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TMI Blog2011 (9) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... In the computation of capital gains given in her return of income, deduction of Rs.4,06,44,329 was claimed by the assessee on account of service charges paid. During the course of assessment proceedings, the assessee was called upon by the A.O. to justify the said claim. In reply, it was submitted by the assessee that the amount of Rs.12,19,32,988 was received by her on account of the acquisition of land by the Ministry of Defence being Plot No.53A, Scheme No.52 of Worli Estate of Municipal Corporation of Greater Mumbai (MCGM). It was explained that the said plot of land was originally given by the Municipal Corporation of Greater Mumbai on lease to Jassawala who in turn requested the MCGM to prepare the agreement for building lease in respect of the said plot in the name of (1). Mrs. Jerbanoo K.J. Cursetji, (2) Dr. K.J Cursetji and (3) Mr. Jamshed K Cursetji to which the MCGM agreed. Before the agreement could be prepared as requested by Mr. Jassawala, Mrs. Jerbanoo K J. Cursetji and Dr. K.J Cursetji on the one part and Mr. Jamshed K Cursetji on the other part, however, requested MCGM to divide the original Plot No. 53 into two parts viz. 53A and 53B and to transfer the divided P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re also Clauses 11(A) to (C) to the agreement, which stipulated that if the purchaser were to adopt any proceedings on behalf of the vendor against the Union of India and if the Union of India acquires the property under the provisions of Land Acquisition Act, then the purchaser would represent the vendor in the said proceedings and all steps would be taken to process and present the case before the acquiring authority for getting the market value fixed for acquisition. In consideration of the purchaser taking all steps and incurring expenses on behalf of the vendor to establish the market value of the property at a relevant time and taking steps to see that the compensation payable by the Union of India is commensurate with the prevailing market value and if need be to take legal action to compel Union of India to pay the compensation at the highest prevailing value, the vendor agreed to pay the purchaser 1/3rd of the total consideration payable by the acquiring authority in return for the cost, expenses and services rendered by the purchasers in this behalf. The vendor filed Form No. 371 with the appropriate authority on 24.8 1993 but it appears that the matter was not proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptable by the A.O. He held that what was entered into between the assessee s mother Mrs. Jerbanoo K.J. Cursetji and Mr. Suresh H Mansukhani Others was only the agreement for sale and there was actually no sale of land completed as per the said agreement. According to the A.O., if the said agreement had been a valid agreement for sale, the Special Land Acquisition Officer would have given the award to the purchasers of the property as the agreement had been entered into prior to the award made by the Special Land Acquisition Officer. He held that the said agreement thus was bogus agreement and payment of service charges made in pursuance of the said agreement had no sanctity. He also held that the payee apparently had no expertise and even the assessee could not produce anything on record to show that Mr. Suresh H Mansukhani Others have put in some efforts to entitle them to receive service charges. He held that the payment of service charges thus was an attempt made by the assessee to divert a portion of her taxable gain to third party thereby reducing her taxable income. He held that it was a case where the assessee had made an attempt to divert her income under the guise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id plot of land and as stipulated in the agreement, the assessee had to pay 1/3rd of the consideration received from the Indian Navy as compensation. 5. It was further submitted on behalf of the assessee that the mother of the assessee who expired on 3.11.1994 had bequeathed her properties to the assessee which also included the land under consideration along with the encumbrance attached under the agreement for sale dt. 7.8.1993. It was submitted that a lot of efforts were made by Mr Suresh H. Mansukhani and others as a result of which the Special Land Acquisition Officer passed an order on 31.5.1995 for the amount payable by the Indian Navy to the assessee. Thereafter, Mr. Suresh H. Mansukhani and Others vigorously pursued the matter for release of the payment by Indian Navy to the assessee. A copy of the letter dt. 2.12.1995 from the Commissioner Konkan Division addressed to Mr. Suresh H. Mansukhani and others stating that payment on account of land acquisition would be released at the earliest was also filed by the assessee to substantiate the point that Mr. Suresh H. Mansukhani and others had also put in sufficient efforts for the purpose. It was also brought to the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of attorney in favour of the purchasers to enable the purchasers to represent Mrs. Jerbanoo K.J. Cursetji in Urban Land Ceiling proceeds and also to take steps to get the property released. These steps were to be taken within a period of 5 months from the date of the agreement. On the release of the property and after obtaining the clearance from the Income tax authorities it was agreed that the vendor and purchaser would execute the necessary deed of transfer/assignment and would lodge the same for registration under the Indian Registration Act. The second part of the agreement provides that notwithstanding what is agreed upon between the parties if an order is passed whereby the Union of India is allowed by the court to acquire the property under Land Acquisition Act then the purchasers (Mr. Suresh H. Mansukhani, Mr. Kishor Mansukhani and Mr. Ashok P Shah) have agreed to represent Mrs. Jerbanoo K.J. Cursetji in the said proceedings and to take all steps to their proceedings diligently processed and present before the acquiring authorities. They would present before the acquiring authority documentary evidences of instances of sale in and around the area for establishing or fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Urban Land Ceiling proceedings and to get the property released Even if the power of attorney was not issued, this was not material to the validity of the agreement. Therefore, it is not correct to state that lack of proof regarding issue of power of attorney would make the agreement for sale an invalid one. The A.O. has also noted that the Special land acquisition Officer had awarded the compensation only to the appellant and there was no mention of Mr. Suresh Mansukhani and others. According to him if the agreement for sale had been a valid one then the proceedings would have indicated the name of Mr. Suresh Mansukhani and others. But the conclusion of the AO is not correct as the deed of transfer would have been entered into only if the property was released by the Naval authorities. It was only in such a situation that the Special Land Acquisition Officer would have been able to indicate the name of Mr. Suresh Mansukhani and others as the beneficiaries of the award of compensation. This will also apply to his observation that the Supreme Court of India while delivering the judgement on the issue of the award have mentioned only the name of the appellant as one of the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the High Court of Judicature at Bombay on 1995. According to the will, the property being plot No. 53A, World, Mumbai - 400018 which has been bequeathed to her is subject to the agreement which has been entered into by the testator as per agreement dated 7.8.1993. Therefore, the appellant was forced to make the payment whether she liked it or not. Perusal of assessment records show that all the three payees have responded to the notices issued by the A.O. and have stated that they have received the money from the appellant and they have tiled returns of income showing the receipt of the money given by the appellant. The appellant s solicitors, M/s. Mulla and Mulla have also filed copies of bank statements showing the payment of the service charges to Mr. Suresh Mansukhani and others. It is true that the appellant or the payees have not given details of the efforts put in by them to entitle them to receive the service charges. The appellant by letter dated 14.12.07 has stated that Mr. Suresh Mansukhani and others have spent an amount of Rs.12.O6,317 to render the services for getting the matter sorted out. The fact remains that it took almost 11 years for the issue to be sor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations /findings recorded by the A.O. in this context. He submitted that the reasons given by the A.O. to treat the transactions involving payment of service charges to be invalid, however, have not been properly appreciated by the learned CIT(A) and he has treated the said transactions to be valid ignoring the specific adverse observations/findings recorded by the A.O. He contended that the relief allowed by the learned CIT(A) to the assessee on this issue thus is not well founded and the impugned order of the learned CIT(A) allowing such relief needs to be set aside. He also contended that for the purpose of computing capital gain, the deduction is permissible only in respect of cost of acquisition, cost of improvement and expenses incurred in relation to transfer. He contended that the payment in question made by the assessee on account of transfer charges is not covered under any of these three items which are allowable as deductions for the purpose of computing capital gains. According to him, it is also not a case of diversion of income of the assessee by overriding title as sought to be claimed. 8. The learned counsel for the assessee, on the other hand, submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that the rendering of services by Mr. Suresh H Mansukhani Others to justify the huge payment of about Rs.4 crores was also not properly established by the assessee. He submitted that Mr. Suresh H Mansukhani Others had spent only a sum of about Rs.12 lakhs as their share of litigation expenses and therefore deduction, if any, can be granted only to that extent in computation of capital gains chargeable to tax in the hands of the assessee. 10. We have considered the rival submissions and also perused the relevant material available on record. In support of assessee s claim for deduction on account of service charges paid to Mr. Suresh H Mansukhani others, one of the contentions raised by the learned counsel for the assessee is that it was a case of diversion of income of the assessee by overriding title. We are unable to accept this contention of the learned counsel for the assessee keeping in view the facts and circumstances of the case. In our opinion, even though the assessee was under an obligation to pay the service charges as per the agreement with Suresh H Mansukhani others, the mere existence of such obligation to pay the service charges was not enough for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that the service charges paid by the assessee to Mr. Suresh H Mansukhani Others represented expenses incurred by the assessee in connection with transfer of property and the same was allowable as deduction while computing the capital gains arising from the said sale. It is observed that the said payment was made by the assessee in pursuance of an agreement entered into by her mother who bequeathed the property to the assessee as per a will specifically along with the obligation in terms of the said agreement. It is observed that the A.O. however, doubted the genuineness of the said agreement on the ground that it was only the agreement for sale and there was actually no sale of land completed as per the said agreement. According to him, if the said agreement had been a valid agreement for sale, the Special Land Acquisition Officer would have given the award to the purchasers of the property. In our opinion, this basis given by the A.O. was totally unjustified and unfounded. A copy of the relevant agreement for sale is placed on record before us and a perusal of the terms and conditions thereof shows that it was in the nature of agreement for sale whereby land was agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, was fully justified in appreciating the said agreement in the right perspective while considering the claim of the assessee for the said deduction. As rightly noted by him, the second part of the agreement provided that notwithstanding what was agreed upon between the parties, if an order is passed whereby the Union of India is allowed by the court to acquire the property under Land Acquisition Act, then the purchasers (Mr. Suresh H. Mansukhani, Mr. Kishor Mansukhani and Mr. Ashok P Shah) had agreed to represent Mrs. Jerbanoo K.J. Cursetji in the said proceedings and to take all steps to ensure that the proceedings are diligently processed and presented before the acquiring authorities. They were to present before the acquiring authority documentary evidences of instances of sale in and around the area for establishing or fixing the market value of the property on the basis of which the acquiring authority would have to pay compensation. In consideration of these steps and also to provide for the expenses being incurred, Mrs. Jerbanoo K.J. Cursetji had agreed to pay 1/3rd total consideration payable by the acquiring authority to Mr. Suresh Mansukhani and others. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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