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TMI Blog2022 (4) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under Section 48 of the Act is the consideration specified in the agreement as reduced by the liability. For respondent no.1 to say that from the sale consideration only cost of acquisition, cost of improvement and cost of transfer can be reduced and the subsequent contingent liability does not come within any of the items of the reduction and the same cannot be reduced, is erroneous because full value of consideration under Section 48 would be the amount arrived at after reducing the liabilities from the purchase price mentioned in the agreement. Even if the contingent liability is to be regarded as subsequent event, then also the same ought to be taken into consideration in determining capital gain chargeable under Section 45 of the Act. We do not agree with respondent no.1 that the contingent liability paid out of escrow account does not affect the amount receivable as per the agreement for the purpose of computation of capital gains under Section 48 of the Act. Respondent no.1 has failed to understand or appreciate that the promoters have received only net amount of ₹ 125,00,00,000/- plus ₹ 20,82,95,760/- (₹ 30,00,00,000/- - ₹ 9,17,04,240/-). Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gains than what should have been paid. Capital gains has to be calculated on the basis of what actual consideration has been received. Certainly, petitioner has not received his proportionate share to the extent from ₹ 9,17,04,240/- that was reduced from the escrow account.In the circumstances we hold that petitioner be entitled to refund of excess tax paid on the excess capital gains shown earlier. Assessing Officer is directed to pass fresh assessment order within 6 weeks from the date this order is uploaded on the basis that the capital gains on the transfer of the shares of the company should be computed after reducing proportionate amount withdrawn from the escrow account from the full value of the consideration and allow the refund of additional tax paid with interest. - WRIT PETITION NO. 2475 OF 2015 - - - Dated:- 8-4-2022 - K.R. SHRIRAM N.R. BORKAR, JJ Mr. J. D. Mistri, Senior Advocate a/w Mr. Madhur Agarwal a/w Mr. Upendra Lokegaonkar i/b Mint and Confreres for Petitioner Mr. Suresh Kumar for Respondents ORAL JUDGMENT (PER K. R. SHRIRAM J.) : 1. Petitioner is an individual and resident of India. Petitioner, along with two other individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was computed by petitioner taking into account the proportion of the total consideration of ₹ 155,00,00,000/-, including the escrow amount of ₹ 30,00,00,000/-, which had not, by the time returns were filed, received by the promoters but still parked in the escrow account. The assessment was selected for scrutiny and assessment under Section 143 (3) of the Act was completed and an order dated 15th January 2014 was passed accepting total income as declared by petitioner. 4. It is petitioner's case and which has not been disputed that subsequent to the sale of the shares of the company, certain statutory and other liabilities arose in the company which was about ₹ 9,17,04,240/-, for the period prior to the sale of the shares. As per the agreement, this amount was withdrawn from the escrow account and promoters, therefore, did not receive this amount of ₹ 9,17,04,240/-. 5. As assessment had already been completed taxing the capital gains at higher amount on the basis of sale consideration of ₹ 155,00,00,000/- and without reducing the consideration by ₹ 9,17,04,240/-, petitioner made an application to respondent no.1 under Section 264 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is sacrosanct and cannot be disturbed and even annulment of the assessment would not have impacted the suo motu tax paid on the return income. (c) The contingent liability paid out of escrow account does not have the effect on amount receivable by the promoters as per the agreement which remains at ₹ 3,213.31 per share. 7. Being aggrieved by this order dated 13th February 2015 petitioner has approached this court under Article 226 of the Constitution of India. 8. Having heard the learned counsel and considering the petition, documents annexed thereto and affidavit in reply, we are satisfied that the impugned order passed by respondent no.1 is not correct and has to be quashed and set aside. 9. Respondent no.1 had erred in holding that the proportionate amount of ₹ 9,17,04,240/- withdrawn from the escrow account should not be reduced in computing capital gains of petitioner. Capital gains is computed under Section 48 of the Act by reducing from the full value of consideration received or accrued as a result of transfer of capital asset, cost of acquisition, cost of improvement and cost of transfer. Respondent no.1 has erred in stating that only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the real income (capital gain) can be computed only by taking into account the real sale consideration, i.e., sale consideration after reducing the amount withdrawn from the escrow account. Respondent no.1 has proceeded on an erroneous understanding that the arrangement between the seller and buyer which results in some contingent liability that arises subsequently to the transfer, cannot be reduced from the sale consideration as per Section 48 of the Act. We say this because the liability is contemplated in SPA itself and certainly the same should be taken into account to determine the full value of consideration. Therefore, if sale consideration specified in the agreement is along with certain liability, then the full value of consideration for the purpose of computing capital gains under Section 48 of the Act is the consideration specified in the agreement as reduced by the liability. For respondent no.1 to say that from the sale consideration only cost of acquisition, cost of improvement and cost of transfer can be reduced and the subsequent contingent liability does not come within any of the items of the reduction and the same cannot be reduced, is erroneous because fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue to tax an assessee on the income chargeable to tax under the Act and if higher income is offered to tax, then it is the duty of the revenue to compute the correct income and grant the refund of taxes erroneously paid by an assessee. 15. Reliance by respondent no.1 on the provisions of Section 240 of the Act to hold that there is no power on respondent no.1 to reduce the returned income, is fraught with error because the circumstances provided in the provisio to Section 240 indisputably do not exist in the present case. Provisio to Section 240 provides that in case of annulment of assessment, refund of tax paid by the assessee as per the return of income cannot be granted to the assessee, which is not the case at hand. There is no provision in the Act which provides, if ultimately assessed income is less than the returned income, the refund of the excess tax paid by the assessee would not be granted to such assessee. As regards the stand of respondent no.1 that the income returned by petitioner is sacrosanct and cannot be disturbed, the only thing that is sacrosanct is that an assessee can be asked to pay only such amount of tax which is legally due under the Act and noth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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