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2014 (2) TMI 237 - HC - Income TaxComputation of LTCG - additions towards car parking spaces allotted - Accrued rights to provide air conditioning equipment Held that - The assessee had no freedom to transfer the right, title and interest over the car parking spaces and that the benefit of privilege granted was only personal which could not be transferred to any third party for consideration even the addition was only an estimate without any legal or factual basis - there was no reason to interfere with the well-reasoned order of the appellate authority in deleting the said notional additions of income and that the Tribunal committed no error in confirming the order of the appellate authority - There was no right to transfer the car park rights which have accrued in favour of the assessee and merely open space was being utilized beyond the permissible FSI for parking of vehicles - the notional additions on account of provision for air-conditioning does not arise in the facts of the present case as no such provision was actually provided by the developer Decided against Revenue. Indexation benefit to the cost of improvement - Compensation paid to the tenants for vacating possession Held that - The compensation paid to the tenants for delivering the vacant possession, improved the right and interest of the assessee over the property, thus, it would amount to improvement cost there was no erroneous approach or infirmity in the findings of the appellate authority and the Tribunal that the compensation paid to tenants for getting vacant possession would amount to cost of improvement and that the assessee was entitled for indexation benefit on that account - Relying upon Radhasoami Satsang Versus Commissioner of Income-Tax 1991 (11) TMI 2 - SUPREME Court - section 48(ii) provides for deduction towards costs of any improvement thus, compensation was paid to the tenants to obtain vacant possession so that the property could be put to better use and construct the building for which an agreement was entered into with the developer hence it would constitute a cost on improvement as the said cost is incurred only for beneficial utilisation of the property Decided against Revenue. Bogus Loss - Disallowance on sale of shares - Reversal of assessment Held that - There was no convincing material put forth by the Revenue to establish that the assessee was claiming loss on ostensible sale of shares belonging to the group companies with the motive of tax avoidance - all the required primary evidence relating to sale of shares were produced before the assessing authority and that the assessing authority did not point out any infirmity in those evidence there was no infirmity in the order passed by the Tribunal confirming the order of the appellate authority directing the assessing authority to assess the loss on sale of shares under the head Long-term capital gains - The Tribunal has analysed the materials on record to come to a conclusion that the loss on account of sale of shares was a genuine and that the said loss has occurred in the course of business and cannot be added to the income of the assessee in any manner - the Revenue has failed to demonstrate as to how the loss on account of sale of shares is not genuine but a colourable device Decided against Revenue. Interest paid on borrowed capital u/s 36(1)(iii) of the Act Held that - The appellate authority and the Tribunal found that the investment made in shares by the assessee by utilising borrowed capital was for strategic business purposes because the companies were promoted as special purpose companies to strengthen and promote its existing business by combining different business segments, thus, the claim was fully allowable under section 36(1)(iii) - the Revenue did not adduce any material to show that the borrowed capital was utilised by the assessee for non-business purposes - The appellate authority was correct in allowing the claim of the assessee and deleting the disallowance made by the assessing authority - the Tribunal in correct appreciation of the matter had in turn confirmed the finding of the appellate authority Decided against Revenue. Licence fee to be deducted as business allowance Held that - the expenditure incurred by the respondent assessee towards licence fee payment were relatable to the business expediency and profits of the respondent-assessee and that the benefits availed of by the respondent-assessee from the service of the group resource company was tangible and justified Decided against Revenue.
Issues Involved:
1. Addition of Rs. 35 lakhs for car parking spaces. 2. Addition of Rs. 50 lakhs for air conditioning equipment. 3. Compensation paid to tenants as 'cost of improvement'. 4. Loss suffered in share transactions. 5. Interest paid on borrowed capital. 6. Licence fee paid to M/s. RPG Enterprises Ltd. Detailed Analysis: Substantial questions of law Nos. 1 and 2: The Tribunal deleted the additions of Rs. 35 lakhs and Rs. 50 lakhs made by the Assessing Officer for car parking spaces and air conditioning equipment, respectively. The court found that the transaction between the assessee and the developer was for granting development rights in the land for a specified consideration. The car parking spaces were not included in the sanctioned built-up area and were only a privilege granted to the assessee without any legal right or interest. The air conditioning equipment was not provided by the developer, making the addition hypothetical. The Tribunal's findings were based on the principle that tax can only be levied on real income, not hypothetical income. The court upheld the Tribunal's decision, confirming that the additions were not tenable. Substantial question of law No. 3: The Tribunal and the appellate authority allowed the compensation paid to tenants for obtaining vacant possession as 'cost of improvement', entitling the assessee to indexation benefits. The court found that the compensation improved the assessee's right and interest in the property, making it a legitimate 'cost of improvement'. The court also noted that a similar claim was allowed in earlier assessment years and that the issue was barred by res judicata. The court upheld the Tribunal's decision, confirming the assessee's entitlement to indexation benefits. Substantial question of law No. 4: The Tribunal confirmed the appellate authority's decision to allow the assessee's claim of Rs. 21,72,37,997 as a genuine loss on the sale of shares. The court found that the assessee had produced all necessary primary evidence, and the assessing authority did not prove these documents to be false or bogus. The Tribunal's findings were based on the materials available on record, and the court saw no reason to interfere. The court upheld the Tribunal's decision, confirming the loss as genuine and not a colourable device to avoid tax. Substantial question of law No. 5: The Tribunal allowed the assessee's claim of interest paid on borrowed capital, finding that the borrowed capital was used for business purposes. The court noted that the Revenue did not produce any material to show that the borrowed capital was used for non-business purposes. The Tribunal's decision was based on the fact that the investment in shares was for strategic business purposes. The court upheld the Tribunal's decision, confirming the allowance of interest on borrowed capital. Substantial question of law No. 6: The Tribunal confirmed the appellate authority's decision to allow the licence fee paid to M/s. RPG Enterprises Ltd. as a business expenditure. The court found that the payment was for accessing expert advice and services from a common business establishment, benefiting the assessee's business operations. The Tribunal's decision was based on the finding that the expenditure was related to business expediency and profits. The court upheld the Tribunal's decision, confirming the allowance of the licence fee as a business expenditure. Conclusion: The court dismissed the appeal, confirming the Tribunal's decisions on all substantial questions of law in favor of the assessee and against the Revenue. The court found no reason to interfere with the well-reasoned orders of the appellate authority and the Tribunal.
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