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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 ..... d paid up share capital of the company. 2. Simultaneously with SPA, the promoters and purchasers entered into second share purchase agreement (Second SPA) for the transfer of the remaining equity shares held by the promoters upon satisfaction of certain conditions under Second SPA so that at a future point of time, purchasers will hold 100% of the issued and paid up equity share capital of the company. SPA provided for a value of Rs. 155,00,00,000/- as consideration to be paid to the promoters which effectively was working out to about Rs. 3212.31 per share. SPA also provided that out of Rs. 155,00,00,000/- that was payable as sale consideration, a sum of Rs. 30,00,00,000/- would be kept in escrow, based on which a separate escrow agreement was entered into between promoters, purchasers and the escrow agent. At the time of closure of the deal, promoters received Rs. 125,00,00,000/- as sale consideration and the shares were transferred. Balance Rs. 30,00,00,000/- was kept in escrow account. SPA provided for specific promoter indemnification obligations and it provides that if there is no liability as contemplated under the specific promoter indemnification obligations (clause 7.2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer or even file revised returns. Petitioner, therefore, requested respondent no.1 to reduce the long term capital gains by Rs. 1,31,44,274 /- and further prayed for directions to the assessing officer to refund the excess tax paid. Petitioner also explained that the amount from the escrow account was never going to be recovered by the promoters under any circumstances and this resulted in reduction in the total realisation towards sale of company. 6. Respondent no.1 by an order dated 13th February 2015 passed under Section 264 of the Act rejected petitioner's application holding:- (a) The Petitioner was entitled to receive consideration at Rs. 3,213.31 per share as per the purchase price defined in the agreement. From the said amount, only cost of acquisition, cost of improvement or expenditure incurred exclusively in connection with the transfer can be reduced to compute capital gains. The agreement between the seller and buyer for meeting certain contingent liability which may arise subsequent to the transfer cannot be considered for reduction from the consideration received i.e, @ Rs. 3,213.31 per share in computing capital gains under Section 48 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the content of the SPA. Respondent no.1 has not appreciated that the purchase price as defined in the agreement was not an absolute amount as the same was subject to certain liabilities which might arise to the promoters on account of certain subsequent events. The full value of consideration for computing capital gains, in our view, will be the amount which was ultimately received by the promoters after the adjustments on account of the liabilities from the escrow account as mentioned in the agreement. 11. Respondent No.1 has gone wrong in not appreciating that income or gain is chargeable to tax under the Act on the basis of the real income earned by an assessee, unless specific provisions provide to the contrary. The Apex Court in CIT Vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC) page 148 has observed as under: "Income-Tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping an entry is made about a 'hypothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- plus Rs. 20,82,95,760/- (Rs. 30,00,00,000/- - Rs. 9,17,04,240/-). Such reduced amount should be taken as full value of consideration for computing capital gains under Section 48 of the Act. 14. For respondent no.1 to hold that in the absence of specific provisions by which an assessee can reduce returned income filed by it voluntarily, the same cannot be permitted indirectly by resorting to provisions under Section 264 of the Act, is also erroneous. Certainly, assessee could file revised returned of income within the prescribed period, to reduce the returned income or increase the returned income. Petitioner filed an application under Section 264 because the assessment under Section 143 had been completed by the time the amount of Rs. 9,17,04,240/- was deducted from the escrow account. Section 264 of the Act in our view, has been introduced to factor in such situation because if income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about hypothetical income which does not materialize. Section 264 of the Act does not restrict the scope of power of respondent no.1 to restrict a relief to an assessee only upto the returned income. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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