, facts and circumstances of the appellant's case. 2. The appellant denies himself liable to be assessed over and above the total income returned an amount being Rs. 10,78,66,870/- under the facts and circumstances of the case. 3. The learned Authorities below are not justified in disallowing the expenses of an amount being Rs. 74,19,097/-, claimed by the appellant, under the facts and circumstances of the case. 4. The learned Authorities below are not justified in disallowing the amount of Rs. 74,19,097/-, as expenditure wholly and exclusively not in connection with transfer U/s. 48 of the Act, under the facts and circumstances of the case. 5. the appellant denied himself liable to be charged to interest under section 234C of the Income Tax Act, 1961 under the facts and circumstance of the case. 6. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 7. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity. 3. Succinctly stated, the assessee compan....
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.... Harsco Corporation (USA) did not permit the transfer of shares of HIPL by the assessee company to OXEECO due to any reason whatsoever; or OXEECO decided not to purchase the shares from the assessee company for any reason whatsoever, then the assessee company would be obligated to return the amount that was advanced by OXEECO for purchase of shares on or before 31/03/2016 along with compensation that would be mutually agreed upon. The assessee company submitted that as there was a considerable delay in completing the necessary formalities for the sale of HIPL shares by the assessee company to OXEECO, therefore OXEECO had decided not to go ahead with the purchase of HIPL shares. It was submitted by the assessee company that the subject HIPL shares (28,62,866 shares) were transferred by the assessee company to Harsco Corporation (USA). It was further submitted that as per the "addendum", dated 03/06/2016 to the "Share Purchase Agreement", OXEECO had requested the assessee company to refund the advance that it had paid for the purchase of HIPL shares along with compensation. It was further stated that as per the terms of the "addendum", the assessee company had agreed to pay a compens....
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....to the LTCG declared in its return of income. 7. Aggrieved, the assessee company carried the matter in appeal before the CIT(A) with but without success. 8. Ostensibly, the CIT(A) was of the view that as the transfer of shares of HIPL by the assessee company to Harsco Investments Europe BV had no connection with the compensation that was paid to OXEECO, therefore, both transactions were exclusive of each other. Accordingly, CIT(A) holding a conviction that the assessee company had failed to establish any connection of the amount of compensation paid to OXEECO and the transfer of shares of HIPL to Harsco Investments Europe BV, therefore, the same was rightly disallowed by the A.O. while computing the income of the assessee company under the head LTCG on the transfer of the subject shares. For the sake of clarity, the observations of the CIT(A) are culled out as under: 8.2. The submission of the appellant and case laws relied upon are perused. The appellant has contended that it is eligible to claim Rs. 74,19,097/- as expense incurred for selling of shares to HIEBV. The appellant has stated that the amount was paid to M/s. Oxygen Equipment and Engineering Company Limit....
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....f inserting advertisements in newspapers for sale of the asset and commission paid to auctioneer, etc. However, it is necessary that the expenditure should have been incurred wholly and exclusively in connection with the transfer. An expenditure incurred primarily for some other purpose but which has helped in effecting the transfer does not qualify for deduction. In the instant case, it is clear that transfer of shares to HIEBV does not have any connection with the compensation amount paid to OXEECO, as the agreement does not bar the appellant for sale of shares to them. It is apparent that both the transactions are mutually exclusive of each other and the appellant failed to establish no connection between the amount paid to OXECCO and the transfer of shares of HIPL to HIEBV. 8.3.1. The expression "expenditure" used in clause (i) in section 48 should be given the same meaning as used in section 37 of the Act, except that expenditure may be also capital in nature. Expenditure would primarily connote and has the meaning of spending or paying out. In a given case, it may also cover the amount of loss, which has gone out of the appellant's pocket. Settlement of a claim a....
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....ablish no connection between the amount paid to OXECCO and the transfer of shares of HIPL to HIEBV. 8.3.1. The expression "expenditure" used in clause (i) in section 48 should be given the same meaning as used in section 37 of the Act, except that expenditure may be also capital in nature. Expenditure would primarily connote and has the meaning of spending or paying out. In a given case, it may also cover the amount of loss, which has gone out of the appellant's pocket. Settlement of a claim and payment made can amount to expenditure. Again, the words "wholly and exclusively" used in section 48 are also to be found in section 37 of the Act and relate to the nature and character of the expenditure, which in the case of section 48 must have connection i.e., proximate and perceptible nexus and link with the transfer resulting in income by way of capital gain. In the instant case, even if no compensation is paid to the OXECCO, the transaction would have been carried since the agreement does not specify anything which prevents the appellant from selling of shares of HIPL to any other party. As such, the appellant's claim that the expense incurred is in connection with t....
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....mortgage created at the time of acquisition of the property by the instant appellant/assessee, to make a distinction otherwise. [Para 13] The observation made in the case of Gopee Nath Paul & Sons (supra) supports the view of this Court that where the discharge of mortgage created by the assessee for acquiring the property, the same would not be deductible. The abovesaid decision is clearly distinguishable on facts and the observation in said decision further strengthens the view of this Court in regard to the amounts which are to be deductible as expenditure. [Para 14] In the light of the decisions as quoted above, this Court is persuaded to follow the reasoning of this Court in N. Vajrapani Naidu's case (supra), which is squarely applicable to the facts of the instant case and, therefore, there is no hesitation to accept the view of this Court in the case of N. Vajrapani Naidu's case (supra). [Para 15]" In the present case to, discharging his liability toward OXECCO does not impact the sale transfer. 8.4.1. Further, the reliance is placed on the decision of Hon'ble HIGH COURT OF DELHI in the case of Smt. Sita Nanda Vs. ITO in [2001]....
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.... stated that the contract is enforced by the law and as such contended that the expense is to be treated as expense incurred wholly and exclusively in connection with the transfer. Further, the appellant has contended that there is no restriction under any law in borrowing money from banks or other person, nor the appellant has violated any law by borrowing the money from OXEECO. The appellant has stated that the amount of Rs. 74,19,097/-, was incurred by the Appellant for the acquisition of the shares (i.e.) capital asset. Further, it was stated that expense incurred by the Appellant for keeping the capital asset in possession and the same is in the nature of any other expenditure that the Appellant might have incurred to maintain the capital asset. As such, the same is included in computing the actual cost of the Appellant of the capital asset. In this regard, attention is drawn to the purchase agreement dated 21/11/2014, which implies that no compensation amount needed to be paid by the appellant if the shares are transferred to OXECCO before 31/03/2016. As such, no expenditure was to be incurred if the appellant obliges the contract. However, in the present case, the appellant ....
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..... 11. Controversy involved in the present appeal lies in a narrow compass i.e., allowability of the assessee's claim for deduction of compensation expenses of Rs. 74.19 lacs (supra) that was paid to OXEECO, while computing the LTCG arising on the transfer of the said shares to Harsco Investments Europe BV. 12. As is discernible from the record the assessee company had received an amount of Rs. 9.83 Crores (supra) from OXEECO for the purchase of HIPL shares. On a perusal of the Share Purchase Agreement, dated 21/11/2014, we find that as per Para-5 of the agreement, if in case Harsco Corporation (USA) would not permit the transfer of shares of HIPL as were held by the assessee company to OXEECO due to any reason whatsoever; or OXEECO decided not to purchase the shares of HIPL from the assessee company for any reason whatsoever, then, in either case the assessee company will return the amount advanced by OXEECO for purchase of shares on or before 31/03/2016 along with compensation as would be mutually agreed upon. For the sake of clarity the Para-5 of the aforesaid "agreement" is culled out, as under: "5. In the event the "HARSCO Share-holders" not permitting the transf....
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.... (ii) the cost of acquisition of the asset and the cost of any improvement thereto:" (emphasis supplied by us) 16. Ostensibly, it is only the expenditure incurred wholly and exclusively in connection with the transfer of a capital asset that is allowable as a deduction U/s. 48(i) of the Act. Although the assessee company had claimed to have paid "compensation expenses" of Rs. 74.19 lakhs (supra) for not transferring the shares of HIPL to OXEECO, but, we are unable to comprehend that as to how the said expenditure/ payment could be held to have been incurred wholly and exclusively in connection with the transfer of 28,62,866 shares by the assessee company to Harsco Investments Europe BV. As observed by the A.O, and rightly so, as the advance of Rs. 9.83 Crores (supra) received by the assessee company from OXEECO and the transaction of sale of shares of HIPL to Harsco Investments Europe BV are two independent transactions that are in no way connected, therefore, the compensation paid by the assessee company to OXEECO cannot be brought within the meaning of an expenditure incurred wholly and exclusively in connection with the transfer of shares of HIPL. We say so, for the r....
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....captioned appeal was whether or not the interest paid by the assessee on the funds borrowed for the purchase of land would constitute part of the actual cost of land to the assessee for determining the capital gains arising on the transfer of the same, we are afraid that as the same is not the issue which we are seized of in the present appeal, therefore, the said judicial pronouncement being distinguishable on facts would not carry the case of the assessee company any further. D. CIT vs. K. Raja Gopala Rao [2001] 252 ITR 459 (Madras): 22. The issue before the Hon'ble High Court was that as to whether or not the mortgage expenses incurred by the assessee in connection with the acquisition of the property and the interest payable on the mortgage amount which was utilized as a part of the purchase consideration would form part of the cost of acquisition of the property for computing the capital gains on transfer of the same. Answering the aforesaid question, the High Court had observed that the cost of acquisition to the assessee was not only the amount that he had paid to the vendors but also the cost of the borrowing made by him for paying the amount to the vendor and exe....