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II. Direct Taxes Case Laws:
1. CIT
Vs. M/s. Shree Rama Multi Tech Ltd., Civil Appeal No. 6391 with 8336 of
2013, Date of Pronouncement: 24.04.2018, Supreme Court of India
Issue
“Whether the interest income from share application money received
by a company is liable to be set off against public issue expenses”
Held: - Yes
Brief Facts
The assessee filed its return of income for A.Y. 2000-01 declaring a
total income of Rs. 20,00,59,650/. However, the Assessing Officer,
passed an assessment order and disallowed the set off of the interest
income from share application money against the public issue expenses.
Aggrieved by the aforesaid order, the assessee went in appeal before ld.
CIT (A). The ld. CIT(A) partly allowed the appeal filed by the assessee
while upholding the findings of the AO in not allowing set off of
interest income from share application money. Being aggrieved by CIT(A),
both the parties filed cross-appeals before the Tribunal. And, the
Tribunal allowed the claim of the assessee with respect to deduction on
account of interest income of Rs. 1,71,30,212 and remanded the matter
back to the AO. After this, the Revenue filed an appeal before the
Hon’ble High Court. And, the Hon’ble Court uphold the decision of the
Tribunal on the point of taxability of the interest income. Again, being
aggrieved the revenue has filed an appeal before The Hon’ble Supreme
Court.
Held
The Hon’ble Supreme Court uphold the decision of High court that the
interest accrued to such deposit of money in the bank is liable to
set-off against the public issue expenses that the company has incurred
as the interest earned was inextricably linked with requirement of the
company to raise share capital and was thus adjustable towards the
expenditure involved for the share issue. The rationale explained as, if
any income accrued is merely incidental and not the prime purpose of
doing the act, then the income is not liable to be assessed and is
eligible to be claimed as deduction.
The appeal was held in favour of the assessee and against the revenue.
(Please click here for judgment)
2. Kaushalya Devi (Deceased) Through Legal Representatives Vs.
Commissioner of Income Tax, I.T.A. No. 600/2004, Date of Pronouncement:
20.04.2018, High Court of Delhi
Issue
Whether the liquidated damages paid in connection with the transfer
of property, for non-fulfillment of first agreement to sell the property
can be allowed as an expenditure u/s 48(i) of the Income Tax Act, 1961
for computing long term capital gains.
Held: - Yes
Brief Facts:
The assessee in his return of income for AY 1994-95 declared long
term capital gain of Rs.5,42,000/- from sale of immovable property on
4th Oct’1993 for Rs.55,00,000/. While computing the capital gain
assessee deducted Rs.2500000/- as liquidated damages paid to Anil Kumar
Sharma with whom assessee had earlier entered into an agreement to sell
dated 10th April, 1989 for sale of the property for Rs. 15,00,000/-. As
per the agreement to sell the assessee had paid Rs.25,00,000/- on 16th
December,1993 to Anil Kumar Sharma for foregoing his right and claim
under the agreement. The Ld.AO rejected the claim of assessee stating
that payment was not incurred wholly and exclusively with transfer of
property, cost of improvement or to remove encumberance. The Ld. CIT(A)
accepted the contention of assessee stating that agreement was an
enforceable contract in law and payment is to be deducted to arrive the
capital gain. However, the Hon’ble ITAT overturned the order stating
that payment made was personal liability of assessee and agreement dated
4th Oct’1993 didn’t specify any payment of liquidated damages by
assessee.
Being aggrieved the assessee has filed an appeal before the Hon’ble High Court.
Held:
The Hon’ble Delhi High court held that link or connection of
expenditure with the sale of property has to be seen with respect to
timing of agreement to sell which was later rescinded, payment of
liquidated damages and consequent final agreement to sell the property.
Considering the present case where payment was not made long before the
actual sale of property and the fact that Anil Kumar Sharma to whom
liquidated damages were paid was a signatory as a witness to some of the
documents executed in favour of the purchaser at the time of transfer
gives us a sufficient proof that expenditure incurred was wholly and
exclusively with the sale of property and therefore deduction is allowed
herewith.
The appeal was held in favour of the assessee and against the revenue.
(Please click here for judgment)
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