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TMI Blog2019 (4) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... llant's case, the learned CIT(A) has grossly erred in confirming the disallowance of the expenditure of Rs. 50 lacs incurred by the appellant (Selling Shareholder), claimed as for cost of transferring shares of 20 Microns Ltd ('20ML') in 'offer for sale'. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have considered that the aforementioned expense not only had a direct nexus with the transfer of shares but it was wholly and exclusively in connection with the transfer as encompassed by the provisions of section 48(i) of the Act. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have considered that reimbursement of IPO expenses in contemplation to sale of shares is an allowable expense u/s48(1) in view of the decision of ITAT Chennai in the case of UsharaniRaqhunathan 2012 vide citation (8) TMI 668. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) ought to have considered that the reason behind reimbursement of IPO expenses of Rs. 50,00,0007- is the adverse market conditions at the time of IPO as against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its IPO expenses at Rs. 2.65 crores but incurred an expense of Rs. 3.91 crore which was more than budgeted expenses. 4.2 The assessee received sale proceeds of the shares sold by it of ''20 ML'' dated 25/09/2008. 4.3 However, the ''20 ML'' requested the assessee vide letter dated 05/12/2008 to share the expenses incurred by it for the IPO on the ground that its actual expenses have exceeded the budgeted expenses. As such the ''20 ML'' requested the assessee to reimburse the IPO expenses for an amount of Rs. 1 crore. 4.4 The assessee accordingly in its Board Meeting dated 23/12/2008 agreed to reimburse the cost of IPO expenses to the tune of Rs. 50,00,000/- subject to the opinion by the C.A. regarding the sharing of IPO expenses. Subsequently, the C.A. in its report dated 08/01/2009 submitted that the IPO expenses incurred by ''20 ML'' can be shared with the mutual understanding. As such, there is no bar if the assessee shares the expenses with the ''20 ML'' incurred in the process of IPO. 4.5 The assessee subsequently made the payment of Rs. 50,00,000/- to ''20 ML'' vide cheque no. 19386 dated 27/02/2009 drawn on Union Bank of India. 4.6 Thus, the assessee declared long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question remains to be answered whether these expenses were necessary to incur for the transfer of the shares held by the assessee in ''20 ML''. In this regard the Ld.CIT (A) was of the view that ''20 ML'' was under the obligation to provide the exit route to the assessee. Therefore under no circumstances, it can be construed that the expenses were incurred for transfer of the shares. 6.1 The reasons given by ''20 ML'' that the actual expenses in relation to the IPO had exceeded the budget expenses has no relevance as such. Therefore that cannot be the basis of claiming that the expenses were incurred for the transfer of shares. Accordingly the Ld.CIT(A) held that the expenses increased due to the adverse market condition is not acceptable. 6.2 There was no prior agreement between assessee and ''20ML'' for the sharing of the expenses before the date of IPO. 6.3 The request given by ''20 ML'' was much after the close of IPO. 6.4 In view of above the Ld.CIT (A) held that the expenses by way of reimbursement to '' 20 ML'' cannot be allowed as deduction u/s 48 of the Act. Accordingly the Ld.CIT (A) confirmed the order of the AO. 7. Being aggrieved by the order of the Ld.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of capital assets are contained under section 48 of the Act which reads as under: "81[Mode of computation. 8248. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration 83received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer 83a; (ii) the cost of acquisition of the asset and the cost of any improvement 83a thereto:" From the above provisions, it is clear that the expenses incurred wholly and exclusively in connection with the transfer of assets is eligible for deduction under section 48 of the Act. The phrase 'wholly and exclusively' means that it should be directly linked with the subject matter. One needs to be quite clear on whether a deduction has both a commercial and private element. If yes, then how that element is divided. To give a simple example, if a sole trader deducts the expense of running a car, the proportion of their personal use of that vehicle has to be worked out accurately and excluded from the amount submitted for deduction. 10.2 In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by this Court in CIT v. ChandulalKeshavlal& Co. [1960] 3 SCR 38 at page 48" 10.3 We further place our reliance on the judgment of Bombay High Court in case CIT Vs. Smt. Shakuntalakantilal reported in 58 taxman 106 wherein it was held as under: "The Legislature while using the expression 'full value of consideration', in our view, has contemplated both additions to as well as deductions from the apparent value. What it means is the real and effective consideration. That apart so far as (i) of section 48 is concerned, we find that the expression used by the Legislature in its wisdom is wider than the expression 'for the transfer'. The expression used is 'the expenditure incurred wholly and exclusively in connection with such transfer'. The expression 'in connection with such transfer' is, in our view,, certainly wider than the expression 'for the transfer'. Here again, we are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if without removing any encumbrance including the encumbrance of the type involved in this case, sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure was incurred wholly and exclusively in connection with the transfer and it was immaterial whether it was incurred prior or subsequent to the passing of title. Further, by virtue of the definition contained in section 2(47), the expression "transfer" would include the compulsory acquisition of a capital asset under any law. Hence, the compulsory acquisition of property under the Land Acquisition Act, 1964, had to be treated as a "transfer" for computing capital gains. The fixation of the quantum of consideration for the transfer was finally effected only by the decision rendered by the civil court. Such fixation formed an integral part of the process of transfer by way of compulsory acquisition provided by the Land Acquisition Act. The Tribunal was, therefore, right in holding that the expenses incurred by the assessee in his litigation before the civil courts to claim enhanced compensation for the compulsory acquisition of his property was an expenditure incurred wholly and exclusively in connection with its transfer" 10.6 We also note that the assessee claimed such expenses not as the cost of improvement but as incurred in connection with the transfer of the shares. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee in the course of business and had nexus with the business of the assessee. It could not be disputed that the payment of royalty is a business expenditure, which was expended wholly and exclusively for the purpose of business of the assessee. The nature of the expenses is also not such which would fall in any of the exceptions carved out under sections 30 and 36 of the Act. Once these conditions are satisfied, the expense is to be allowed in toto as business expenditure, and the Revenue cannot sit in the arm's chair of the assessee and decide as to how affairs of the business are to be run and wasteful or excessive expenditure is to be curtailed. The question of commercial expediency is to be judged by the assessee and not by the AO. Following test was laid down in the case of Atherton v. British Insulated &Helsby Cables Ltd. 10 TC 155, 191 (HL) in the following terms: "A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on the business, may yet be expended wholly and exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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