Case: Commissioner of Income-Tax-8, Mumbai Vs. Chemosyn Limited

decision of the Tribunal in Kalpataru Construction Overseas (P.) Ltd. (supra) has been appealed to this Court and to which the answer was "we do not know".8. We find that on facts the impugned order of Tribunal has held that no income has been accrued or received of the value of 18000 sq.feet of constructed area under the development agreement dated 16.6.2006. This on account of the fact that the agreement dated 16.6.2006 was not acted upon as it came to be superseded/modified by the Tripartite agreement dated 6.7.2007. This was the position when the return of income was filed. The income accrued and earned under the subsequent agreement dated 6.7.2002 was offered as capital gains in the subsequent years. Therefore, on the application of the real income theory, the Tribunal held that on these facts there would be neither accrual nor receipt of income to warrant bringing to tax to the constructed area of 18,000 sq.ft which has not been received by the respondent-assessee. As observed by the Apex Court in CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 :" 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 hypothetical income which does not materialise. Where income tax, has in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." (Emphasis supplied)Thus no income has either accrued or received in the form of 18000 sq.feet of constructed area. No occasion to tax the same can arise. The Tribunal on consideration of facts has reached a finding of fact that no income in respect of 18000 sq.ft of constructed area has been accrued or received. This finding cannot be said to be perverse or arbitrary. According to us no substantial question of law arises to warrant interference with the order of the Tribunal. Thus, question nos. 1 and 2 are dismissed.9. So far as the 2nd issue as raised in question nos. 3 and 5 with regard to the nature of expenditure, the brief facts are that there was a dispute between brothers who together owned the respondent-assessee company. As a consequence of differences between the two groups, the dispute reached the Company Law Board as well as the Supreme Court of India. Thereafter, a settlement was arrived at between the two warring groups of shareholders and as per directions of the Company Law Board the assessee-company was directed to buy 34 % shareholding of one of the warring group and cancel the same. The respondent-assessee had claimed before the Assessing Officer that the amount of Rs. 6.81 crores (being the difference between consideration paid and face value of the shares acquired for cancellation) was revenue expenditure. This on the basis that in view of the dispute between its shareholders, the business was adversely affected and therefore, the payment was expected to be incurred for purposes of business. However, the Assessing Officer did not accept the same and held the expenditure to be of capital nature and disallowed the claim of revenue expenditure.10. On appeal, the CIT (A) did not accept the respondent-assessees contention and upheld the order of the Assessing Officer. On further appeal, the Tribunal by the impugned order set aside the order of the Assessing Officer and the CIT (A)s orders by placing reliance upon its decision in Echjay Industries Ltd.v. Dy. CIT [2004] 88 TTJ 1089 (Mum.) and on identical facts and circumstances the expenditure incurred by the assessee company to purchase its shares was held to deductible as revenue expenditure. An appeal from the order of the Tribunal in Echjay Industries Ltd. (supra) was also dismissed by this Court. Besides, the Tribunal records a finding of fact that in view of the dispute between the two warring groups of shareholders the business of respondent assessee had suffered. It records that the total sales of the respondent-assessee which was in the range of Rs. 20 to 25 crores per annum during the pre-dispute period had come down to around Rs 9 crores in the financial year 1999-2000 when dispute arose and remained in the range of Rs. 10 to 14 crores during the period of litigation between its two groups of shareholders spanning over six years. It also records that after the settlement of dispute in the financial year 2005-06 there was a substantial increase in the sales touching nearly Rs. 18 crores per annum. The impugned order of the Tribunal also notes that after settlement of the dispute new products were launched by the respondent-assessee-company. All this was evidence of the fact that the dispute between two groups of shareholders had affected the business of the company.11. We find that the impugned order records a finding of fact that the amounts which were paid by the respondent assessee for the purpose of purchase of its shares, to its shareholder for subsequent cancellation was an expenditure incurred only to enable smooth running of the business. Thus, the expenditure was incurred for carrying on its business smoothly and therefore, was a deductible expenditure. Thus, the impugned order of the Tribunal is essentially a finding of fact. The respondents have not been able to show that these findings are in any manner perverse or arbitrary. Therefore, questions nos. 3 to 5 do not give arise to any substantial question of law. Thus, question nos. 3 to 5 are dismissed.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]8. We find that on facts the impugned order of Tribunal has held that no income has been accrued or received of the value of 18000 sq.feet of constructed area under the development agreement dated 16.6.2006. This on account of the fact that the agreement dated 16.6.2006 was not acted upon as it came to be superseded/modified by the Tripartite agreement dated 6.7.2007. This was the position when the return of income was filed. The income accrued and earned under the subsequent agreement dated 6.7.2002 was offered as capital gains in the subsequent years. Therefore, on the application of the real income theory, the Tribunal held that on these facts there would be neither accrual nor receipt of income to warrant bringing to tax to the constructed area of 18,000 sq.ft which has not been received by theno income has either accrued or received in the form of 18000 sq.feet of constructed area. No occasion to tax the same can arise. The Tribunal on consideration of facts has reached a finding of fact that no income in respect of 18000 sq.ft of constructed area has been accrued or received. This finding cannot be said to be perverse or arbitrary. According to us no substantial question of law arises to warrant interference with the order of the Tribunal. Thus, question nos. 1 and 2 are dismissed.We find that the impugned order records a finding of fact that the amounts which were paid by the respondent assessee for the purpose of purchase of its shares, to its shareholder for subsequent cancellation was an expenditure incurred only to enable smooth running of the business. Thus, the expenditure was incurred for carrying on its business smoothly and therefore, was a deductible expenditure. Thus, the impugned order of the Tribunal is essentially a finding of fact. The respondents have not been able to show that these findings are in any manner perverse or arbitrary. Therefore, questions nos. 3 to 5 do not give arise to any substantial question of law. Thus, question nos. 3 to 5 are dismissed.