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TMI Blog2024 (3) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of the company to purchasers. Subsequently, a separate share purchase agreement was entered into between the parties for sale of remaining equity shares held by the promoters, thereby transferring 100% of issued and paid-up equity share capital of WMI Cranes Ltd. 4. Petitioner filed a Return of Income ("RoI") for Assessment Year ("AY") 2011-2012 on 30th July 2011 declaring an income of Rs. 58,12,98,387/-, which included Rs. 55,62,81,900/- as long-term capital gains on the sale of shares of the company. The capital gains had been originally computed by Petitioner taking into account the proportion of total sale consideration of Rs. 1,55,00,00,000/including a sum of Rs. 30,00,00,000/- kept in escrow, which had not been received by the promoters. Petitioner's assessment was processed under Section 143(1) of the Act accepting the returned income. 5. The background of sale and what happened subsequently, are similar to the case of other promoter of WMI Cranes Ltd. Dinesh Vazirani, whose Writ Petition No. 2475 of 2015 came to be disposed on 8th April 2022. The judgment reads as under : "1. Petitioner is an individual and resident of India. Petitioner, along with two other ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o account the proportion of the total consideration of Rs. 155,00,00,000/-, including the escrow amount of Rs. 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 Rs. 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 As per the agreement, this amount was withdrawn from the escrow account and promoters, therefore, did not receive this amount of Rs. 9,17,04,240/-. 5.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 Rs. 155,00,00,000/- and without reducing the consideration by Rs. 9,17,04,240/-, petitioner made an application to respondent no. 1 under Section 264 of the Act. Petitioner submitted that the amount of Rs. 9,17,04,240/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 Rs. 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 Rs. 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 cost of acquisition, cost of improvement and cost of transfer can be deducted from full consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 full value of consideration under Section 48 would be the amount arrived at after reducing the liabilities from the purchase price mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nothing more. If returned income shows a higher tax liability than what is actually chargeable under the Act, then the assessee is entitled to refund of excess t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis that the capital gains on the transfer of shares of the company should be computed after reducing proportionate amount withdrawn from the escrow account from the full value of consideration and allow the refund of additional tax paid with interest. Unless there is any other claim of Revenue against Petitioner that would permit Revenue to legally adjust the refund amount, the refund with interest shall be paid over within two weeks of passing the assessment order. The order shall be passed within six weeks from the date this order is being uploaded, after giving a personal hearing to Petitioner, notice whereof shall be communicated atleast seven working days in advance. 11. In the circumstances, Rule granted on 19th October 2016, is made absolute in terms of prayer clauses (a) & (b), which read as under : "(a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner's case and after examining the legality and validity thereof quash and set aside the impugned order dated 23rd March ..... X X X X Extracts X X X X X X X X Extracts X X X X
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