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TMI Blog2016 (4) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 925.75 lacs (88,843 sq. ft. x ₹ 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. - I.T.A. No. 1756/Mum/2012, I.T.A. No. 1757/Mum/2012 - - - Dated:- 29-2-2016 - SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM For The Appellant : Shri Molti B. Totlani For The Respondent : Shri Randhir Gupta ORDER Per Sanjay Arora, A. M.: These Appeals by the Assessee s are directed against separate Orders by the Commissioner of Income Tax (Appeals)-21, Mumbai ( CIT(A) for short) dated 19.12.2011, partly allowing their appeals contesting their assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2007-08 vide orders dated 30.12.2009. 2. This is a set of two Appeals raising common issues. The appeals were accordingly fixed for, and heard together. The brief facts, largely undisputed, are that the assessees, being husband and wife, holding the entire shareholding in two companies, namely, Hemsons Softec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shareholdings of those two companies. Therefore, the brokerage expenses incurred were allowable against the capital 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 obtained 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 appellant. The two issues i.e. legal expense (payment to solicitor) and brokerage expenses were part of same issue discussed in assessment order i.e. appellant s claim of expenses against the capital gains, therefore, the undersigned being CIT(A) has power to rectify and mistake commited by A.O. in the assessment order. The Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Agreement, it was further submitted that as many as 42 items were listed for verification and production, and which had to be furnished, highlighting some of them, viz. sale deed of land (from the previous buyer, Radiant Industries Ltd.); khata extracts; encumbrance certificates; Board resolutions; resignation of the directors; sketch of the property; IT clearance; loans availed, etc. It was toward this that the legal expenses were incurred, which thus relate 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 Taxmann 511 (AAR), New Delhi (copy on record). 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. counsel 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 ignored, and therefore when what was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., shares, in the two companies afore-said. However, before we may proceed therewith, we shall be required to address the assessee s preliminary 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 assessee s AR attended the proceedings 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 determine 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 admittedly 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 exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 itself 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 the 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 agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 relation, 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 alike 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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