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TMI Blog2019 (10) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... including the assessee. The success fee was for engaging the services of Barclays as per EL dated 05.07.2013 and the share purchase agreement was entered on 04.11.2013, much ahead of SPA, hence, the success fee cannot be treated as the expenditure incurred in connection with the SPA. - it cannot be held that the assessee got any benefit from the success fee paid by the TMPPL as observed by the CIT(A). Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the revenue s ground on this issue. Success fee is to be paid only on the completion of the transaction - The AO rejected the contention of the assessee stating that the obligation of the assessee arose on the date of agreement dated 05/07/2013 when the assessee was a director of the company and holding substantial stake in the company, hence rejected the argument of the assessee. As per the discussion made in the preceding paragraphs we have held that the there was no benefit derived by the assessee and once it is held that the assessee did not derive any benefit the issue becomes infructuous. However, it is also a fact that the assessee ceased to be director /shareholder by the time the invoice was raised and the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares, to assist the assessee in identifying the potential buyer and act as a sole financial adviser of the company. On finalization of the transaction the company M/s TMPPL has to pay success fee to M/s Barclays Bank as per the invoice raised. Accordingly, at the end of the transaction, M/s Barclays raised an invoice of ₹ 28,81,31,631/- as success fee for the transaction and the same was met by M/s TMPPL. The AO objected for the payment of success fee of ₹ 28.81 crores by the company M/s TMPPL for sale of shares of individual stakeholders of the company. The AO is of the view that the payment of success fee was the obligation of the share holders. From the financials of M/s TMPPL, the AO observed that the amount of ₹ 28.81 crores, inter-alia was shown as payment down the line of profits. To elaborate M/s TMPPL in the audited financials for the A.Y. 2014-15 arrived at profit of ₹ 58,55,28,292/- and down the line, shown the amount of ₹ 28,81,31,631/- as paid towards professional fee under exceptional items. From the profit and loss account, the AO found that the company has not claimed this amount as expenditure in it s hands. The AO further obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale of shares held by various stake holders of M/s TMPPL. The assessee being one of the promote-director holding 10.34% of the stake in M/s TMPPL, sold his shares pursuant to the EL and received the sale consideration, the benefit of whole transaction of entering into agreement, getting the value of shares evaluated, transfer of shares of individual shares to M/s BSA was certainly derived by the individual share holders, including the assessee and not the company. It is for this reason, the AO viewed that the company has not claimed any expenditure out of the transaction and rightly shown the same as paid out of the taxed profits, below the line of adjustment. The AO also observed that no assets of the company were sold by settlement, but only shareholding of the company was shifted from 41 individual stake holders and one foreign entity to one M/s BSA International Ltd, therefore, viewed the said agreement as a customary exercise and no importance can be attached at any stretch and accordingly held that the proportionate amount of payment made by the company is to be treated as income in the hands of the assessee u/s 2(24)(iv) of the Act. 2.1. The assessee s al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led appeal before this Tribunal. All the grounds of appeal are related to the treatment given by the AO in respect of the amount of ₹ 2,97,92,811/- taxing the sum u/s 2(24)(iv) of the Act. 4.1. During the appeal hearing, the Ld.DR argued that the assessee company M/s TMPPL has paid the sum of ₹ 28.81 crores to M/s Barclays Bank. The assessee being the Director and shareholder of 10.34%, the assessee got indirect benefit which required to be taxed u/s 2(24)(iv) of the Act. The Ld.DR further submitted that though the assessee claimed that he was not the Director as on the date of raising the invoice, it is a fact that as on the date of entering the agreement, the assessee was Director, hence section 2(24)(iv) attracts in assessee s case. Though the agreement was entered into between M/s TMPPL and M/s Barclays Bank, no asset was transferred and it was only the shares of the individual shareholders which were transferred, therefore, the contention of the assessee that the agreement entered to provide financial assistance and relative assistance in connection with possible transaction is nothing but a make believe arrangement and the assessee got direct benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company does not provide exit route as per clause 13.1., the company and the share holders are required to extend all cooperation and make arrangements for sale of shares of the investors even by using all it s resources. For the sake of clarity, clause 13.2 reads as under. 13.2. No Exit Route. If the Company does not provide an exit route to the Investors as provided in Clause 13.1 above within the Exit Route Period, then at the sole option of the Investors, the Investors may require a. the Company and the Existing Shareholders to cooperate to arrange an offer for sale of all Shares held by the Investors through an IPO at a recognised stock exchange an terms and conditions determined by the Investors within a period of 120 (One Hundred and Twenty) days of receipt of a notice from the Investors; and/or b. subject to applicable Law, the Promoters shall exercise all their voting and :other rights in a manner such that the Company uses all of Its surplus funds, free cash flows and reserves available for each year to first buyback the Shares of the Investors at the higher of the valuation set out in definition of QIPO valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares in accordance with the agreement entered with the Carlyle Goup, the assessee was put into loss personally since there is no plans made by the assessee to invest such huge amount. The company has to provide exit route to Carlyle Growth by 31.03.2014. For the purpose of honouring the obligation, M/s TMPPL has issued EL to M/s Barclays Bank PLC for financial advice and possible transaction, to study the market and find the way to provide the exit route to Carlyle Group. The intention of entering into EL with Barclays bank was to find strategic investor who could buy the entire shareholding of Carlyle group with a pre determined evaluation agreeable. As per the terms of the EL, it was entitled for success fee, if they are successful in finding the strategic investor. Barclay was successful in identifying the investor namely BSA International but it was reluctant to buy the shareholding of Carlyle alone, instead, insisted on buying the entire shareholding of TMPPL including that of Carlyle group and 41 promoters for the transaction to materialize. TMPPL having committed to the Carlyle Group in the PE agreement to find exit route by 31.03.2014, convinced its promoters to sell th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the payment of success fee was the obligation of TMPPL and not that of the assessee. Thus the Ld.AR argued that success fee was deducted at source from the funds of the shareholders, hence, no benefit whatsoever received by the share holders and no need to tax the same u/s 2(24)(iv) of the Act. 6. We have heard both the parties and perused the material placed on record. In the instant case, the assessee has transferred 23,74,457 shares held by him in M/s TMPPL to M/s BSA International for a consideration of ₹ 179,84,85,978/- and the entire sale consideration received by the assessee was offered for long term capital gains. The company M/s TMPPL had entered into agreement for investment with First Carlyle Group on 10.04.2010. Accordingly, Carlyle Group has made the investments and the company was obliged to give exit option to the investors as per Clause 13.1 of the agreement. For the purpose of honouring the commitment, the company had engaged M/s Barclays Bank Pvt. Ltd. for financial advice and possible transaction to study the market and find a way to provide exit route to Carlyle Group. The scope of EL was appointment of M/s Barclays as a sole financial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be treated as income in the hands of such Director. In the instant case, there is no evidence to show that the assessee had entered into agreement for transfer of shares or the assessee was obliged to make payment to Barclays. As per the EL, Barclays was engaged as a sole financial advisor in connection with the transaction and no other person should be appointed by TMPPL. It was also made clear that the promoters or the client may choose and appoint their own consultant or advisor. Such consultant has no right to claim the fee, right title for the purpose of carrying out the services contemplated. The Directors or shareholders are permitted to appoint their own consultant who will not have any say in the success fee. In view of this clause also, the contention of AO that the success fee was the obligation of the assessee is incorrect. As mentioned in the share purchase agreement (SPA), cost of transfer of shares should be borne by the assessee. Accordingly, the expenses in relation to the negotiation, finalization and execution of SPA have to be borne by the shareholders including the assessee. The success fee was for engaging the services of Barclays as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oitte Touche Tohmantsu India Private Ltd which reads as under : 8.1. From the above working, it shows that Barclays fee was already recovered by BSA International and the net consideration was paid to shareholders which establishes that the amount of succession fee paid to Barclays from the profits and reserves of the shareholders. Further, the fee paid to Barclays was expenses in relation to transfer of shares which required to be allowed as deduction for computing the capital gains and cannot be brought to tax under the head income from other sources . For a query from the Bench, the Ld.DR did not show any material to substantiate that the success fee paid to the Barclays was not in relation to transfer of shares. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. I.T.A.No.12/VIZ/2019, A.Y.2014-15 9. Brief facts of the case are that the assessee is an individual filed his return of income on 27-09-2014 for the asst. year 2014-I5 admitting total income of ₹ 210,99,86,140/- from salary, advisory fees, house property, capital gains and income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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