2020 (10) TMI 519 - HC - Income Tax

Claim of deduction u/s 48(i) - deduction of expenditure incurred wholly and exclusively in connection with the transfer of shares - expenditure was incurred voluntarily - whether section 48(i) of the Act makes no distinction between voluntary or involuntary expenditure -Tribunal disallowing the Appellant s claim for deduction of expenditure on the ground that the Appellant had not fulfilled a condition in a clause in the Share Purchase Agreement - HELD THAT - Tribunal after taking note of Clause 29 in the agreement has recorded a finding that even if the assessee has made payment as required under Clause 29 of the Share Purchase Agreement, the same cannot be termed as expenditure in connection with transfer of shares - whether the expenditure is incurred wholly and exclusively in connection with transfer of an asset is a question of fact, which depends in the facts and circumstances of the case. We agree with the findings recorded by the Tribunal and hold that from careful scrutiny of the order passed by the Tribunal, it is evident that in fact, first substantial question of law does not arise for consideration in this appeal. Assessee was unable to point out that three share holders who were parties to the same transaction had claimed the similar expenditure in their returns as was claimed by the assessee. - Decided against assessee.

Summary

Issues:
1. Deduction of expenditure incurred in connection with the transfer of shares
2. Consideration of additional evidence for deduction under Section 48(i) of the Act

Analysis:

Issue 1: Deduction of Expenditure
The appellant, an individual shareholder, sold shares to a company and incurred expenditure for the benefit of employees as per the share purchase agreement. The appellant claimed this expenditure as a deduction under Section 48(i) of the Income Tax Act, stating it was incurred wholly and exclusively in connection with the share transfer. However, the Assessing Officer disallowed the deduction, considering it a voluntary payment and not directly related to the share transfer. The Commissioner of Income Tax (Appeals) upheld this decision, leading the appellant to appeal to the Income Tax Appellate Tribunal. The Tribunal concurred that the expenditure was voluntary and not directly linked to the share transfer, resulting in the dismissal of the appeal. The High Court agreed with the Tribunal's findings, emphasizing that the expenditure must be directly connected to the transfer of the capital asset to qualify for deduction under Section 48(i) of the Act.

Issue 2: Consideration of Additional Evidence
The appellant argued that the Tribunal should have considered additional evidence supporting the deduction claim under Section 48(i) of the Act. The appellant highlighted that similar expenditure was allowed for other shareholders involved in the same transaction. However, the revenue contended that the expenditure should be directly related to the capital asset transfer to qualify for deduction. The High Court noted that the Tribunal correctly analyzed the share purchase agreement's clause requiring the expenditure for employee welfare. The Court agreed with the Tribunal's decision that the expenditure was not wholly and exclusively in connection with the share transfer, as mandated by Section 48(i) of the Act. As a result, the Court did not find merit in the appeal and dismissed it.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the necessity for expenditure to be directly linked to the transfer of the capital asset to qualify for deduction under Section 48(i) of the Income Tax Act. The Court found no grounds to support the appellant's claim for deduction of the expenditure incurred in connection with the share transfer, ultimately dismissing the appeal.