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2016 (10) TMI 802 - ITAT BANGALORE

2016 (10) TMI 802 - ITAT BANGALORE - TMI - Computation of capital gains - Expenditure incurred in connection with transfer - deduction of payment of taxes as per the agreement - expenditure incurred wholly and exclusively in connection with transfer of such shares u/s 48 - Held that:- assessee and others are liable to reimburse company for all the taxes that may be levied on the company in respect of period up to the closing date and in the event of company receiving any refund of any tax in res .....

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ax liability of private limited company is to be borne by shareholders, it has to be borne equally in the ratio of shares held. Therefore the claim is not only untenable but also appears to be a device invented to reduce tax liability in the hands of assessee. - Decided against the assessee. - ITA No.172/Bang/2013 - Dated:- 26-8-2016 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri V.Srinivasan, Advocate. For The Respondent : Sh .....

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ergy India Pvt Ltd.,: • The Honourable Commissioner of Income-tax, Appeals -I, Bangaloreought to have appreciated that the Assessee has entered into an agreement with Soham Renewable Energy for transfer of shares held by the assesse in following companies: a. Bobba Aviation Services Private Limited b. Ground and Air Technical Services Private Limited c. Bobba Aviation Ground Handling Services Private Limited and d. Mount Kailash Power Projects Private Limited • The Honourable Commissio .....

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he assessee has submitted all the details like share sale agreement, tax payment challans along with nature and details of expenditure incurred. • The Honouralbe Commissioner of Income-tax, Appeals - I Bangalore ought to have appreciated the fact that the assessee hasdicharged her liability in accordance with clause 7(1) of the Share sale agreement. • The Honourable Commissioner of Income-tax, Appeals - I, Banalore out to have considered the decision given the Honourable high court in .....

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hich are discharged by the assessee in accordance with share sale agreement will satisfy the explanations provided in the section 48(1) and to be allowed as expenditure. • The Honourable Commissioner of Income-Tax, Appeals - I, Bangalore ought to have appreciated that fact that as per clause Share sale agreement any taxes arises after the date of transfer for the period prior to transfer have to be discharged by the Assessee. Clause 7(1) of the agreement is reiterated below: The sellers sha .....

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come-tax, Appeals -, Bangalore ought to have appreciated the fact that expenditure in-connection transfer is allowed as expenditure in accordance with Section 48(1) of the Income-tax Act, 1961, Section 48(1) states as follows: The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration 47 received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly .....

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capital gain. 3. Briefly facts of the case are that the assessee is an individual deriving income under the head salary , house property , capital gains and other sources . Return of income for the assessment year 2009-10 was filed on 26/10/2010 declaring income of ₹ 1,17,84,059/-. Against said return of income, assessment was completed by the Assessing Officer [AO] u/s 143(3) vide order dated 18/11/2011 at a total income of ₹ 2,57,23,321/-. While doing so, the AO disallowed the expe .....

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e companies should be borne by shareholders of the companies. It is stated that the assessee had paid income-tax liability of the companies as follows: Sl.No. Date of Payment Name of the Company Asst. year Amount in Rs. 1 21.03.09 GATS 2006-07 11,32,094 2 16.12.08 GATS 2006-07 2,790 3 26.03.08 GATS 2005-06 10,00,000 4 31.03.08 GATS 2005-06 5,00,000 5 02.05.08 GATS 2005-06 9,49,185 6 27.09.08 GATS 2008-09 44,90,034 Total 90,74,103 4. While computing capital gains arising on sale of shares in said .....

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₹ 1,66,32,278- (without indexation). Over & above, the cost of acquisition and cost of transfer the assessee claimed a sum of ₹ 90,74,103/- as expenses incurred. i) It is seen that the alleged expenditure is not related to the acquisition of capital asset as claimed by the assessee. ii) The income tax paid on behalf of M/s. Ground & Technical Services Pvt. Ltd. has been claimed as expenditure relating to capital gains. It must be mentioned here that the income tax liability .....

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ax liability of one of the companies M/s. Ground & Air Technical Services Pvt. Ltd, which is not at all related to the capital asset transferred by the assessee. iv) The claim of the assessee that an understanding was made with the purchaser of shares to bear the future liability of shares transferred is not acceptable for the reason that when the shares of the company was transferred, the liability has to be restricted only to the extent of shares sold and not the liability of the company w .....

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05) reported in 278 ITR 240 (Cal) and M/s. Ambala Cantt Electric Supply Vs. CIT reported in 130 ITR 343 (P&H) have been examined and found that the facts and circumstances of the case relied upon are different and distinguishable to that of the assessee. As such, they are not applicable. In the light of the above, a sum of ₹ 90,74,103/- is disallowed and brought to tax. 5. Being aggrieved, an appeal was filed before the CIT(A) who, vide impugned order, confirmed the addition as follows .....

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d as incurred wholly and exclusively' in connection with such transfer. The assessing officer had given elaborate reason as extracted above stating that the expenditure cannot be treated as incurred wholly and exclusively in connection with such transfer of shares. In the instant case it is the assessee who sold the shares and it is not explained what are the tax liabilities which are reimbursed by the appellant in respect of the period up to the closing date in connection with the seller of .....

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e crucial words in the section are "in connection with such transfer". The expression means intrinsically linked with the transfer. Such expenditure has some nexus with transfer does not qualify for deduction unless it is wholly and exclusively in connection with transfer. In the instant case there is no material available on record to show that the taxes paid by that appellant have intrinsic connection with the transfer of the shares. Even on commercial consideration that tax liabilit .....

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ggrieved, assessee is before us in the present appeal. 6.1 Learned counsel for assessee argued that the assessee has discharged income-tax liability of the companies in which he held shares pursuant to conditions imposed in the sale of shares agreement. He submitted that any expenditure incurred for facilitating transaction i.e. sale of shares is an expenditure incurred wholly and exclusively for transfer and therefore clearly allowable u/s 48(2) of the Act. In this connection, he relied on the .....

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ty of the company always lies with company. The liability cannot be fastened only to one particular shareholder. He further submitted that income-tax liability of companies of which shares held by the assessee cannot go to reduce value of consideration received by the assessee-company. In support of this he relied on the following decisions: i. Krishnadas G.Parikh vs. DCIT (114 ITD 362)(Ahd.) and ii. Smt.Sita Nanda vs. CIT (119 Taxman 227(Del) 7. We heard rival submissions and perused material o .....

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cumstances. In this case, clause 7(1) of share purchase agreement entered by the company and the shareholders reads as under: 7.1 The Sellers shall be liable to reimburse the Companies for all taxes that may be levied on the Companies (consisting of both the Aviation Business and the power business) in respect of the period up to the Closing Date and in the event of the Companies receiving any refund of any taxes in respect of the period up to the Closing Date, the same shall be forthwith passed .....

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