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Navnita H. Melwani Versus ITO, Ward 12 (3) (3) , Mumbai and Haresh H. Melwani Versus ITO, Ward 12 (1) (1) , Mumbai

Capital gain - transfer of shares - applacability of section 50C - Held that:- What in law has transpired is the transfer of shares, and not of land and, accordingly, section 50C will not come into picture. This consideration, which appears to have prevailed with the Revenue authorities, is not valid.

Find no infirmity in the assessee’s claim for legal expenses u/s.48(i), and uphold the same, in principle. However, it is not clear if the takeover agreement dated 13.4.2006, evidencing .....

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h reference to and in terms of unit of land, works to ₹ 925.75 lacs (88,843 sq. ft. x ₹ 1042 per sq. ft.). Subject to the A.O.’s verification, returning positive findings, we confirm the deductibility of the impugned expenses. We may however clarify that any apparent mistake/s, if any, could be rectified following the due process of law. - I.T.A. No. 1756/Mum/2012, I.T.A. No. 1757/Mum/2012 - Dated:- 29-2-2016 - SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM For The Appellant : Shr .....

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appeals were accordingly fixed for, and heard together. The brief facts, largely undisputed, are that the assessees, being husband and wife, holding the entire shareholding in two companies, namely, Hemsons Softech Pvt. Ltd. and Kewman Investment and Leasing Pvt. Ltd., sold their entire share-holding to a common buyer, returning long-term capital gain (LTCG) u/s. 45 of the Act. The principal and the only valuable assets in the two companies was land, being vacant industrial plots at Dyavasandra .....

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e incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement6 thereto….. The brokerage being paid to a real estate broker, M/s. Hanu Reddy Realty India Pvt. Ltd., was disallowed by the Assessing Officer (A.O.) in-as-much as the subject matter of the sale, on which capital gain is returned, is shares. In appeal, the ld. CIT(A) found no reason to disallow the assessee s claim for brokerage expenses inas- much a .....

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rdingly, after show causing the assessee in its respect (vide order sheet entry dated 29.11.2011), disallowed the same, holding as under: I have considered the facts of the case. Though the real intention of the sellers (i.e. appellant and his wife) and purchasers (of shares) was to sell and purchase the two plots of land owned by the said two companies in which the appellant and his wife were holding 100% shareholding. However, the plots of land could not be sold without transferring of shares. .....

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in connection with the ownership/title deeds and agreements, etc. of the plots of land. Since in the eyes of law the subject matter of transaction on which capital gain has been earned was sale of shares only, therefore, the payment made to solicitors was not incurred wholly and exclusively for the purpose of transfer of shares. Therefore, the deduction of legal expenses i.e. payment made to solicitor fee was incorrectly allowed by A.O. in the assessment order to the appellant. The two issues i. .....

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t considered by A.O. On this issue reliance is also placed in the cases of : - Deoria Oxygen Co. Ltd. vs. CIT 210 CTR (All.) 509, - Smt. Ishrawati Devi vs. ITO (2008) 114 TTJ (All.) 541, - CIT vs. K. S. Dattatray (2011) 241 CTR (Kar.) 227 - 187 ITR 86 (Ker) - 280 ITR 318 (All.) - 276 ITR 411 (Guj.) - 258 ITR 735 (Mad.) Since the A.O. wrongly/incorrectly allowed appellant s claim of deduction of legal expense i.e. payment of solicitor fees, the mistake committed by A.O. is hereby rectified/correc .....

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scertain such legal expenses of solicitor fee from computation of income or obtain from the appellant. Aggrieved, the assessee is in second appeal. 3.1 Before us, the ld. counsel for the assessee, Shri Molti B. Totlani, submitted that that what was intended to be sold, and what the buyer, Rukmini Finance Pvt. Ltd. (RFL), was interested to buy, were the plots of land, as noted by the ld. CIT(A), is not denied. However, the same, in the facts and circumstances of the case, is through medium of tak .....

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) thereof toward the same. The buyer would thus be interested in having a clear title over both, the shares (in the two companies) as well as land. Referring to para 6 of the said Agreement, it was further submitted that as many as 42 items were listed for verification and production, and which had to be furnished, highlighting some of them, viz. sale deed of land (from the previous buyer, Radiant Industries Ltd.); khata extracts; encumbrance certificates; Board resolutions; resignation of the d .....

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tion in respect of it being furnished before the Revenue authorities, the ld. counsel was unable to say for sure if the same was submitted before the A.O., while had admittedly not been to the ld. CIT(A). 3.2 The ld. Departmental Representative (DR) would, on the other hand, submit that the legal form of the transaction cannot be ignored, and therefore when what was sold were shares, the expenses in relation to transfer of property could not be allowed. This is not the issue decided in Compagnie .....

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g shares in a private limited company (transferability of which is severely limited by law), without any business or business proposal, and without any tangible or intangible asset, save the plot of land, which is in fact a common plot (# 7A of Dyavasandra Phase I, Industrial Area), with each company holding a part thereof, except where he intends to acquire the land or interest therein. The broker is a real estate broker and the buyer was interested in acquiring land. It is only for this reason .....

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t in land through the medium of the company. The ld. CIT(A) misdirects himself when he holds otherwise. We are conscious that the Revenue is not in appeal, and the issue of deductibility of brokerage expenses is therefore not open. However, this aspect, i.e., the substance of the transaction, and for which therefore the services of the broker and the solicitor were required, is common (to the deductions claimed u/s. 48(i)), so that to the extent the impugned order is inconsistent with our order, .....

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proper. We have, while narrating the facts, already stated that the assessees were show caused in the matter. In fact, the assessee s AR attended the proceedings on 19.12.2011 in response thereto and, as recorded by the ld. CIT(A), the case was discussed. This in fact is admitted, with the ld. counsel stating that he attended with all the relevant evidences, which though were not accepted. How could we determine the veracity of the said statement; the ld. CIT(A) stating of no submissions/ argum .....

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sessment before him, not extending to a new source of income - as also clarified by him. We, therefore, find no infirmity in the exercise of his power of enhancement, and toward which he relies on, inter alia, CIT v. Nirbhayram Duleram [1997] 224 ITR 610 (SC). 4.3 Coming to the merits of the case, i.e., the deductibility of the legal expenses u/s. 48(i) of the Act in the facts and circumstances of the case, we examine the relevant bills by the law firm, M/s. Fox Mandal Services Private Ltd. (for .....

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incidental attendance and correspondence. Consolidate fee Rs.7,50,000.00 Service Tax @12.24% ₹ 91,800.00 Total Rs.8,41,800.00 (Rupees Eight lakhs forty one thousand eight hundred only) Bangalore Regd. No.: 2035/SM/111 /2006 Dated: 3rd June 2006 E&O.E for Fox Mandal Services Pvt. Ltd Sd/- Accounts Dept. We have already found as a fact that the transaction is, in substance, for the transfer of interest in plot/s of land. Verification of title thereto; payment of taxes; encumbrance certif .....

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lding the same, i.e., takeover of the said companies, formed a valid, legal mechanism for acquiring the land, or interest therein. That being the case, the legal services would and did extend to verification of the antecedents of the two companies, and satisfaction with regard to their shareholding. That, however, would not alter the nature of the services, which are primarily and principally in relation to the transfer of land or interest therein - the beneficiary interest therein getting chang .....

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of the shares. The moot question, however, is: Is it relevant? Once it is clarified that the shares have been sold with a view to transfer land (or interest therein), all the services rendered, whether relating to transfer of land or shares, become incidental to the transfer of shares, i.e., the capital asset transferred. We, accordingly, though in agreement with his finding of it being essentially a case of transfer of land, are yet unable to persuade ourselves to agree that the services rende .....

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s transferred being shares, the two forming part of the one, composite transaction. There is no question of dissecting it into two parts, which together constitute one integrated whole. The impugned expenses are clearly allowable u/s. 48(i) in the facts of the case, for which we also draw support from the decision in Compagnie Financiere Haman, In re (supra), even as in that case the legal expenses were directly in relation to the sale of the capital asset transferred. The issue, we may clarify, .....

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if the title of the two companies owning the land was defective, or would the price fetched be so if the same was encumbered? Answers to both and other such like questions, is a categorical no. We are conscious that section 50C of the Act would stand attracted if it was a case of transfer of land per se. True, but then the monies would have been realised by the two companies, and not the two assessees holding shares therein. Other benefits by way of saving on stamp duty, registration charges, et .....

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what they regard as "the substance of the matter." The taxing authority is entitled, and is indeed bound, to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction". This princ .....

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