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TMI Blog2014 (11) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... [hereinafter referred to as "THE SHARE PURCHASE AGREEMENT"] between EMR and four individuals (including the assessee) to hold the entire share of Trident. 3. While computing long term capital gains, assessee claimed as a deduction a sum of Rs. 20,97,600. The assessee submitted before the AO that as per clause 29 of the Share Purchase Agreement, the assessee and the three other shareholders had to contribute a sum of Rs. 3.45 Crs. For the benefit of employees of Trident. The Assessee as his share of the aforesaid sum of Rs. 3.45 crores had to contribute a sum of Rs. 20,97,600. Clause 29 of the said agreement reads as under:- "29. Payment to Employees Within 60 days following the closing date, the sellers, as a condition to this agreement, convenant and agree that they shall pay a sum of Rs. 3,45,00,000/- (Thirty Four Million Five Hundred Thousand) to a Trust set up by the sellers for the benefit of the employees (including selective ex-employees) of the company". 4. According to the assessee, the aforesaid sum was an expenditure incurred by the assessee wholly and exclusively in connection with transfer as contemplated u/s. 48(i) of the Act. The assessee explained before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement. The assessee also filed an undated certificate declaring that the condition mentioned in clause 29 of the Share Purchase Agreement was waived. This certificate was signed by Vice President of Trident. With regard to the actual contribution by the assessee for the benefit of employees, it was pointed out before the CIT(A) that monies have come into the bank account opened for this purpose and payments from and out of the said account have been made to several employees of Trident. 7. The CIT(A) on consideration of the above submissions was not inclined to accept the plea of the assessee. He held that there was no claim whatsoever by the employees which necessitated contribution by the assessee to a trust for welfare of the employees. The CIT(A) relied on the decision of the Hon'ble High Court of Karnataka in CIT v. R. Ranga Shetty, 151 ITR 79, wherein it was held that compensation paid to a tenant on transfer by compulsory acquisition of property is not expenditure incurred in connection with transfer and not allowable as a deduction. Following the said decision, he held that expenditure in question claimed by the assessee was a voluntary payment and therefore cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee filed before us an application for admitting a list of 482 employees to whom assessee has made various payments totalling to Rs. 2,06,89,898. The assessee has also filed another list of 155 employees to whom payment to the extent of Rs. 48,44,585 had been made. These 155 persons are employees of M/s. Maruthi Electrical Works which is a proprietary business of an individual. It was submitted by the ld. counsel for the assessee that these 155 employees were employees working for Trident on deputation from M/s. Maruthi Electrical Works and therefore they were also to be paid the employees welfare fund. The certificate from State Bank of India, in which the account Trident ex- Promoters Welfare Fund was opened and fact that a sum of Rs. 3,45,00,000 was deposited in that account was also filed in which the Bank has certified that they had made payment of Rs. 2,06,89,898 to the SB Accounts of 482 employees as per list filed by the assessee before us. According to the ld. counsel for the assessee, the aforesaid documents will show that the assessee has actually made payment of the sum in question and therefore the assessee has incurred the expenditure and deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in which a sum of Rs. 3.45 crores was deposited and ultimately utilised for making payments to the employees of Trident (including ex-employees). The waiver of the condition in clause 29 of the Share Purchase Agreement has not been substantiated by the assessee. In this regard, the ld. counsel for the assessee had placed reliance on a certificate given by the Vice President of Trident. As we have already seen, EMR was the purchaser and 4 individuals owning the entire share capital of Trident were the sellers. Therefore, the certificate of waiver of clause 29 of the Share Purchase Agreement given by Vice President of Trident has been rightly held by the CIT(Appeals) to be not a valid basis on which the assessee can claim modification of clause 29 of the Share Purchase Agreement. We are, however, of the view that had clause 29 of the Share Purchase Agreement been properly complied with by the assessee, then the claim of the assessee could have been entertained. Since the contribution by the assessee is not in accordance with clause 29 of the Share Purchase Agreement, the assessee cannot claim deduction of the sum in question as an expenditure incurred wholly and exclusively in co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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