TaxTMI 
TaxTMI 
2025 (4) TMI 1732
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....d by the Assessing Officer, the delay of one day in filing the present appeal is condoned. 3. The revenue has raised the following grounds of appeal: (i) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in giving relief of Rs. 50 crores which is bad in law and against justice and liable to be quashed. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the amount paid to bank to remove encumbrance qualifies for deduction as expenditure incurred wholly and exclusively in connection with such transfer as mentioned in section 48(i) of the Income Tax Act. (iii) The Ld. CIT(A) has failed to appreciate the fact that amount paid to bank is a charge on property created by the assessee himself and cannot claim deduction of the same as expenditure under section 48(i) or as 'diversion of income by overriding title'. (iv) Any other ground that may be urged at time of hearing. 4. The learned DR has submitted that the assessee sold the agricultural land situated at Village Kapashera, Delhi for a consideration of Rs. 61.25 crores but, did not offer the capital gain ....
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....by the ICICI Bank dated 12/03/2015 and submitted that it is only because of the demand of the Bank and settlement/agreement between the bank and the assessee, the property was sold after taking the no objection from the Bank and the sale consideration was directly applied for the repayment of the loan amount. He has referred to clause (5) and (6) of the agreement and submitted that to avoid the auction of the property, which would have damaged the image and reputation as well as the business of the assessee, the assessee took a wise business decision to pay the part payment to the bank as per the said letter dated 12/03/2015 from the sale proceeds of the property, in question, and made the payment of Rs. 50 crores to the bank. Thus, once the amount was directly appropriated by the bank for recovery of the loan, the same cannot be assessed as income of the assessee. The learned AR has submitted that the payment of the amount to the bank is nothing but discharge of the charge and diversion by overriding the title which is an allowable deduction u/s 48(1) of the I.T. Act, 1961. Therefore, only the real income derived by the assessee out of the sale transaction can be assessed to tax. ....
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....39;s Act, then avoiding the processes of SARFASI Act, 2002 to recover the loan amount where the assessee would not have received even a sum of Rs.11.25 crores, the assessee took a wise business decision to sold the property after negotiating with the Bank and taking a permission for sale. The assessee was under the liability as a guarantor arises out of contractual obligation with the Bank. As per the provisions of section 13 of the SDARFASI Act, 2002, the bank is empowered to sell the property and utilize the proceeds against the loan given to M/s. Soma Infrastructure (P) Ltd. The learned AR has relied upon the judgement of the Hon'ble Supreme Court in the case of Sital Das Tirathdas (41 ITR 367 (S.C) as well as in the case of National Cooperative Development Corporate, reported in 119 Taxmann.com 137 (S.C) and submitted that the principle of diversion of overriding title is applied, if a portion of income arising out of corpus held by the assessee is applied for the purpose of meeting some expenditure arising out of an obligation imposed on the assessee by a contract or by statute or by own violation or by the law of the land and if the income is already diverted away by supe....
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....nt material available on record. The solitary issue raised by the Revenue in this appeal is whether the learned CIT (A) is justified in allowing the claim of deduction in respect of the amount paid to the bank to remove the encumbrance created by way of guarantee agreement and mortgage of the land in question against the loan taken by the sister concern M/s. Soma Infrastructure (P) Ltd. The Assessing Officer noted that the assessee has made the payment of Rs.50 crores towards the loan liability of the borrowing company and then calculated the capital gain on the net consideration of Rs. 11,25,00,000/- out of the total sale consideration of Rs. 61.25 crores. The Assessing Officer disallowed this claim of Rs.50 crores as deduction against the capital gain on sale of the land, in question. On appeal, the assessee contended before the learned CIT (A) that it has given the said land as a security for the loan taken by the sister concern M/s. Soma Infrastructure (P) Ltd during the financial year 2011-12 from ICICI Bank Ltd. The title deeds were kept with the Bankers on a simple mortgage. Meanwhile the entire group of the assessee went into severe financial crisis resulting the default in....
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.... Ltd. during the F.Y. 2011-12 and kept its property under mortgage against the loan. The appellant had also submitted copy of the guarantee agreement entered with the bank. Since the borrowing company defaulted on the loan banker got the property sold to get the repayment for the dues of the borrower company. As per the appellant the land was sold for Rs. 61.25 cr but out of it Rs. 50 cr was paid to the bank as loan liability and therefore the appellant only realized Rs. 11.25 cr. The AO did not agree with the reasoning of the appellant by stating that the appellant had not given satisfactory documentary evidence in support of its claim about payment of Rs. 50,00,00,000/- towards loan liability. The AO further stated that the appellant had not filed his return of income u/s 139(1) and thus not declared its capital gain arising on sale of property. The AO also stated that the appellant had not submitted the calculation of capital gain and cost of acquisition of property and in the absence of said details the AO treated the amount of Rs. 61,25,00,000/- as short term capital gain of the appellant. 6.3.3 The appellant in its submission has again reiterated the stand taken befo....
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....9; Financial Corporation sold the property mortgaged and its sale proceeds were appropriated towards the loan taken by the 'N' Ltd. In these circumstances in view of the fact that the sale proceeds were credited in the assessee's name in the accounts of the N Ltd. the ITO held that the assessee should be deemed to have received the entire sale proceeds. The sale proceeds amounted to Rs. 13,12,414 and from the said amount deducting Rs. 50,000, the amount of capital gains was computed at Rs. 12,62,414. On appeal, the Commissioner (Appeals) confirmed the order of the ITO. On second appeal, the Tribunal held that no amount was received by the assessee. The entire sale consideration was paid directly to the K Financial Corporation by the purchasers and it was thereafter only that the mortgaged property was released. The Tribunal made the situation more specific that the sale consideration was diverted to the K Financial Corporation by overriding title. The Hon'ble High Court held as under: From the facts of the case, it was clear that the assessee received not a pie as a result of the transfer under consideration. The situation also undisputedl....
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....nsideration while computing capital gains from transfer of shares of company - Whether, accordingly, assessee was entitled to refund of excess tax paid on such excess capital gains amount in escrow account which was shown earlier for tax - Held, yes [Paras 16 to 18] [In favour of assessee]. 6.3.4 The appellant has also relied on the judgment of the Hon'ble ITAT Delhi in the case of Addl. CIT vs. Glad Investments (P.) Ltd. 105 TTJ Delhi 228 wherein the Hon'ble ITAT has done a comprehensive analysis of all the decisions of the various courts and come out with a detailed order. The relevant extract of the judgment is as under: 32. After careful consideration we are of the view that we should follow the judgment of Hon'ble Calcutta High Court in the case of Gopee Nath Paul (supra) and of Hon'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra) in preference to the judgment of Hon'ble Bombay High Court in the case of Roshanbabu Mohammed Hussein Merchant (supra) for the following reasons: (1)Both in the cases of R.M. Arunachalam (supra) and V.S.M.R. Jagdishchandran (supra), the Hon'ble Supreme Court were not considering ....
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.... confined to a claim for deduction by way of cost of acquisition or cost of improvement under section 48 of the Act. The questions referred by the Tribunal to the High Court have to be considered in the light of the said submissions. The submission regarding diversion involves the question whether apart from the deductions permissible under the express provision contained in section 48 of the Act, deduction on account of diversion is permissible in the matter of computation of capital gains under the Act. This is an entirely independent issue which has not been considered by the Tribunal or the High Court. It cannot be permitted to be raised for the first time at this stage. We, therefore, do not propose to go into this question." It is, therefore, submitted with respect that the question that the assessee did not receive a single pie in the whole transaction remains unanswered by the judgments of Apex Court in the cases of R.M. Arunachalam (supra), V.S.M.R. Jagdishchandran (supra) and Attili N. Rao (supra). (3)In the case of Roshanbabu Mohammad Hussein Merchant (supra) the assessee had sought permission from the bank and voluntarily deposited part of the sale pro....
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....ose his right over the shares on account of pledging these shares with credit institutions. We have no difficulty in accepting this contention. Of course the assessee must have known the risk involved. Having regard to the huge amount involved it may also be safely assumed that the assessee should have been reasonably aware of the very likelihood of loosing the capital asset. If these hazards did not deter the assessee, the assessee was within his legal rights to do whatever he felt like to do with his absolute property. The assessee was even entitled to throw these shares from the window of a running train if he so wished because he was absolute owner of these shares. In the case before us there is not even a whisper of any advantage received by the assessee. On the facts of the case as they have emerged before us the only possible inference is that the assessee made a kind of gift of these shares in favour of Pertech and Swati. 33. In the case of Shiv Shankar Lal v. CIT [1974] 94 ITR 433 (Delhi), the assessee sold on July 25, 1961, 6120 sq. yds., out of a large plot of land belonging to him, to a company comprising of himself, his wife and his son as shareholders for a s....
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....nd the fair market value. In other words, he would get something for nothing. This being the true nature of a gift as known in common parlance, if a bona fide transaction is not bifurcated in this manner, then even if one rupee is all that is charged and received for a property, of which the fair market value is rupees ten lakhs the revenue would contend that capital gains tax as also gift tax would be attracted; whereas if nothing is charged then only gift tax would be attracted. This is certainly an anomalous situation. It would, therefore, appear to us that this dichotomy is essential for a bona fide transaction. We think that this conclusion also derives support from the object and intendment of the exemption in section 47(iii) which is that transfers involving an element of bounty need not be considered for capital gains. The situations contemplated in this clause are those in which a person effects transfer by way of conferring a favour on another and are incompatible with an idea of realisation of any gains by such transfer. As already pointed out, there is no logical reason why capital gains should be excluded if the transferor receives no consideration at all but ....
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....rt have stated this position in the following words: "For the reasons already stated, we are of the opinion that the expression "full value of the consideration" cannot be construed as the market value but as the price bargained for by the parties to the sale. The dictionary meaning of the word "full" is "whole or entire, or complete" (Shorter Oxford English Dictionary). The word "full" has been used in this section in contrast to "a part of the price". Consequently, the words "full price" mean "the whole price". Clause (2) of section 12B itself clearly suggests that if no deductions are made as mentioned in sub-clause (ii) thereof, then that amount represents the full value of the consideration or the full price. In other words, when deductions are made as specified in sub-clauses (i) and (ii), then that amount does not represent the full value. The expression "full value" means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer." 36. In the case of Mohanbhai Pamabhai (s....
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....hing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him." 38. We are now left with the argument of the revenue that constructively the assessee should be treated to have received the amounts of sale proceeds. It is argued that credit institutions sold the shares in question on behalf of the assessee and the sale proceeds were applied in discharge of debts owed to the credit institutions by Pertech and Swati on behalf of the assessee. We do not see any basis for these arguments of the revenue. It is not the case of the revenue that the assessee sold the shares belonging to him first and deposited sale proceeds with the credit institutions as security. What the assessee parted with an....
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....y the AO, the submissions of the appellant and the judgments relied upon by the appellant. After the perusal of the submission of the appellant it is seen that the appellant had in fact submitted the following documents on various dates as mentioned below: Reply dated 15.3.2022 :- 1. IT acknowledgement and computation of income. 2. Purchase deed in 4 volumes. 3. Cost of improvement. Reply dated 26.3.2022 :- 1. Covering letter. 2. Bank statement of Soma Infra 3. Loan statement of Soma Infra 4. Earlier submissions made on 15.3.2022. From the perusal of the same and the assessment order it is not clear why the AO did not take cognisance of the details submitted by the appellant. The appellant in his submission has also submitted the copy of the guarantee deed whereby the property in question has been offered as collateral security against the loan availed by M/s Soma Infrastructure Private Ltd. After perusal of the facts of the case, the assessment order and the submission of the appellant and having gone through the ratio of the above cited judgments the submission of the appellant is found to h....
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....ations under this guarantee are discharged in full". This shows that the appellant could not have sold the property in question without removing the encumbrance. In view of the facts of the case as mentioned above and the ratio of the above cited judgments the submission of the appellant is found to have force and the amount paid to bank to remove encumbrance qualifies for deduction as expenditure incurred wholly and exclusively in connection with such transfer as mentioned in section 48(i). The ground of appeal 4 is allowed. 8. The learned DR has assailed this finding of the learned CIT (A) on the strength of various decisions as cited in the foregoing part of this order. However, we find that in the case in hand, the loan was not taken or availed by the assessee and therefore, by creating a charge on this land, the assessee has not availed any benefit out of the said transaction. Thus, entering into a guarantee agreement and mortgaging the land, in question with the bank as a security against the loan taken by the sister concern has resulted a restriction in the title and right of the assessee in the land in question. Though the learned DR has disputed the default of the repay....