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TMI Blog2012 (9) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the Ld. CIT(A) erred in deleting the addition of ₹ 21,34,8391- on the ground that the dissolution of SYNCON being a condition precedent to the sale of shares in SITSIPL and hence allowable without appreciating the fact that mere liability or obligation cannot be regarded as an item of expenditure, let alone an expenditure incurred wholly and exclusively in connection with the sale of the capital asset. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of exemption claimed by assessee under section 54F without appreciating the fact that assessee had more than one house at the time of transfer of capital asset and for qualifying the exemption it is necessary and applicable to have the investments made in residential house in the name of the assessee only. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to delete the addition of the cost of acquisition of shares considered as NIL during the assessment proceedings without appreciating the fact that assessee could not produce the evidence for payment of purchase; of shares neither in assessment proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 805 both having common entrance and a single indivisible residential unit on 8th Floor in D Wing of building Ekta Meadows aggregating to ₹ 37,66,259/- in the joint names of himself and his spouse and deposited ₹ 1,00,00,000/-in capital gain saving account with bank of Baroda before due date of filing return of income. 7. Assessee while offering long term capital gain claimed certain expenditures including ₹ 21,34,839/- towards payment for dissolution of SYNCON a partnership firm and claimed deduction of investment in house property under section 54F. AO on the reason that share certificate was issued just before the sale, held that the sale of shares of the company was short term capital gain thereby he did not allow the exemption under section 54F. He also did not give the benefit of cost of acquisition of shares on the reason that assessee did not furnish any evidence towards purchase of shares by paying 'cost'. In the computation, he also denied the claim of expenditure of ₹ 21,34,839/-(along with other amounts) on the reason that the payment was not linked to sale of shares in SITSIPL. On these reasons, AO computed the short term capital gain. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 clearly establish beyond doubt that the equity shares are not held only from 12.10.2006 i.e. the date of the issuance of the share certificates but in fact the share were held by assessee at least from 31.3.2003. 2.8 In view of the above, I am of the opinion that 40,600 equity shares held by the appellant in SITSPL are long term capital assets and therefore the gains arising to the appellant on the sale of 28,420 shares are in the nature of long term capital gains. 11. Since it is a fact that assessee has acquired shares long back, just because a fresh share certificate was issued on 12.10.2006, it cannot be considered that he acquired shares only on that date. We do not find any reason to differ from the findings of the CIT (A) which is the factual matter. Nothing was brought on record to counter the above finding except relying on judicial decision which was distinguished correctly by CIT(A). Therefore, this ground of the Revenue is rejected. 12. In Ground No. 2 the facts are that assessee claimed deduction of payment stating that the payments made to the other partners of the SYNCON aggregating to ₹ 21,34,839 were directly linked to the part sale of his share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 42,69,678. v. Further vide an Addendum dated 12-10-2006, the liability to pay the aforesaid said sum of ₹ 42,69,678 was assigned to assessee and the co-promoter Sanjay Vyas (₹ 21,34,839/-each) in view of the fact that on closure of the business of SYNCON, the appellant and Sanjay Vyas would be directly benefited in as much as being able to sell their shares in SITSIPL to Aptech. vi. In view of the above, it is clearly established that the closure of the SYNCON was inextricably linked being a precondition, to the, transfer of shares by assessee. vii. SYNCON was in fact dissolved and the payment of ₹ 21,34,839/- by assessee to the 3 partners of SYNCON is in the nature of consideration for agreement to dissolve SYNCON. viii. Payment of ₹ 21,34,839/- was in fact made by assessee and the said amount is not a mere liability or an obligation. ix. The partners of SYNCON in receipt of the consideration for agreeing for the closure of SYNCON, have offered the said receipt from assessee and his co-promoter Sanjay Vyas for tax under the head Capital Gains. x. As part of the settlement between the partners of SYNCON, assessee, in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of SITSIPL. Accordingly, the appellant and co-promoter Mr. Sanjay Vyas entered into an agreement for dissolution of SYNCON. This proves that the dissolution of partnership firm SYNCON was one of the conditions for sale of shares. As per the said agreement followed by an addendum dated 12.10.2006, the business of the SYNCON will be acquired as a going concern and purchase consideration will be borne equally by the shareholders of SITSIPL i.e. the ass and Mr. Sanjay Vyas and the said consideration has been offered to tax by the receiving partners. 3.9 In view of the above, I am of the opinion that dissolution of SYNCON being a condition precedent to the sale of shares by the appellant, was directly related to the transfer of shares in SITSIPL and therefore, expenses amounting to ₹ 21,34,839/- incurred in relation thereto are expenses deductible under section 48 of the I.T. Act, 1961. 3.9.1 Regarding the amount foregone by the appellant which was outstanding in his capital account at ₹ 3,79,135/- the CIT (A) opined that the same cannot be allowed as deduction as the appellant has not offered the same separately for taxation under the head capital gains unlike ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fourteen Lacs twenty Three Thousand Two Hundred and Twenty Six only) on signing this agreement within 7 days, ₹ 2,51,158/-(Rupees Two lacs Fifty One Thousand One Hundred and Fifty Eight Only) will be paid at the end of 6 months along with interest @ 7 % P.A., ₹ 1.41,085/- as continuity incentive to be paid for the calendar years ended 2007, 2008, and 2009 and 406 shares of Synergetics Information Technology Services India Pvt. Ltd. @ ₹ 615.75 per share aggregating to ₹ 2.49,995/- (Rupees Two Lacs Forty Nine Thousand Nine Hundred and Ninty Five only) to Mr. Raj Dorwani, partner of the Second Party. 4.1.3 ₹ 14,23,226/- (Rupees Fourteen Lacs Twenty Three Thousand Two Hundred and Twenty Six only) on signing this agreement within 7 days, ₹ 2,51,158/-(Rupees Two lacs fifty One Thousand One Hundred and Fifty Eight Only) will be paid at the end of 6 months along with interest @ 7 % P.A., ₹ 1.41,085/- as continuity incentive to be paid for the calendar years ended 2007, 2008, and 2009 and 406 shares of Synergetics Information Technology Services India Pvt. Ltd. @ ₹ 615.75 per share aggregating to ₹ 2.49,995/- (Rupees Two Lacs Fort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en control by Aptech. The payments by the original shareholders, one of which is assessee, to the partners who are leaving the firm is not a condition precedent to the sale of shares of assessee in SITSIPL and hence in our view the expenditure claim cannot be allowed while working out the capital gain. The entire change of payment schedule from that of the company to the individual is only to allow the share holders making a claim for deduction. However the payments to retired partners for a period of three years as 'continuing incentive' are still reflected as liability of company. In addition, the allotment of shares of 609 each was also agreed upon but these were not considered as liability of individuals. This indicates that 'addendum' was only for creating the so called liability which in practice is not linked to share transfer at all. Another reason for not accepting the contention is that assessee did not transfer all shares of company. Only few shares were transferred, but the claim of entire amount paid in cash was made. This also indicates that folding up of company and payment to three retiring partners was not a condition precedent for transfer of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee has to be treated as one single residential unit and that the assessee is entitled for exemption. In respect, of the issue of the units being purchased in the name of the appellant's spouse, the appellant submitted that the source of purchase of the both the units were his own funds and that the spouse had not contributed any amount to the said purchase. The name of the spouse (as second holder) was added for the sake of convenience to ensure succession in the property. 4.4 However, the AO having concluded that the gains arising on the sale of shares of SITSIPL are short term capital gains, disallowed the appellant's claim for deduction under section 54F. Notwithstanding the above, the AO also held that the purchase of 2 units by the appellant represents purchase of more than 1 house property and, therefore, exemption under section 54F of the LT. Act, 1961 cannot be allowed to the appellant. The AO also denied the appellant's claim for exemption under section 54F of the LT. Act, 1961 on the ground that the appellant had not purchased the house property only in his own name but also in the name of his spouse. In support, the AO relied on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must have valid title legally conveyed to him after complying with the requirement of law or at least entitled to receive income from the property in his own right and have control and domain over the said property for all the legal purposes, which basically excludes a third person of any right over the said property. 4.8 In the instant case, the appellant has purchased the house property, in the joint names of himself and his spouse, jointly, as follows: Ekta D 805 Ajay Sharad Khankhoje Preeti Ajay Khankhoje Ekata D 804 Preeti Ajay Khankhoje Ajay Sharad Khankhoje Under the circumstances, the appellant has retained right, title and interest in the house property. By including the name of his spouse, the appellant does not transfer any right in the immovable property to his spouse. This is the material fact which is different from the case before the Bombay High Court. Under the circumstances, the AR submits that the said case law does not apply to the facts of the case under consideration. In view of the clear observations and findings of the CIT (A) with which we agree, Ground No. 3 of the Revenue is rejected. 17. Ground No. 4 is with reference to the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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