Durga Kumari Bobba, Bangalore V. DCIT,

ITA 172/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9453 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA J
• Assessee Lawyers: V SRINIVASAN
• Keywords: Share purchase agreement
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, BANGALORE BEFORE S MT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 172/ BANG/20 13 (ASSESSMENT YEAR: 2009 - 10 ) SMT.DURGA KUMARI BOBBA, NO.15/1,2,3, KADAMBAR I FARM, SONNAPPANAHALLI, JALA HOBLI, BANGALORE - 562157. PAN: AADPB5139 N VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(2) BANGALORE. RESPONDENT APPELLANT BY : SHRI V.SRINIVASAN, ADVOCATE. RESPONDENT BY : SHRI SUNIL KUMAR AGARWALA, JCIT(DR) DATE OF HEARING : 30/06/2016 DATE OF PRONOUNCEMENT : 26 /08/2016 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(A) - I, BANGALORE, DATED 31/ 10/2012 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: ITA NO . 172/ BANG/201 3 PA GE 2 OF 10 ITA NO . 172/ BANG/201 3 PA GE 3 OF 10 3. BRIEFLY FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME UNDER THE HEAD SALARY , HOUSE PROPERTY , CAPITAL GAINS AND OT HER SOURCES . RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 WAS FILED ON 26/10/2010 DECLARING INCOME OF RS.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 RS.2,57,23,321/ - . WHILE DOING SO, THE AO DISALLOWED THE EXPENDITURE OF RS.90,74,103/ - CLAIMED AN EXPENDITURE IN CONNECTION WITH TRANSFER OF SHARES WHILE COMPUTING CAPITAL GAINS ARISING OUT OF SALE OF SHARES IN BOBBA AVIATION SERVICES PVT . LTD , BOBBA AVIATION GROUND HANDLING SERVICES PVT. LTD., GROUND AND ITA NO . 172/ BANG/201 3 PA GE 4 OF 10 AIR TECHNICAL SERVICES PVT. LTD., AND MOUNT KAILASH POWER PROJECT PVT. LTD. IT IS THE CONTENTION OF THE ASSESSEE THAT AS PER CLAUSE 7(1) OF THE SHARE PURCHASE AGREEMENT ENTERED BETWEEN TH E ASSESSEE AND THE PURCHASE R OF SHARES, TAX LIABILITY OF ALL THE 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: 4. WHILE COMPUTING CAPITAL GAINS A RISING ON SALE OF SHARES IN SAID COMPANIES, ASSESSEE HAD CLAIMED SAID AMOUNT OF RS.90,74,103/ - AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SUCH SHARES U/S 48 OF THE INCOME - TAX ACT,1961 [ THE ACT FOR SHORT]. THE SAID EXPL ANATION WAS NEGATIVE BY THE AO BY HOLDING AS UNDER: ITA NO . 172/ BANG/201 3 PA GE 5 OF 10 5. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE CIT(A) WHO, VIDE IMPUGNED ORDER, CONFIRMED THE ADDITION AS FOLLOWS: ITA NO . 172/ BANG/201 3 PA GE 6 OF 10 ITA NO . 172/ BANG/201 3 PA GE 7 OF 10 6. B EING AGGRIEVED, 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 INCURRE D FOR FACILITATING TRANSACTION I.E. SALE OF SHARES IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR TRANSFER AND TH EREFORE CLEARLY ALLOWABLE U/S 48(2) OF THE ACT. IN THIS CONNECTION, HE RELIED ON THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. BRADFORD TRADING CO. P.LTD .(261 ITR 222)(MAD). HE ALSO RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. GEORGE HENDERSON & CO. LTD. (66 ITR 622) FOR THE PROPOSITION THAT FULL VALUATION OF CONSIDERATION CANNOT BE CONSTRUED AS A MARKET VALUE BUT AS A PRICE BARGAINED BY THE PARTIES TO THE SALE. 6.2 ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONTENDED THAT DISCHARGE INCOME - TAX LIABILITY OF THE COMPAN Y ALWAYS LIES WITH COMPAN Y. THE LIABILIT Y 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 ITA NO . 172/ BANG/201 3 PA GE 8 OF 10 THE ASSESSEE - COMPANY. IN SUPPORT OF THIS HE R ELIED ON THE FOLLOWING DECISIONS: I. KRISHNADAS G.PARIKH VS. DCIT (114 ITD 362)(AHD.) AND II. SMT.SITA NANDA VS. CIT (119 T AXMAN 227(DEL) 7. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE ONLY ISSUE IN THIS APPEAL TO BE ADJUDICATED IS WHETH ER INCOME - TAX LIABILITY DISCHARGED BY T HE ASSESSEE CAN BE CLAIMED AS EXPENDITURE INCURRED IN CONNECTION WITH TRANSFER OF SHARES AS DEDUCTION U/S 48 OF THE ACT. NEEDLESS TO SAY, OBLIGATION TO DISCHARGE INCOME - TAX LIABILITY OF A PRIVATE LIMITED COMPANY LIES WITH THE COMPANY ALONE . IF THE COMPANY IS UNABLE TO DISCHARGE THE TAX LIABILITY, BURDEN TO DISCHARGE THE TAX LIABILITY SHIFTS TO DIRECTORS OF THE COMPANY IN CERTAIN SPECIFIED CIRCUMSTANCES. IN THIS CASE, CLAUSE 7(1) OF SHARE PURCHASE AGREEMENT ENTERED BY THE COMPANY AND THE SHAREHOLDERS READS AS UNDER: THE ABOVE CLAUSE CLEARLY STIPULATES THAT SELLERS I.E. 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 AN D IN THE EVENT OF COMPANY RECEIVING ANY REFUND OF ANY TAX IN RESPECT OF PERIOD UP TO THE CLOSING DATE, THE SAME SHALL BE PASSED ON TO THE SELLER BY THE COMPANIES. THUS, IT IS A FUTURE ITA NO . 172/ BANG/201 3 PA GE 9 OF 10 CONTINGENT LIABILITY AS ONLY F UTURE TAX THAT MAY BE LEVIED UP TO THE DA TE OF CLOSING DATE IS LIABLE TO BE REIMBURSED TO COMPANIES. FURTHERMORE, THERE IS NO STIPULATION IN THE AGREEMENT THAT THE ASSESSEE SHOULD ALONE DISCHARGE THE TAX LIABILITIES OF THE COMPANIES. FURTHERMORE, THE SAID AGREEMENT ALSO STIPULATED CERTAIN CONDI TIONS WHICH ARE PRECEDENT FOR TRANSFER OF SHARES VIDE CLAUSE 4 OF THE AGREEMENT. THIS CLAUSE DOES NOT FORM PART O F CONDITIONS PRECEDENT . OBVIOUSLY IT GOES TO PROVE THAT IT IS NOT A CONDITION PRECEDENT FOR TRANSFER OF SHARES AND THEREFORE IT CANNOT BE HELD THAT EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF SHARES. FURTHER, THE ENTIRE TAX LIABILITY OF THE COMPANIES CANNOT BE FASTENED ON A SINGLE SHAREHOLDER. IF AT ALL THE TAX LIABILITY OF PRIVATE LIMITED COMPANY IS TO BE BORN E 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 . THEREFORE, WE REJECT THE GROUNDS OF APPEAL OF THE ASSESSEE. 8. IN THE RESULT, ASSESSEE S APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2016. SD/ - SD/ - ( (ASHA VIJAYARAGHAVAN ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BANGALORE D A T E D : 26 /08/2016 SRINIVASULU, SPS ITA NO . 172/ BANG/201 3 PA GE 10 OF 10 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE