NAVNI9TA H. MELWANI, MUMBAI V. ITO WD 12(3)(3), MUMBAI

ITA 1756/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3506 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition
• Section: 50C; 10; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO. 1756/MUM/2012 ( / ASSESSMENT YEAR: 2007 - 08 ) NAVNIT A H. MELWANI 10, IVORINE, 154, MAHARSHI KARVE ROAD, MUMBAI - 400 020 / VS. ITO, WARD 12(3)(3), AAYKAR BHAVAN, 1 ST FLOOR, MUMBAI - 400 020 ./ ./ PAN/GIR N O. ABMPM 5490 K ( / APPELLANT ) : ( / RESPONDENT ) & ./ I.T.A. NO. 1757/MUM/2012 ( / ASSESSMENT YEAR: 2007 - 08 ) HARESH H. MELWANI C/O. HASSANAND HEMANDAS & CO., 27, DADABHAI NAVROJI ROAD, NR. CRAWFOR D MARKET, FORT, MUMBAI - 400 001 / VS. ITO, WARD 12(1)(1), AAYKAR BHAVAN, 1 ST FLOOR, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AABPM 6866 H ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHR I MOLTI B. TOTLANI / RESPONDENT BY : SHRI RANDHIR GUPTA / DATE OF HEARING : 22.02.2016 / DATE OF PRONOUNCEMENT : 29 .02.2016 2 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) / O R D E R PER SANJAY ARORA, A. M.: TH ESE APPEAL S BY THE ASSESSEE S ARE DIRECTED AGAINST SEPARATE ORDER S BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 21, MUMBAI (CIT(A) FOR SHORT) DATED 19.12.2011 , PARTLY ALLOWING THE IR APPEAL S CONTESTING THEIR ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FO R THE ASSESSMENT YEAR (A.Y.) 2007 - 08 VIDE ORDER S DATED 30.12.2009. 2. THIS IS A SET OF TWO APPEAL S RAISING COMMON ISSUES. THE APPEALS WERE ACCORDINGLY FIXED FOR, AND HEARD TOGETHER. THE BRIEF FACTS, LARGELY UNDISPUTED, ARE THAT THE ASSESSEE S , BEING HUSBA ND AND WIFE, HOLDING THE ENTIRE SHAREHOLDING IN TWO COMPANIES, NAMELY, HEMSONS SOFTECH PVT. LTD. AND KEWMAN INVESTMENT AND LEASING PVT. LTD., SOLD THE IR ENTIRE SHARE - HOLDING TO A COMMON BUYER, RETURN ING LONG - TERM CAPITAL GAIN (LTCG) U/S. 45 OF THE ACT. THE PRINCIP A L A ND THE ONLY VALUABLE ASSETS IN THE TWO COMPANIES WAS LAND, BEING VACANT INDUSTRIAL PLOTS AT DYAVASANDRA PHASE I, INDUSTRIAL A REA, BANGALORE, SOUTH TALUK. IN COMPUTING THE SAME, DEDU CTION IN RESPECT OF LEGAL AND BROKERAGE EXPENS ES, PAID TO THE SOLICITORS AN D A BROKER, WERE CLAIMED U/S. 48(I) OF THE ACT, WHICH READS AS UNDER: MODE OF COMPUTATION. 48. THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED 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; ( II ) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT 6 THERETO .. THE BROKERAGE BE ING PAID TO A REAL ESTATE BROKER, M/S. HANU REDDY REALTY INDIA PVT. LTD. , WAS DISALLOWED BY THE ASSESSING OFFICER ( A.O. ) IN - AS - MUCH AS THE SUBJECT MATTER OF THE SALE , ON WHICH CAPITAL GAIN I S RETURNED , I S SHARES. IN APPEAL, THE LD. 3 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) CIT(A) FOUND NO REASON T O DISALLOW THE ASSESSEES CLAIM FOR BROKERAGE EXPENSES IN - AS - MUCH AS THE BROKER HAD RENDERED SERVICES IN RELATION TO THE TRANSFER OF SHARES AND NO T SALE OF LAND , AS PRESUMED BY THE A .O. HOWEVER, SOLICITOR FEE, BEING LEGAL EXPENSES, ALLOWED TO M/S. FOX MAND AL SERVICES PRIVATE L TD., BEING IN RELATION TO SERVICES TOWARD TRANSFER OF PLOTS OF LAND , WERE IN HIS VIEW NOT ALLOWABLE. THOUGH WHAT WAS SOUGHT TO BE SOLD, AND CORRESPONDINGLY, PURCHASE D , WERE PLOT S O F LAND , WHAT IN LAW HAD BEEN SOLD, AND ON WHICH CAPITAL GAIN STANDS EARNED AND RETURNED, WERE SHARES. HE, ACCORDINGLY, AFTER SHOW CAUSING THE ASSESSEE IN ITS RESPECT (VIDE ORDER SHEET ENTRY DATED 29.11.2011), DISALLOWED THE SAME , HOLDING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE. THOUGH THE REAL INTEN TION OF THE SELLERS (I.E. APPELLANT AND HIS WIFE) AND PURCHASERS (OF SHARES) WAS TO SELL AND PURCHASE THE TWO PLOTS OF LAND OWNED BY THE SAID TWO COMPANIES IN WHICH THE APPELLANT AND HIS WIFE WERE HOLDING 100% SHAREHOLDING. HOWEVER, THE PLOTS OF LAND COULD NOT BE SOLD WITHOUT TRANSFERRING OF SHARES. IN THE FACTS AND CIRCUMSTANCES, IN THE EYES OF LAW, THE SUBJECT MATTER OF TRANSACTION WAS TRANSFER OF SHAREHOLDINGS OF THOSE TWO COMPANIES. THEREFORE, THE BROKERAGE EXPENSES INCURRED WERE ALLOWABLE AGAINST THE C APITAL GAIN EARNED ON SALE OF THOSE SHARES. HOWEVER, THE LEGAL EXPENSES, I.E., PAYMENT MADE TO SOLICITOR WAS NOT AT ALL ALLOWABLE AGAINST THE CAPITAL GAIN EARNED ON SALE OF SHARES OF THOSE TWO COMPANIES. AS IT APPEARS, THE SERVICES OF SOLICITOR WAS OBTAINE D BY THE APPELLANT AND HIS WIFE IN CONNECTION WITH THE OWNERSHIP/TITLE DEEDS AND AGREEMENTS, ETC. OF THE PLOTS OF LAND. SINCE IN THE EYES OF LAW THE SUBJECT MATTER OF TRANSACTION ON WHICH CAPITAL GAIN HAS BEEN EARNED WAS SALE OF SHARES ONLY, THEREFORE, THE PAYMENT MADE TO SOLICITORS WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRANSFER OF SHARES. THEREFORE, THE DEDUCTION OF LEGAL EXPENSES I.E. PAYMENT MADE TO SOLICITOR FEE WAS INCORRECTLY ALLOWED BY A.O. IN THE ASSESSMENT ORDER TO THE APPELLAN T. THE TWO ISSUES I.E. LEGAL EXPENSE (PAYMENT TO SOLICITOR) AND BROKERAGE EXPENSES WERE PART OF SAME ISSUE DISCUSSED IN ASSESSMENT ORDER I.E. APPELLANTS CLAIM OF EXPENSES AGAINST THE CAPITAL GAINS, THEREFORE, TH E UNDERSIGNED BEING CIT(A) HAS POWER TO RECT IFY AND MISTAKE COMMITED BY A.O. IN THE ASSESSMENT ORDER. THE SUPREME COURT IN THE CASE OF NIRBHAYRAM DULERAM 224 ITR 610 HELD THAT IN APPEAL TO THE APPELLATE COMMISSIONER, THE APPELLATE COMMISSIONER IS ENTITLED TO DIRECT ADDITIONS IN RESPECT OF ITEMS OF I NCOME NOT CONSIDERED BY A.O. ON THIS ISSUE RELIANCE IS ALSO PLACED IN THE CASES OF : 4 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) DEORIA OXYGEN CO. LTD. VS. CIT 210 CTR (ALL.) 509, SMT. ISHRAWATI DEVI VS. ITO (2008) 114 TTJ (ALL.) 541, CIT VS. K. S. DATTATRAY (2011) 241 CTR (KAR.) 227 187 ITR 86 (KER ) 280 ITR 318 (ALL.) 276 ITR 411 (GUJ.) 258 ITR 735 (MAD.) SINCE THE A.O. WRONGLY/INCORRECTLY ALLOWED APPELLANTS CLAIM OF DEDUCTION OF LEGAL EXPENSE I.E. PAYMENT OF SOLICITOR FEES, THE MISTAKE COMMITTED BY A.O. IS HEREBY RECTIFIED/CORRECTED AND THE APPELL ANTS CLAIM OF DEDUCTION OF LEGAL EXPENSES IS DISALLOWED. BY MAKING THIS DISALLOWANCE THE UNDERSIGNED HAS NOT TRIED TO FIND A NEW SOURCE OF ADDITION/INCOME IN ASSESSMENT ORDER AND THEREFORE, THE DECISIONS IN THE CA S ES OF SHAPOORJI PALLONJI 44 ITR 891 (SC) AND SARDARLAL & CO. 251 ITR 864 (DEL.) ARE NOT APPLICABLE. THE A.O. IS DIRECTED TO RE - WORK OUT THE CAPITAL GAIN ON SALE OF SHARES BY DISALLOWING APPELLANTS CLAIM OF LEGAL EXPENSES/SOLICITOR FEES. THE A.O. IS DIRECTED TO ASCERTAIN SUCH LEGAL EXPENSES OF SO LICITOR FEE FROM COMPUTATION OF INCOME OR OBTAIN FROM THE APPELLANT. AGGRIEVED , THE ASSESSEE IS IN SECOND APPEAL. 3.1 BEFORE US, THE LD. C OUNSEL FOR THE ASSESSEE, SHRI MOLTI B. TOTLANI , SUBMITTED THAT THAT W HAT WAS INTENDED TO BE SOLD , AND WHAT THE B UYE R , RUKMINI FINANCE PVT. LTD. (RFL) , WAS INTERESTED TO BUY , WERE THE PLOTS OF LAND , AS NOTED BY THE LD. CIT(A), IS NOT DENIED. HOWEVER , THE SAME, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS THROUGH MEDIUM OF TAKEOVER OF THE TWO COMPANIES HOLDING THE LAND IN QUESTION , BUYING THE ENTIRE SHAREHOLDING THEREIN . SO MUCH SO THAT EVEN THE VALUE AT WHICH THE SHARES A RE TRANSACTED WAS FIXED (ARRIVED AT) WITH REFERENCE TO THE PRICE SETTLED FOR LAND (RS.1042 PER SQ. FT.), ADDUCING A COPY OF THE TAKEOVER AGREEMENT DAT ED 13.4.2006 , ENTERED INTO BY THE ASSESSEES ( OF THE FIRST PART) , ALONG WITH THE TWO COMPANIES (PART IES OF THE SECOND PART) , WITH THE BUYER RFL (OF THE THIRD PART), ADVERTING OUR ATTENTION TO CLAUSE 2(C) THEREOF TOWARD THE SAME. THE BUYER WOULD THUS BE INTE RESTED IN HAVING A CLEAR TITLE OVER BOTH , THE S HARES (IN THE TWO COMPANIES) AS WELL AS LAND. REFERRING TO PARA 6 5 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) OF THE SAID A GREEMENT, IT WAS FURTHER SUBMITTED THAT AS MANY AS 42 ITEMS WERE LISTED FOR VERIFICATION AND PRODUCTION, AND WHICH HAD TO BE FURNI SHED , HIGHLIGHTING SOME OF THE M , VIZ . SALE DEED OF LAND (FROM THE PREVIOUS B UYER, RADIANT INDUSTRIES LTD. ) ; K HAT A EXTRACT S; ENCUMBRANCE CERTIFICATES ; B OARD RESOLUTIONS ; RESIGNATION OF THE DIRECTORS ; SKETCH OF THE PROPERTY; IT CL EARANCE; LOANS AVAILED, ETC. IT WAS TOWARD THIS THAT THE LEGAL EXPENSES WERE INCURRED, WHICH THUS RELAT E TO BOTH, I.E., SHARES AS WELL AS LAND. THE SAME ARE ALLOWABLE, EVEN AS HELD IN COMPAGNIE FINANCIERE HAMAN, IN RE , REPORTED AT [2009] 177 T AXMANN 511 (AAR), NEW DELHI ( COPY ON RECO RD ) . ON BEING ASKED IF THE TAKEOVER AGREEMENT, BEING NOT REFERRED TO IN THE ORDERS OF THE AUTHORITIES BELOW , AS ALSO NOT FORMING PART OF THE PAPER - BOOK, WHICH REQUIRES CERTIFICATION IN RESPECT OF IT BEING FURNISHED BEFORE THE REVENUE AUTHORITIES, THE LD. C OUNSEL WAS UNABLE TO SAY FOR SURE IF THE SAME WAS SUBMITTED BEFORE THE A.O., WHILE HAD ADMITTEDLY NOT BEEN TO THE LD. CIT(A). 3.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD , ON THE OTHER HAND, SUBMIT THAT THE LEGAL FORM OF THE TRANSACTION CANNOT BE IG NORED, AND THEREFORE WHEN WHAT WAS SOLD WERE SHARES, THE EXPENSES IN RELATION TO TRANSFER OF PROPERTY COULD NOT BE ALLOWED. THIS IS NOT THE ISSUE DECIDED IN COMPAGNIE FINANCIERE HAMAN, IN RE (SUPRA) , WHERE THE LEGAL EXPENSES HELD DEDUCTIBLE U/S. 48( I ) WERE IN RELATION TO THE CAPITAL ASSET TRANSFERRED, I.E., SHARES. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 4.1 OUR FIRST OBSERVATION IN THE MATTER IS THAT THERE IS NO BASIS FOR THE LD. CIT(A) TO HOLD THAT THE SERVICES RENDERED BY THE REAL ESTATE BROKER, M/S. HANU REDDY REALTY INDIA PVT. LTD., WERE IN RESPECT OF TRANSFER OF SHARES. WHY WOULD, ONE MAY ASK, ANYONE BE INTERESTED IN PURCHASING SHARES IN A PRIVATE LIMITED COMPANY (TRANSFERABILITY OF WHICH IS SEVERELY LIMITED BY LAW), WITHOU T ANY BUSINESS OR BUSINESS PROPOSAL, AND WITHOUT ANY TANGIBLE OR INTANGIBLE ASSET, SAVE THE PLOT OF LAND, WHICH IS IN FACT A COMMON PLOT (# 7A OF DYAVASANDRA PHASE I, INDUSTRIAL AREA), WITH EACH COMPANY 6 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) HOLDING A PART THEREOF, EXCEPT WHERE HE INTENDS TO AC QUIRE THE LAND OR INTEREST THEREIN. THE BROKER IS A REAL ESTATE BROKER AND THE BUYER WAS INTERESTED IN ACQUIRING LAND. IT IS ONLY FOR THIS REASON THAT THE SERVICES OF A REAL ESTATE BROKER WERE REQUIRED. THERE IS IN FACT NOT EVEN A CONTENTION DENYING THIS, WITH THE ASSESSEE HIMSELF STATING THAT THOUGH TECHNICALLY A CASE OF SALE OF SHARES, IN THE REAL SENSE OF THE WORD (READ WORLD ) , IT IS IMMOVABLE PROPERTY THAT WAS THE SUBJECT MATTER OF TRANSFER, I.E., IN SUBSTANCE. CLEARLY, THE BUYER, WHO MAY HAVE BEEN LOCATED BY THE BR OKER, EVEN NEGOTIATING THE PRICE OF LAND OR PARTICIPATING IN THE PROCESS, BOUGHT THE SHARES ONLY TO ACQUIRE THE INTEREST IN LAND THROUGH THE MEDIUM OF THE COMPANY. THE LD. CIT(A) MISDIRECTS HIMSELF WHEN HE HOLDS OTHERWISE. WE ARE CONSCIOUS THAT THE REVENUE IS NOT IN APPEAL, AND THE ISSUE OF DEDUCTIBILITY OF BROKERAGE EXPENSES IS THEREFORE NOT OPEN. HOWEVER, THIS ASPECT, I.E., THE SUBSTANCE OF THE TRANSACTION, AND FOR WHICH THEREFORE THE SERVICES OF THE BROKER AND THE SOLICITOR WERE REQUIRED, IS COMMON (TO T HE DEDUCTIONS CLAIMED U/S. 48(I)), SO THAT TO THE EXTENT THE IMPUGNED ORDER IS INCONSISTENT WITH OUR ORDER, ITS MERGER WITH THE LATTER WOULD OPERATE TO OVERRIDE THE SAME. 4.2 WE MAY NEXT CONSIDER THE ISSUE OF DEDUCTIBILITY OF THE SOLICITOR FEE, BEIN G LEGAL EXPENSES, CLAIMED TO BE INCURRED WHOLLY AND EXCLUSIVELY IN RELATION TO THE TRANSFER OF THE CAPITAL ASSET, I.E., SHARES, IN THE TWO COMPANIES AFORE - SAID. HOWEVER, BEFORE WE MAY PROCEED THEREWITH, WE SHALL BE REQUIRED TO ADDRESS THE ASSESSEES PRELIM INARY OBJECTION OF THE EXERCISE OF THE POWER OF ENHANCEMENT BY THE FIRST APPELLATE AUTHORITY BEING NOT PROPER. WE HAVE, WHILE NARRATING THE FACTS, ALREADY STATED THAT THE ASSESSEES WERE SHOW CAUSED IN THE MATTER. IN FACT, THE ASSESSEES AR ATTENDED THE PRO CEEDINGS ON 19.12.2011 IN RESPONSE THERETO AND, AS RECORDED BY THE LD. CIT(A), THE CASE WAS DISCUSSED. THIS IN FACT IS ADMITTED, WITH THE LD. COUNSEL STATING THAT HE ATTENDED WITH ALL THE RELEVANT EVIDENCES, WHICH THOUGH WERE NOT ACCEPTED. HOW COULD WE DET ERMINE THE VERACITY OF THE SAID STATEMENT; THE LD. CIT(A) STATING OF NO SUBMISSIONS/ ARGUMENTS/EXPLANATION HAVING BEEN FILED (AT PARA 3 OF HIS ORDER). THEN, AGAIN, HOW IS IT RELEVANT, I.E., TO THE EXERCISE OF THE POWER OF ENHANCEMENT; THE MATERIALS BEING 7 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) A DMITTEDLY ONLY QUA THE MERITS OF THE CASE. MUCH IS MADE OF THE LD. CIT(A) STATING OF THE A.O. HAVING COMMITTED A MISTAKE WHEN HE ALLOWS LEGAL EXPENSES, WHICH REQUIRES RECTIFICATION, WITH REFERENCE TO THE POWER OF RECTIFICATION U/S. 154. ALL THAT THE LD . CIT(A) HAS DONE IS TO EXERCISE HIS APPELLATE JURISDICTION IN RELATION TO THE ASSESSMENT BEFORE HIM, NOT EXTENDING TO A NEW SOURCE OF INCOME AS ALSO CLARIFIED BY HIM. WE, THEREFORE, FIND NO INFIRMITY IN THE EXERCISE OF HIS POWER OF ENHANCEMENT, AND TOWA RD WHICH HE RELIES ON, INTER ALIA , CIT V. NIRBHAYRAM DULERAM [1997] 224 ITR 610 ( SC). 4.3 COMING TO THE MERITS OF THE CASE, I.E., THE DEDUCTIBILITY OF THE LEGAL EXPENSES U/S. 48(I) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE EXAMINE THE RE LEVANT BILLS BY THE LAW FIRM, M/S. FOX MANDAL SERVICES PRIVATE LTD. (FORMING PART OF THE PAPER - BOOK) . THE SAME, SIMILARLY WORDED, READ AS UNDER: MR. HARESH MELWANI, 27 D.N. ROAD, FORT, MUMBAI 400 001 B ILL RE: SALE OF SHARES OF HEMSON SOFTECH PVT. L TD. TOWARDS CONSULTING CHARGES FOR SALES OF SHARES HELD BY MR. HARESH MELWANI IN HEMSON SOFTECH PVT. LTD. ATTENDING MEETING WITH THE PROSPECTIVE B UYERS A S REQUESTED BY MR. MELWANI FROM TIME TO TIME, ATTENDING DISCUSSING THE MATTER; ATTENDING DRAFTING AND VETTING NECESSARY AGREEMENT FOR THE SAID TRANSACTION, INCLUDING ALL INCIDENTAL ATTENDANCE AND CORRESPONDENCE. CONSOLIDATE FEE RS.7,50, 000.00 SERVICE TAX @12.24% RS. 91,800.00 TOTAL RS.8,41,800.00 (RUPEES EIGHT LAKHS FORTY ONE THOUSAND EIGHT HUNDRED ONLY) BANGALORE E&O.E REGD. NO.: 2035/SM/111 / 2006 FOR FOX MANDAL SERVICES PVT. LTD DATED: 3RD JUNE 2006 SD/ - ACCOUNTS DEPT. 8 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) WE HAVE ALREADY FOUND AS A FACT THAT THE TRANSACTION IS , IN SUBSTANCE , FOR THE TRANSFER OF INTEREST IN PLOT/S OF LAND. VERIFICATION OF TITLE THERETO; PAYMENT OF TAXES; ENCUMBRANCE CERTIFICATES; KHATA EXTRACTS/ENDORSEMENT; SKETCH, ETC. ARE CRUCIAL THERETO, AND TOWARD WHICH PROPER DOCUMENTATION IS REQUIRED. WE OBSERVE THAT AL L THE DOCUMENTS ARE REQUIRED TO BE SUBMITTED TO THE BUYER COMPANY IN ORIGINAL VIDE CLAUSE 5(A) OF THE TAKEOVER AGREEMENT, WHICH ALSO SPECIFIES OF THE DELIVERY OF POSSESSION OF THE SCHEDULED PROPERTY. NO DOUBT, THE LAND BEING HELD IN TWO CLOSELY HELD COMPAN IES, PURCHASE OF THE ENTIRE SHAREHOLDING THEREOF, SIMULTANEOUSLY FROM THE TWO PERSONS THE ASSESSEES, HOLDING THE SAME, I.E., TAKEOVER OF THE SAID COMPANIES, FORMED A VALID, LEGAL MECHANISM FOR ACQUIRING THE LAND, OR INTEREST THEREIN. THAT BEING THE CASE, THE LEGAL SERVICES WOULD AND DID EXTEND TO VERIFICATION OF THE ANTECEDENTS OF THE TWO COMPANIES, AND SATISFACTION WITH REGARD TO THEIR SHAREHOLDING. THAT, HOWEVER, WOULD NOT ALTER THE NATURE OF THE SERVICES, WHICH ARE PRIMARILY AND PRINCIPALLY IN RELATION TO THE TRANSFER OF LAND OR INTEREST THEREIN THE BENEFICIARY INTEREST THEREIN GETTING CHANGED FROM THE TRANSFEROR TO THE TRANSFEREE OF THE SHARES UNDER REFERENCE. IN FACT, THE MANNER OF THE ACQUISITION BY WAY OF TAKEOVER OF THE COMPANIES WOULD HAVE ITSEL F EMANATED FROM THE SOLICITOR FIRM, FORMING PART OF THEIR LEGAL COUNSEL, AND THUS SERVICES RENDERED, CULMINATING IN DRAFTING THE TAKEOVER AGREEMENT. WE ARE, HOWEVER, NOT IN AGREEMENT WITH THE LD. CIT(A) WHEN HE STATES THAT THE PLOTS OF LAND COULD NOT BE SOLD WITHOUT THE TRANSFER OF SHARES. THE PLOTS COULD DEFINITELY BE SOLD INDEPENDENT OF THE SHARES. THE MOOT QUESTION, HOWEVER, IS: IS IT RELEVANT? ONCE IT IS CLARIFIED THAT THE SHARES HAVE BEEN SOLD WITH A VIEW TO TRANSFER LAND (OR INTEREST THEREIN), ALL T HE SERVICES RENDERED, WHETHER RELATING TO TRANSFER OF LAND OR SHARES, BECOME INCIDENTAL TO THE TRANSFER OF SHARES, I.E., THE CAPITAL ASSET TRANSFERRED. WE, ACCORDINGLY, THOUGH IN AGREEMENT WITH HIS FINDING OF IT BEING ESSENTIALLY A CASE OF TRANSFER OF LAND , ARE YET UNABLE TO PERSUADE OURSELVES TO AGREE THAT THE SERVICES RENDERED IN RESPECT THEREOF WOULD NOT BE DEDUCTIBLE IN - AS - MUCH AS THE SALE OF SHARES IS NOT AN INDEPENDENT TRANSACTION; RATHER, IS ONLY TO ENABLE TRANSFER OF INTEREST IN LAND. 9 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) THOUGH, IN LAW THE TITULAR OWNERSHIP CONTINUES TO BE WITH THE TWO COMPANIES, THE BENEFICIAL INTEREST THEREIN IS WITH THE BUYER - COMPANY, WHICH NOW HOLDS THE ENTIRE SHARES THEREIN. WE, ACCORDINGLY, FIND NO DICHOTOMY IN THE TWO SETS OF FACTS, I.E., OF THE TRANSACTION BEIN G , IN PRINCIPLE, FOR THE SALE OF LAND AND THE CAPITAL ASSET /S TRANSFERRED BEING SHARES, THE TWO FORMING PART OF THE ONE, COMPOSITE TRANSACTION. THERE IS NO QUESTION OF DISSECTING IT INTO TWO PARTS, WHICH TOGETHER CONSTITUTE ONE INTEGRATED WHOLE. THE IMPUGN ED EXPENSES ARE CLEARLY ALLOWABLE U/S. 48(I) IN THE FACTS OF THE CASE, FOR WHICH WE ALSO DRAW SUPPORT FROM THE DECISION IN COMPAGNIE FINANCIERE HAMAN, IN RE (SUPRA), EVEN AS IN THAT CASE THE LEGAL EXPENSES WERE DIRECTLY IN RELATION TO THE SALE OF THE CAPIT AL ASSET TRANSFERRED. THE ISSUE, WE MAY CLARIFY, IS PRIMARILY FACTUAL, SO THAT ANY EXPENDITURE INCURRED IN C ONNECTION WITH THE TRANSFER OF A CAPITAL ASSET IS ALLOWABLE U/S. 48(I) IN COMPUTING CAPITAL GAINS ON SUCH TRANSFER U/S. 45. THE WORDS IN CONNECTION WITH OCCURRING IN S. 48(I) ARE WIDE IN SCOPE. W E HAV E ALREADY EXPRESSED THAT THE INTENT AND PURPOSE FOR THE TRANSFER OF SHARES IS TRANSFER OF LAND. A LL THE EXPENDITURE INCURRED IN RELATION TO ITS TRANSFER THUS GETS SUBSUMED IN THE TRANSFER OF SHARES. WO ULD, ONE MAY ASK, THE SHARES BE BOUGHT IF THE TITLE OF THE TWO COMPANIES OWNING THE LAND WAS DEFECTIVE, OR WOULD THE PRICE FETCHED BE SO IF THE SAME WAS ENCUMBERED? ANSWERS TO BOTH AND OTHER SUCH LIKE QUESTIONS, IS A CATEGORICAL NO. WE ARE CONSCIOUS THAT SECTION 50C OF THE ACT WOULD STAND ATTRACTED IF IT WAS A CASE OF TRANSFER OF LAND PER SE . TRUE, BUT THEN THE MONIES WOULD HAVE BEEN REALISED BY THE TWO COMPANIES , AND NOT THE TWO ASSESSEES HOLDING SHARES THEREIN. OTHER BENEFITS BY WAY OF SAVING ON STAMP DU TY, REGISTRATION CHARGES, ETC. ALSO ENSUE. HOWEVER, AS CLARIFIED BY THE HONBLE APEX COURT IN CIT VS. B. M. KHARWAR [1969] 72 ITR 603 (SC), THE LEGAL FORM OF THE TRANSACTION HAS BUT TO BE GIVEN REGARD TO, AND CANNOT BE IGNORED ON THE BASIS OF WHAT IS CALLE D THE SUBSTANCE OF THE TRANSACTION. TO QUOTE: IT IS NOW WELL - SETTLED THAT THE TAXING AUTHORITIES ARE NOT ENTITLED, IN DETERMINING WHETHER A RECEIPT IS LIABLE TO BE TAXED, TO IGNORE THE LEGAL CHARACTER OF THE TRANSACTION WHICH IS THE SOURCE OF THE RECEIPT AND TO PROCEED ON WHAT THEY REGARD AS 'THE SUBSTANCE OF THE MATTER.' THE TAXING 10 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) AUTHORITY IS ENTITLED, AND IS INDEED BOUND, TO DETERMINE THE TRUE LEGAL RELATION RESULTING FROM A TRANSACTION. IF THE PARTIES HAVE CHOSEN TO CONCEAL BY A DEVICE THE LEGAL RELA TION, IT IS OPEN TO THE TAXING AUTHORITIES TO UNRAVEL THE DEVICE AND TO DETERMINE THE TRUE CHARACTER OF THE RELATIONSHIP. BUT THE LEGAL EFFECT OF A TRANSACTION CANNOT BE DISPLACED BY PROBING INTO THE 'SUBSTANCE OF THE TRANSACTION'. THIS PRINCIPLE APPLIES A LIKE TO CASES IN WHICH THE LEGAL RELATION IS RECORDED IN A FORMAL DOCUMENT, AND TO CASES WHERE IT HAS TO BE GATHERED FROM EVIDENCE ORAL AND DOCUMENTARY AND CONDUCT OF THE PARTIES TO THE TRANSACTION. ACCORDINGLY, WHAT IN LAW HAS TRANSPIRED IS THE TRANSFER OF SHARES, AND NOT OF LAND AND, ACCORDINGLY, SECTION 50C WILL NOT COME INTO PICTURE. THIS CONSIDERATION, WHICH APPEARS TO HAVE PREVAILED WITH THE REVENUE AUTHORITIES, IS NOT VALID. 4.4 WE, IN VIEW OF THE FOREGOING, FIND NO INFIRMITY IN THE ASSESSEES CL AIM FOR LEGAL EXPENSES U/S.48(I), AND UPHOLD THE SAME, IN PRINCIPLE. HOWEVER, IT IS NOT CLEAR IF THE TAKEOVER AGREEMENT DATED 13.4.2006, EVIDENCING THE TRANSACTION, AND WHICH CONSTITUTES THE PRIME EVIDENCE, WAS BEFORE THE REVENUE AUTHORITIES , WHOSE FINDING AS TO THE SALE OF LAND BEING THE PRIME MOTIVE AND THE DRIVER OF THE TRANSACTION HAS BEEN AFFIRMED BY US. T HE SA ID AGREEMENT WOULD HOWEVER HAVE TO BE EXAMINED, IF ONLY TO VERIFY IF THE TRANSACTION AS EXECUTED IS IN AGREEMENT THEREWITH. THE SAME STATES THE TOTAL CONSIDERATION (IN THE HANDS OF BOTH THE ASSESSEE - TRANSFERORS) AT RS.890 LACS, WHILE WE OBSERVE THE STATED PRICE, WHICH IS WITH REFERENCE TO AND IN TERMS OF UNIT OF LAND, WORKS TO RS.925.75 LACS (88,843 SQ. FT. X RS.1042 PER SQ. FT.). SUBJECT TO THE A .O.S VERIFICATION, RETURNING POSITIVE FINDINGS, WE CONFIRM THE DEDUCTIBILITY OF THE IMPUGNED EXPENSES. WE MAY HOWEVER CLARIFY THAT ANY APPARENT MISTAKE / S , IF ANY, COULD BE RECTIFIED FOLLOWING THE DUE PROCESS OF LAW. WE DECIDE ACCORDINGLY. 5. THE ASSESSEE S HA VE R AISED A GROUND QUA LEVY OF INTEREST U/S. 234B. EVEN AS WE HAVE ALLOWED THE APP EA L ON MERITS (SUBJECT TO VERIFICATION OF QUANTUM ) , THE G ROUND, NOT PRESSED BEFORE US, IS WITHOUT MERIT IN VIEW OF THE DECISION IN CIT VS. ANJUM GHASWALA [2001] 252 ITR 1 (SC), A LSO NOTED BY THE LD. CIT(A). 11 ITA NO S . 1756 & 1757/MUM/2012 (A.Y. 2007 - 08) 6. IN THE RESULT, THE ASSESSEES APPEAL S ARE ALLOWED ON THE AFORE - SAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUAR Y 29 , 201 6 SD/ - SD/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 29 . 02 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI F IT FOR PUBLICATI ON IN ITD SD / - SD/ - J . M . A.M.