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2016 (8) TMI 900 - ITAT KOLKATA

2016 (8) TMI 900 - ITAT KOLKATA - TMI - LTCG - full value of consideration received on transfer of shares and its computation of LTCG - Held that:- A reading of clauses 2.1 & 2.2 of the Agreement dated 29.1.2010 between the parties, clearly shows that the liability of M/S.Khaitan & Co.Consulting Ltd., was not part of the consideration of sale of shares. It was an already existing liability in the books of the Assessee which was discharged by the Purchasers. The Purchasers took over that liabilit .....

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ounds to interfere with the decision of the CIT(A). - Decided against revenue - Justification of holding the brokerage as expenditure of the company for sale of shares - Held that:- As we have already seen the sale of the property was sought to be achieved by sale of shares of M/S.Khaitan & Co.Consulting Ltd., which was held by the Assessee to the extent of 99.97%. The bill issued by the broker contained a description that it was sale of the property. In our view this description in the bill .....

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with the order of the CIT(A).- Decided against revenue - ITA No. 2796/Kol/2013 - Dated:- 8-7-2016 - Shri N. V. Vasudevan, JM And Shri M.Balaganesh, AM For the Appellant : Shri K.K.Tripathi, JCIT, Sr.DR For the Respondent : Shri R.N.Bajoria, Sr.Counsel & Shri A.K.Gupta, FCA ORDER Per N. V. Vasudevan, JM This is an appeal by the Revenue against the order dated 12.08.2013 of CIT(A) IV, Kolkata, relating to AY 2010-11. 2. Gr.No.1 & 2 raised by the Revenue reads as follows: 1. The Ld. CIT( Ap .....

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e totally different. In the case of Hooghly Mills the sale consideration was ₹ 2 crores only and the vendee had to bear the statutory liability of gratuity of employees. However in this case as per agreement sale consideration itself included repayment of loan. 3. The facts and circumstances giving raise to Gr.No.1 & 2 raised by the Revenue are as follows: (1) There was a company by name M/S.Avinash Organics Private Limited. It acquired on 9.7.1997 property being 4th and 5th Floor meas .....

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Ltd. (3) On 23.12.2009, M/S.Khaitan & Co., Consulting Ltd., acquired by a registered document the 3rd Floor measuring 1921 Sq.ft. of the premises known as Meher Chambers, situated at R.K.Marg, Ballard Estate, Mumbai-400 001 together with proportionate undivided right, title and interest in the land over which the above premises were constructed. (4) The 3rd, 4th and 5th floor of known as Meher Chambers, situated at R.K.Marg, Ballard Estate, Mumbai-400 001 together with proportionate undivide .....

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0004 2. Mr.Sudip Mullick/ Khaitan Consultants Limited. 1 230672-230672 0.0004 3. Me.,Padam Khaitan/ Khaitan Consultants Limited. 1 230673-230673 0.0004 4. Mr.Haigreve Khaitan/ Khaitan Consultants Limited. 50 230421-230470 0.021 5. Mr.Ajoy Gupta/ Khaitan Consultants Limited. 10 1-10 0.004 6. Mr.Rabindranath Jhunjhunwala/ 10 11-20 0.004 Khaitan Consultants Limited. 7. Khaitan Consultants Limited. 230600 21-230420 230471-230670 99.97 Total 230673 100.00 (6) As can be seen from the above chart the A .....

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of M/S.Khaitan & Co.Consulting Ltd., which constitutes about 99.97% of the share capital of M/S.Khaitan & Co.Consulting Ltd., held by the Assessee, thereby gaining control and possession of the property without a registered deed of conveyance. The parties chose the second option of acquiring shares of M/S.Khaitan & Co.Consulting Ltd. (8) A share purchase agreement dated 29.1.2010 was entered into between the Assessee, Purchasers and M/S.Khaitan &Co.Consulting Ltd., whereby it was .....

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the Sale Shares for a lump sum consideration of ₹ 15,37,35,633/- (Rupees Fifteen Crores thirty seven lakhs thirty five thousand six hundred and thirty three only) (hereinafter referred to as "Sale Consideration"), free from all encumbrance and charges, lien or demand whatsoever -but with the benefit of all rights, title and interest attached thereto. 2.2 On the Effective Date, the Purchasers shall pay the Sale Consideration to the Seller in the following manner: 2.2.1 a sum Of &# .....

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by the Purchasers to and placed in escrow with the Escrow Agent, which shall be administered as per the provisions of clause 3 hereof; 2.2.3 a sum of ₹ 4,S7,25,928 (Rupees Four Crores ninety seven lakhs twenty five thousand nine hundred twenty eight) to the Seller towards repayment of loans made by the Seller to the Company and such amount shall be treated as a loan repayment by the Company; and 2.2.4 balance amount of the Sale Consideration, being a sum of ₹ 7,80,09,705 (Rupees Seve .....

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#8377; 15,37,35,633 as per the Agreement dated 29.1.2010, the real sale consideration for sale of shares was only ₹ 10,40,09,705 because a sum of ₹ 4,97,25,928 out of the sale consideration of ₹ 15,37,35,633 mentioned in Clause-2 of the said Agreement, was a loan payable by M/S.Khaitan & Co.Consulting Ltd., to the Assessee and that was discharged by the Purchasers for and on behalf of M/S.Khaitan & Co.Consulting Ltd., and did not therefore constitute part of the sale co .....

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shareholding) recognised Mr.Gulabsi Ratansi Khimji as their creditore in their books of accounts. Thus the debt due to the Assessee from M/S.Khaitan & Co.Consulting Ltd., stood discharged and that was not part of the sale consideration of sale of shares but was a realization of their outstanding from M/S.Khaitan &Co.Consulting Ltd. The Assessee submitted that the Agreement dated 29.1.2010 was a composite Agreement by which the Assessee wanted to sell shares and also secure repayment of t .....

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ITAT Mumbai Bench in the case of Voltas Ltd. Vs. ACIT (2010) 4 ITR (Trib.)(Mumbai). In the aforesaid decision the facts were that Voltas Limited (VL) along with Voltas International Ltd. (VIL) had promoted a company named Premium Granite Ltd. (PGL). Investments were made by VL and VIL in the said company, PGL from time to time. They had also advanced loans to the said company, PGL on various occasions. Due to continued loss suffered by PGL, VL and VIL decided to sell all the shares of PGL for Re .....

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t be added to the consideration and as such the loss claimed by VL was to be allowed. 5. The AO however did not agree with the aforesaid submissions of the Assessee and he held as follows: 1.11 The reply by the assessee and the case law relied upon is considered. The submission of the assessee cannot be accepted as Clause No. 2.1 very clearly defines the sales consideration and leaves no ambiguity in the matter. l.12 The reference to clause no. 2.2 and in particular to clause no. 2.2.3 is of no .....

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eipt of payment of entire sale price cannot be factor of determining the sales price of the shares sold. 1.13 Although numerous opportunities were provided to the assessee, they failed to explain why the sale consideration as per clause no. 2.1, which specifically provides that ....for a lump sum consideration of ₹ 15,37,35,633.00 (Rupees Fifteen Crores thirty.seven lakhs thirty five thousand six hundred and thirty three only) hereinafter referred to as "sale consideration") ... .....

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ineness of investment in shares on rights basis and there was specific clause for repayment of loan due as part of one time settlement. There was pre-requisite to seek approval of financial institution for transfer of shares and for seeking such approval, loan repayment was made. Such loan amount was treated by the AO as sale consideration although there was no such clause in the agreement and the and the sale consideration was fixed at Rs. I/- although the purchase price was very high. In the i .....

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that the full value of consideration received on transfer should be adopted only at ₹ 10,40,09,705. The following were the relevant observations of the CIT(A): 2.4. I have heard the rival contentions, perused the material on record and duly considered factual matrix of the case and also applicable legal position. In the light of the aforesaid basic facts the issue is to be considered. The agreement provides for a total consideration which is a lump sum amount of ₹ 15,37,35,633/-. If .....

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9;s loan account in view of the aforesaid payment made to the appellant by the buyer by the said draft for the said sum. For discharge of such loan no other payment and/or amount was received by the appellant or paid by Keel. Such discharge of the loan is recorded by Keel by crediting the loan amount to the account of the buyers namely Gulabji Ratanji Khimji. The said Mr Gulabji Ratanji Khimji became the creditor of Keel in place and in stead of the appellant. 2.5 Accordingly the consideration f .....

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;lump sum" in clause 2.l.of the agreement clearly indicate that two separate items have been clubbed together. The expression "consideration" cannot be described for the shares only. When the entire shareholding of KCCL was being transferred by the appellant it also secured as a part of the term of the sale that the loan receivable by it from the said subsidiary KCCL is also repaid. Having parted with the entire shareholding of the subsidiary the appellant could not have left its .....

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meal. In this behalf reliance can be placed on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Hooghly Mills Co. Ltd. reported in 287 ITR 333 wherein at page 335 it was held as follows:- "Thus in the same agreement of sale of the undertaking it was not only mentioned that the vendee will pay to the vendor the sum of ₹ 2 crores as a consideration but in addition to this it will also take over the accrued and future gratuity liability of the .....

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en any evidence to show that either the said loan to KCCL of ₹ 4,97,25,928 remained outstanding and/or was discharged otherwise by any separate payment there could have been some basis for such a view. In the circumstances, the treatment of entire sum of ₹ 15,37,35,633 as the sale consideration for the shares cannot be sustained. From the said sum the amount towards payment of loan advanced to the subsidiary has to be excluded. 7. Aggrieved by the order of the CIT(A), the Revenue has .....

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n the parties, the Supreme Court held that the agreement had to be read as a whole and, hence, the consideration for the sale was not only ₹ 2 crores but also included the gratuity liability of the vendor as well. It was his further submission that the CIT(A) wrongly placed reliance on the decision of the ITAT Mumbai in the case of Voltas Ltd. (supra). According to him in the aforesaid decision there was a specific clause in the agreement between parties whereby repayment of loan due was p .....

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given a very careful consideration to the rival submissions. The facts of the present case as given in para-3 of this order are not disputed by the parties before us. Since the main challenge of the revenue in this appeal is that the ratio in the case of Hooghly mills case (supra) had been wrongly applied, it is necessary for us to see the facts of the case in Hooghly mills case (supra). The assessee in the case of Hooghly Mills Co. Ltd.(supra) had by an agreement with the vendor, purchased an U .....

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the Incometax Act. The Commissioner of Appeal, Tribunal held that accrued gratuity was a part of consideration and allowed its distribution to the cost of acquisition for different assets and depreciation on reworked amount which was upheld by the High Court of Calcutta. On further appeal by the Revenue, the Hon ble Supreme Court held that claim for depreciation was not to be allowed. Referring to the agreement entered into between the parties, the Supreme Court held that the agreement had to be .....

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tionment by the assessee in combination with accrued gratuity liability. The Supreme Court held that 'the gratuity liability does not fall under any of those categories specified in section 32, no depreciation can be claimed in respect of the gratuity liability even if it is regarded as capital expenditure. The ratio that flows from the decision of the Hon ble Supreme Court, in our humble view, is that the apportionment of sale consideration as per the agreement between the parties will be o .....

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S.Khaitan & Co.Consulting Ltd., acknowledged the Purchasers as their Creditor in so far as the sum of ₹ 4,97,25,928/- is concerned. On the facts of the present case, we are of the view that the sum of ₹ 4,97,25,928 cannot be attributed to consideration for sale of shares and the Assessee was justified in its claim that the said sum did not form part of the full value of consideration received on transfer of shares and its computation of LTCG was correct. We do not find any ground .....

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e computing LTCG on sale of shares of M/S.Khaitan & Co.Consulting Ltd., the Assessee had claimed as a deduction towards expenditure in connection with transfer a sum of ₹ 12,13,300/- being brokerage paid to Mr.Manish B.Thakkar. On perusal of the bill dated 3.2.2010 raised by the broker based on which the Assessee made the aforesaid payment of commission, the AO noticed that the bill contained the following service rendered for which brokerage was paid by the Assessee: " Being your .....

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ansaction of sale of shares by the Assessee. 13. The AO however refused to believe the plea of the Assessee that there was a mistake in the bill since payment of brokerage was made on the basis of the said bill. In case there was mistake which is easily identifiable it would have sought rectification thereof or obtain revised bill. Even during the course of hearing, the assessee did not produce revised/rectified bill although sufficient time and opportunity was granted to the assessee. The claim .....

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material on record. Brief facts of the issue are that KCCL owned office space situated at 3rd, 4th and 5th floors at Meher Chambers, Ballard State, Mumbai. The appellant was the holding company, holding the entire shares of KCCL. The fact that the transfer of the entire shareholding of KCCL led to the transfer of the office space at 3rd, 4th and 5th floors of Meher chambers cannot be disputed. The broker has also confirmed the receipt of brokerage for the services rendered for the said transacti .....

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