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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
K.R. SHRIRAM, N.R. BORKAR, JJ
Dinesh Vazirani – Appellant
Versus
The Principal Commissioner of Income Tax-7 – Respondent
Writ Petition No. 2475 of 2015
Decided on : 08-04-2022
Income Tax Act, 1961 - Section 143 (3), 264, 48, 45, 264, 143 - Constitution of India, 1950 - Article 226 - Company - Return Of Income - Refund Of Excess Tax - Petitioner filed his return of income declaring income - Return of income included long term capital gains on sale of shares of company - Capital gains was computed by petitioner taking into account proportion of total consideration including escrow amount which had not, by time returns were filed, received by promoters but still parked in escrow account - It is petitioner's case and which has not been disputed that subsequent to sale of shares of company, certain statutory and other liabilities arose in company which was about Rs.9,17,04,240/-, for period prior to sale of shares - As per agreement, this amount was withdrawn from escrow account and promoters, therefore, did not receive this amount – Held, Reliance by respondent no.1 on provisions of Section 240 of Act to hold that there is no power on respondent no.1 to reduce returned income, is fraught with error because circumstances provided in provisio to Section 240 indisputably do not exist in present case - Provisio to Section 240 provides that in case of annulment of assessment, refund of tax paid by assessee as per return of income cannot be granted to assessee, which is not case at hand - There is no provision in Act which provides, if ultimately assessed income is less than returned income, refund of excess tax paid by assessee would not be granted to such assessee - As regards stand of respondent no.1 that income returned by petitioner is sacrosanct and cannot be disturbed, only thing that is sacrosanct is that an assessee can be asked to pay only such amount of tax which is legally due under Act and nothing more - If returned income shows a higher tax liability than what is actually chargeable under Act, then assessee is entitled to refund of excess tax paid by it - In circumstances Court hold that petitioner be entitled to refund of excess tax paid on excess capital gains shown earlier - Assessing Officer is directed to pass fresh assessment order within 6 weeks from date this order is uploaded on basis that capital gains on transfer of shares of company should be computed after reducing proportionate amount withdrawn from escrow account from full value of consideration and allow refund of additional tax paid with interest - Unless there is any other claim of Revenue against petitioner that would permit Revenue to legally adjust refund amount, refund with interest shall be paid over within two weeks of passing fresh assessment order – Petition disposed of.
JUDGMENT :
K.R. SHRIRAM J.
1. Petitioner is an individual and resident of India. Petitioner, along with two other individuals, and one company (collectively referred to as Promoters) was the promoter of a company by the name WMI Cranes Ltd. (the Company) Petitioner held 2,35,900 equity shares out of 9,99,920 issued and paid up share capital of the company of Rs.10 each. Promoters entered into Share Subscription and Purchase Agreement (SPA) dated 11th October 2010 with M/s Konecranes Finance Corporation (Purchasers). Under the agreement, promoters agreed to sell 51% of the paid up and issued equity share capital of the company to the purchasers. Between the promoters, they held collectively 100% issued and 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 of SPA) within a particular period, this amount of Rs.30,00,00,000/-would be released by the escrow agent to the promoters. Clause 7.8 of SPA provides for escrow arrangement. The escrow account was to be in force for 2 years from the closing date.
These specifics were given to give a background of the matter.
3. Petitioner filed his return of income for A.Y.-2011-2012 on 29th July 2011 declaring income of Rs.22,51,60,130/-. The return of income included Rs.20,98,08,685/-as long term capital gains on the sale of shares of the company. The capital gains was computed by petitioner taking into 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/-has been withdrawn by the company from the escrow account and, therefore, what petitioner received was lesser than what was mentioned in the return of income and, therefore, the capital gains needs to be recomputed reducing the proportionate amount from the amount deducted from the escrow account. Petitioner also pointed o
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