TMI Blog2005 (3) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... . K. SETH., SOUMITRA PAL. JUDGMENT D.K. Seth J.- The point: In this case, the liability of one of the firms Gobindo Sheet Metal Works and Foundry held to be the erstwhile firm under the name and style of which the assessee was carrying on business could satisfy the test of being expenditure incurred wholly and exclusively in connection with the transfer of the assets of the assessee for the purpose of computation of capital gains for the assessment year 1992-93. In order to ascertain the proposition reference to the factual aspects of the case1 are required to be referred to. The submission: Dr. Pal, learned senior counsel, ably assisted by Mr. J.P. Khaitan, pointing out to the various materials submitted that there is already a finding of fact to the extent that the assessee was carrying on business under the name and style of Gobindo Sheet Metal Works and Foundry (Gobindo Sheet Metal). It is also pointed out that there is nothing on record to show that the Gobindo Sheet Metal was an assessee, on the other hand, the sale proceeds of the said two firms was assessed at the hands of Gopee Nath Paul and Sons, the assessee. Relying on the decision in CIT v. Bradford Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision in Rm. Arunachalam v. CIT [1997] 227 ITR 222 (SC) in order to contend that this payment was not a cost of transfer but distribution of the sale proceeds to meet the liability of the assessee. Admitted facts: It appears from the materials on record that there was a suit between the Allahabad Bank and Gobindo Sheet Metal. In the said suit the Allahabad Bank claimed certain amount to the extent of Rs. 25,00,000 appx. on account of Gobindo Sheet Metal's liability towards the loan obtained from the Allahabad Bank which was sought to be recovered together with a declaration of hypothecation of certain movable goods including stock-in-trade. At the same time, there was another suit in which an arbitration agreement was sought to be filed on account of dispute including the dispute involved in respect of the dissolution of the two firms, Gopee Nath Paul and Sons and Gobindo Sheet Metal Works and Foundry between the partners of the respective two firms, i.e., the parties who were common. In the latter suit, there was a compromise in which both the firms stood dissolved from the date agreed in the terms of settlement and the receiver was appointed in terms thereof for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of the "expenditure incurred wholly and exclusively in connection with such transfer". The expression "in connection with such transfer" is wider than the expression "for the transfer". Any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by clause (i) of section 48(1). In other words, if without removing any encumbrance, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i). From the facts as disclosed above, it appears that the amount was received out of the sale of assets of both the firms under the orders of this court subject to meeting of the liability of the Allahabad Bank since confirmed only upon prior payment. Inasmuch as, unless this liability was met, the transferee could not derive any title. In other words, the sale consideration receivable by the assessee was less the liability of the Allahabad Bank. Thus, meeting this liability of one of the firms, when the entire assets were being sold, was an absolute necessity to effect the transfer. In otherwords, it was an encumbrance without removing which the sale or transfer could not be effected and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property would not be deductible. On the other hand, the decision cited by Mr. Som in D.D. Chittaranjan v. CIT [1992] 193 ITR 238 (Mad), is distinguishable on facts, inasmuch as in this case, the amount of the sale proceeds was paid to a third party with whom there was certain dispute between that third party and the wife of the assessee in respect of a different property of which the wife was the absolute owner and as such the amount paid to meet the liability of the wife in respect of another property could not be held to be an expenditure incurred for the purpose of transfer of the assessee's own property different from the property of his wife. On the facts, it was found that there was no connection of this expenditure with the transfer. The decision in S.R.V. Press and Publications (P.) Ltd. [2000] 241 ITR 626 (Ker), cited by Mr. Som is also distinguishable and would have no manner of application in the present case in view of the fact that the amount was spent in that case after the receipt of the consideration by the liquidator to discharge the liability of the assessee in respect of finance received from the Kerala Finance Corporation on the security of the property w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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