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TMI Blog2019 (10) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... tiny and during the course of assessment proceedings, the Assessing Officer (AO) found that the assessee was a major stake holder, holding 10.34% of shares in M/s Tirumala Milk Products Pvt. Ltd. (M/s TMPPL) and is also a Promoter-Director. During the year, the assessee along with all other individual shareholders and a foreign company entered into an agreement dated 04.11.2013 for sale of his total shares in M/s TMPPL to M/s BSA International. In the process, M/s TMPPL has given Engagement Letter (EL) dated 05.07.2013 to M/s Barclays Bank PLC (in short 'Barclays') for evaluating the value of its shares, searching a probably buyer to have control over its investments or in its affairs and receipt of sale consideration etc.. The terms of the agreement entered into are that the Barclays Bank has to evaluate the shares, to assist the assessee in identifying the potential buyer and act as a sole financial adviser of the company. On finalization of the transaction the company M/s TMPPL has to pay success fee to M/s Barclays Bank as per the invoice raised. Accordingly, at the end of the transaction, M/s Barclays raised an invoice of Rs. 28,81,31,631/- as success fee for the transaction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and found that the submissions made by the assessee are not in line with the treatment given by M/s TMPPL in its books of accounts. The said amount was not debited to expenditure account but was shown as down the line of adjustments. The actual EL with M/s Barclays was dated 05.07.2013 and the parties to this transaction were M/s Tirumala Milk Products (P) Ltd., and M/s Barclays Bank PLC. It was mentioned in the EL that M/s Barclays was engaged by M/s TMPPL to provide financial advice and related assistance in connection with a possible transaction. The AO observed that the factual development pursuant to the EL that had taken place was that the control over M/s TMPPL has been shifted from the individual shareholders to M/s BSA International Ltd., by of sale of shares held by various stake holders of M/s TMPPL. The assessee being one of the promote-director holding 10.34% of the stake in M/s TMPPL, sold his shares pursuant to the EL and received the sale consideration, the benefit of whole transaction of entering into agreement, getting the value of shares evaluated, transfer of shares of individual shares to M/s BSA was certainly derived by the individual share holders, includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration is misunderstanding of the whole transaction. Accordingly, the Ld.CIT(A) held that the AO's finding that the certain benefit accrued to the assessee with reference to the success fee paid by M/s TMPPL is incorrect. The Ld.CIT(A) also did not accept the contention of AO that the assessee was the Director at the time of raising the invoice, and held that section 2(24)(iv) is inapplicable in the assessee's case. The Ld.CIT(A) viewed that the payment was made after the assessee was ceased to be Director and shareholder in the company and the view point of the AO on the issue was also incorrect. Accordingly, allowed the appeal of the assessee. 4. Against the order of the Ld.CIT(A), the revenue filed appeal before this Tribunal. All the grounds of appeal are related to the treatment given by the AO in respect of the amount of Rs. 2,97,92,811/- taxing the sum u/s 2(24)(iv) of the Act. 4.1. During the appeal hearing, the Ld.DR argued that the assessee company M/s TMPPL has paid the sum of Rs. 28.81 crores to M/s Barclays Bank. The assessee being the Director and shareholder of 10.34%, the assessee got indirect benefit which required to be taxed u/s 2(24)(iv) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares for which the Carlyle Group has agreed subject to the terms and conditions of agreement entered into between the parties on 10.04.2010. The agreement also provided for exit route which is discussed in clause No.13, 13.1. 13.2 of the agreement. As per the Exit route, the company and the promoters shall make their best efforts to provide an exit route to the investors before 31.03.2014 through QIPO or QSS or with investor consent, an IPO or a strategic sale. The promoters also agreed that if required for the purpose of complying with the provisions of Law, the promoters shall offer the promoters shares for sale in QIPO, IPO, QSS or Strategic Sale as the case may be. If the company does not provide exit route as per clause 13.1., the company and the share holders are required to extend all cooperation and make arrangements for sale of shares of the investors even by using all it's resources. For the sake of clarity, clause 13.2 reads as under. "13.2. No Exit Route. If the Company does not provide an exit route to the Investors as provided in Clause 13.1 above within the Exit Route Period, then at the sole option of the Investors, the Investors may require a. the Company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EL, it is very clear that the company M/s TMPPL has engaged M/s Barclays as a financial advisor for possible business transaction. The letter was not for the sale of shares, it is for identifying and liaisoning the potential buyer and its advisors for the transaction. There was no agreement between the assessee and M/s Barclays to evaluate the shares and it was for valuation of the assets for a possible transaction for identifying the assets to be sold to the potential buyer. 5.2. The Ld.AR further stated that though the assessee was forced to sell the shares in accordance with the agreement entered with the Carlyle Goup, the assessee was put into loss personally since there is no plans made by the assessee to invest such huge amount. The company has to provide exit route to Carlyle Growth by 31.03.2014. For the purpose of honouring the obligation, M/s TMPPL has issued EL to M/s Barclays Bank PLC for financial advice and possible transaction, to study the market and find the way to provide the exit route to Carlyle Group. The intention of entering into EL with Barclays bank was to find strategic investor who could buy the entire shareholding of Carlyle group with a pre dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Even otherwise also, the assessee was ceased to be Director as on the date of raising the invoice, hence, the question of attracting 2(22)(iv) does not arise, accordingly argued that there is no interference is called for in the order of the Ld.CIT(A) and the order of the Ld.CIT(A) to be upheld. While releasing the consideration, buyers calculated the proportionate amount of Rs. 2,97,92,811 from the consideration payable for the shares held by the assessee and released the net consideration to the assessee, even though the payment of success fee was the obligation of TMPPL and not that of the assessee. Thus the Ld.AR argued that success fee was deducted at source from the funds of the shareholders, hence, no benefit whatsoever received by the share holders and no need to tax the same u/s 2(24)(iv) of the Act. 6. We have heard both the parties and perused the material placed on record. In the instant case, the assessee has transferred 23,74,457 shares held by him in M/s TMPPL to M/s BSA International for a consideration of Rs. 179,84,85,978/- and the entire sale consideration received by the assessee was offered for long term capital gains. The company M/s TMPPL had entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank and M/s TMPPL, but not between the shareholders and the Barclays. Thus, there was no legal liability of shareholders to make the payment. The AO did not furnish any material to show that the assessee had engaged the Barclays and the company made the payment on behalf of the assessee to derive the benefit directly or indirectly. As per section 2(22)(iv) of the Act, any sum paid by any such company in respect of any obligation which is required to be paid for the Director or shareholder has to be treated as income in the hands of such Director. In the instant case, there is no evidence to show that the assessee had entered into agreement for transfer of shares or the assessee was obliged to make payment to Barclays. As per the EL, Barclays was engaged as a sole financial advisor in connection with the transaction and no other person should be appointed by TMPPL. It was also made clear that the promoters or the client may choose and appoint their own consultant or advisor. Such consultant has no right to claim the fee, right title for the purpose of carrying out the services contemplated. The Directors or shareholders are permitted to appoint their own consultant who will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the Ld.AR during the appeal hearing is that the success fee paid by the company was already recovered from the net consideration paid to the shareholders, hence, there is no case for making separate addition. The Ld.AR invited out attention to page No. 5 of the CIT(A) order, wherein, the details were furnished with regard to evaluation of the company and purchase consideration agreed to be paid by BSA International which was calculated by Deloitte Touche Tohmantsu India Private Ltd which reads as under : 8.1. From the above working, it shows that Barclays fee was already recovered by BSA International and the net consideration was paid to shareholders which establishes that the amount of succession fee paid to Barclays from the profits and reserves of the shareholders. Further, the fee paid to Barclays was expenses in relation to transfer of shares which required to be allowed as deduction for computing the capital gains and cannot be brought to tax under the head 'income from other sources'. For a query from the Bench, the Ld.DR did not show any material to substantiate that the success fee paid to the Barclays was not in relation to transfer of shares. Accordingly, we ..... 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