Madras High Court
M/S.Caborandum Universal ... vs The Asst. Commissioner Of Income ... on 24 August, 2021
T.C.A.No.1112 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 24.08.2021
CORAM
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
Judgment Reserved On Judgment Pronounced On
09.08.2021 24.08.2021
T.C.A.No.1112 of 2010
M/s.Caborandum Universal Limited,
43, Moore Street,
Chennai – 600 001. .. Appellant
-vs-
The Asst. Commissioner of Income Tax,
Company Circle-I(3),
Chennai. .. Respondent
Appeal under Section 260A of the Income Tax Act, 1961 against the
order dated 03.06.2009 made in I.T.A.No.594/Mds/2007 on the file of the
Income Tax Appellate Tribunal, Chennai Bench.
For Appellant : Mr.Vikram Vijayaraghavan
For Respondent : Mr.T.Ravikumar
Senior Standing Counsel
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JUDGMENT
T.S.Sivagnanam, J.
This appeal, by the appellant/assessee, filed under Section 260A of
the Income Tax Act, 1961 (hereinafter referred to as “the Act”), is directed
against the order dated 03.06.2009, made in I.T.A.No.594/Mds/2007 on the
file of the Income Tax Appellate Tribunal, Chennai Bench (for brevity “the
Tribunal”) for the assessment year 2003-04.
2.The appeal was admitted on 24.01.2011 to decide the following
substantial question of law:-
“Whether on the facts and in the circumstances of
the case, the Tribunal was right in holding that a portion
of the sale consideration retained in the Escrow Account
for meeting liabilities and obligation has accrued to the
assessee in this year and hence should be taken into
account for the purpose of computation of Capital
Gains?”
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3.The assessee Company engaged in the manufacture and sale of
Abrasives, Refractories and Electrominerals, etc. filed their return of income
for the assessment year under consider, AY 2003-04 admitting an income of
Rs.36,38,36,539/-. The return was processed under Section 143(1) of the
Act and subsequently selected for scrutiny by issue of notice under Section
143(2) of the Act dated 14.10.2004. There were several issues which were
discussed by the Assessing Officer with the authorized representative of the
assessee and in the case on hand, we are concerned about the issue
pertaining to the slump sale of Electrocast Refractories Plant at Palghat.
The Assessing Officer has dealt with this issue in paragraph No.6 of the
assessment order dated 28.02.2006. It is stated that during April 2002, the
Electrocast Refractories Plant located at Palghat belonging to the assessee
was sold for a total consideration of Rs.31.146 Crores to M/s.SEPR
Refractories (I) Ltd. [hereinafter referred to as “SEPR”]. The assessee had
returned a long term capital gain of Rs.235,781,805/- on the said
transaction. The Assessing Officer noted that the assessee has sold the plant
at Palghat for a total sale consideration of Rs.31.146 Crores but it has
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considered only Rs.27.89 Crores as sale consideration for computation of
long term capital gain. Therefore, the Assessing Officer issued show cause
notice to the assessee calling upon them to explain as to why Rs.31.14
Crores should not be considered for computation of long term capital gains.
4.The assessee by letter dated 04.01.2006 responded by stating that
the difference between the consideration taken for computation of capital
gains and that for which the plant was sold was on account of the fact that
an amount of Rs.325 lakhs was kept in an Escrow account to meet any
contingent liabilities. After taking note of the said submission, the
Assessing Officer observed that it is true that an amount of Rs.325 lakhs
was kept in an Escrow account, however the total sale consideration for sale
of the undertaking as per the agreement is Rs.31.14 Crores and an amount
of Rs.325 lakhs which was kept in an Escrow account pursuant to the
assessee agreed to the same would only constitute an application of its
income and the whole consideration has accrued to the assessee
immediately on the execution of the agreement for sale and since the total
consideration has accrued to the assessee in the year of sale, namely, during
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the assessment year 2003-04, the same has to be offered in full for tax in the
said assessment year itself and the fact that part of it is kept in Escrow
account has not been received during the year is not relevant for such
purpose. Accordingly, the capital gain was recomputed and the assessment
was concluded.
5.Aggrieved by such order, the assessee preferred appeal before the
Commissioner of Income Tax (Appeals)-III[CIT(A)], Chennai. The CIT(A)
on examination of the fact held that the amount in Escrow account has been
utilized by the purchaser to indemnify against breach of warranty or other
losses or on account of further litigation as a result of non-compliance to
the conditions of the agreement on behalf of the assessee. Therefore, the
CIT(A) opined that the sum retained in the Escrow account had not accrued
to the assessee in the year under consideration [AY 2003-04]. In other
words, the CIT(A) held that the amount of Rs.325 lakhs kept in the Escrow
account has neither been received nor accrued by/to the assessee and since
the said amount has been subsequently received by the assessee after the
stipulated period of agreement, the said amount has been offered to tax by
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the assessee under the head capital gains in the year of its receipt and
therefore, the Assessing Officer was not justified to tax the said amount in
the year under consideration. With this observation, the CIT(A) directed the
Assessing Officer to delete the addition of Rs.3.25 Crores pertaining to the
said amount kept in Escrow account.
6.Aggrieved by such order, the revenue preferred an appeal before the
Tribunal contending that the amount kept in Escrow account would
represent application of income and the said amount is only a formality and
this will be clear from the return of income filed by the assessee for the
subsequent year wherein the entire amount of Rs.3.25 Crores had been
received and offered for taxation and no deduction towards
claims/warranties from the amount kept in Escrow account was made.
There were other grounds raised on other issues which we are not concerned
in this appeal.
7.The Tribunal after elaborately considering the submissions made on
either side and the covenants and conditions contained in the Business Sale
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Agreement dated 07.11.2001 held that the transfer of asset took place during
the year under consideration [AY 2003-04]; the Business Sale Agreement
dated 07.11.2001 had given legally enforceable rights to the parties with
respect to the transfer of undertaking and the assessee had a right to receive
the lumpsum consideration upon effecting the sale in the previous year
relevant to the assessment year 2003-04 and there was effective conveyance
of capital asset to the transferee. Further the Tribunal noted that there was
no change during the year under consideration. Referring to Section 50B of
the Act, it was pointed out that it is a special provision for computation of
capital gains in case of slump sale and net worth of undertaking is deemed
to be the cost of acquisition and the cost of improvement for the purpose of
Sections 48 and 49 of the Act as has been specifically provided under sub-
section (2) of Section 50B of the Act. Further, taking note of Explanation 1
in Section 50B of the Act, wherein, “net worth” was defined to mean the
aggregate value of total assets of the undertaking or division as reduced by
the value of liabilities of such undertaking or division as appearing in its
books of account. After noting the statutory provision, the Tribunal held
that it is not the case of the assessee that the value of its assets or liabilities
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for the purpose of cost of acquisition or cost of improvement taken is not in
accordance with the books of account of the assessee.
8.Further, it was held that the monies kept in the Escrow account are
for meeting out the claims that may arise on a future date and that the
interest which accrued on the sums retained in the Escrow account have
been agreed to be belonging to the seller, i.e. the assessee and also to be
paid to him as per the instructions in the Escrow account. Thus, the
Tribunal held that the assessee always had a right to receive the sums kept
in the Escrow account which though were to be quantified after a specified
period, it did not change the agreed lump sum sale consideration which
stood finalised based on an agreement between the parties. Therefore, the
Tribunal held that the quantification of deductions to be made from the
sums lying in the Escrow account would not postpone the charge of such
income deemed to be taxed in the year of transfer which is the year under
consideration, AY 2003-04. The argument of the assesee that the entire sale
consideration is not received in the year of consideration and as such cannot
be deemed as income of the year under consideration under the head
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“capital gains”, was also considered by the Tribunal and held that it is
sufficient if in the relevant year profits have arisen out of sale of capital
assets, that is, to say when the assessee had a right to receive the profits in
the year of consideration before us, it would attract liability to tax on capital
gains under the Act. Further, it held that it was not necessary that the whole
amount of lump sum consideration should have been received by the
assessee in the previous year relevant to the assessment year under
consideration out of the sale of its undertaking and whatever the parties did
subsequent to that year, will have no barring on the liability to tax as
deemed income of the year under consideration. In support of such
conclusion, reliance was placed on the decision of this Court in the case of
T.V.Sundaram and Sons Ltd. vs. CIT [(1959) 37 ITR 26 (Mad)]. The
decisions which were referred to by the assessee were distinguished on
facts. Ultimately, it was held that the CIT(A) erred in reversing the order of
the Assessing Officer and accordingly, the decision of the CIT(A) was set
aside and the order passed by the Assessing Officer was restored. Aggrieved
by the same, the assessee is before us by way of this appeal.
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9.Mr.Vikram Vijayaraghavan, learned counsel appearing for the
appellant has drawn our attention to the Business Sale Agreement and in
particular, covenant No.14 with dealt with indemnities for other losses and
covenant No.15 which dealt with retention sum for indemnities. The
learned counsel has also drawn our attention to the Second Supplementary
Agreement dated 18.10.2003 and in particular, Clause J, wherein there is a
reference to a charge of theft of electricity and a demand raised by the
Kerala State Electricity Board to the tune of Rs.21,645,024/- from the
purchaser of the asset. Further, the learned counsel has referred to Clause
14 of the Agreement which speaks about as to how the Escrow Agent has to
be notified qua the claim made by the Kerala State Electricity Board. With
regard to computation of amount of indemnity, the learned counsel has
referred to Schedule 1 of the agreement and to point out that as to what was
the liability to the Kerala State Electricity Board before the closing date, i.e.
17.04.2002 and after the closing date. These facts were referred to buttress
his submission that the intention behind the parties agreeing to retain a
certain sum in Escrow account is to meet the liabilities which may be
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fastened on to the purchaser on conclusion of the sale transaction.
Therefore, it is contended that the amount of Rs.325 lakhs which was
retained in Escrow account was not received by the assessee during the
assessment year under consideration nor it accrued in favour of the assessee
during the assessment year under consideration and therefore, the assessee
was justified in not including the same while calculating capital gains.
10.In support of his contention, the learned counsel referred to the
decision of the High Court of Bombay in Commissioner of Income Tax vs.
Hemal Raju Shete [(2016) 239 Taxman 0176 (Bombay)] and submitted
that in the said decision also it was a case where certain amounts were set
apart to meet the contingent liability and it was held that the said amount
was neither received nor accrued in favour of the assessee. Reliance was
placed on the decision of the Hon'ble Supreme Court in the case of
Commissioner of Income Tax vs. Hindustan Housing & Land
Development Trust Ltd. [(1986) 161 ITR 0524] for the same proposition.
Reliance was placed on the decision of this Court in the case of PNP Power
Generating Company Private Ltd. vs. Commissioner of Income Tax
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(appeals)-III [T.C.A.Nos.60 and 61 of 2018 dated 03.09.2020] with regard
to the alternate submission on account of the fact that in the subsequent year
the amount has been offered for taxation and it is submitted by the learned
counsel for the appellant that the appellant would pray to sustain the main
argument instead of the alternate submission. In support of the contention
that the sum of Rs.325 lakhs would never accrue to the assessee during the
year under consideration, reliance was placed on the decision of the High
Court of Gujarat in Anup Engineering Ltd. vs. Commissioner of Income
Tax [(2001) 247 ITR 0457]. With regard to as to how retention money
withheld by the Contractee has to be construed, the learned counsel relied
on the decision of the High Court of Bombay in Commissioner of Income
Tax vs. Associated Cables (P) Ltd. [(2006) 286 ITR 0596], wherein the
decision of the Hon'ble Division Bench of this Court in Commissioner of
Income Tax vs. Ignified Boilers (I) Ltd. [(2006) 283 ITR 295 (Mad)] was
followed. For the same proposition, reliance was placed on the decision of
the High Court of Gujarat in the case of Director of Income Tax
[International Taxation] vs. Ballast Nedam International [(2013) 215
Taxman 0254 (Gujarat)] and the decision of the High Court of Gujarat in
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the case of Amarshiv Construction Pvt. Ltd. vs. Deputy Commissioner of
Income Tax [(2014) 88 CCH 0229 GujHC. On the above ground, the
learned counsel sought for sustaining the order of the CIT(A) by setting
aside the order passed by the Tribunal.
11.Mr.T.Ravikumar, learned senior standing counsel appearing for
the respondent/revenue submitted that the order passed by the Tribunal is a
well considered order, wherein, the factual aspects were thoroughtly
analysed and it was clearly brought out by the Tribunal on facts that the
retention money which was retained in the Escrow account had accrued in
favour of the assessee in the year under consideration. In this regard, the
learned counsel has drawn our attention to the ground of appeal filed by the
revenue before the Tribunal and it was pointed out that the entire amount of
Rs.325 lakhs which was retained in the Escrow account has been received
by the assessee and offered for taxation and no deduction towards
claims/warranties from the amount can kept in Escrow account was made as
this important factual aspect goes to the root of the matter and it will clearly
establish that the said amount accrued in favour of the assessee during the
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year under consideration and therefore, the finding of the Tribunal is legal
and valid.
12.The learned counsel referred to Section 48 of the act which deals
with mode of computation and it is submitted that in terms of the said
provision, the income chargeable under the head “capital gains” shall be
computed by deducting from the full value of the consideration received or
accruing as a result of the transfer of the capital asset. Laying emphasis on
the words “full value” and “received” or “accruing”, it is submitted that
either the full value of the consideration has been received by the assessee
in the assessment year under consideration or it has accrued alone would be
relevant and the subsequent act of the assessee and the purchaser by
creating an Escrow account would not change the character of the
consideration received.
13.Referring to Clause 2.37 of the Business Sale Agreement dated
07.11.2001 which defines 'Purchase Price', it is submitted that the definition
is very clear that the value of the assets and the Net Working Capital shall
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be considered full and final consideration. The learned counsel also
referred to Clauses 3.1.1, 3.1.4, 5.1 and 5.2 of the Agreement to substantiate
the contention raised on behalf of the revenue. Laying emphasis on Clause
5.2 of the Agreement which deals with 'Liabilities', it is submitted that all
liabilities whether ascertained as of the closing date or contingent, potential
or disputed including but not limited to all provisions and funds for payment
of tax liabilities and employee retirement funds, other employee liabilities
and any claims by customers or third parties for allegedly defective
products, etc. from the operation of the business on or before the closing
date shall be borne solely by the seller. Therefore, it is submitted that
Clause 5.2 of the Business Sale Agreement clearly shows that all expenses
after the closing date whether it is contingent, potential or disputed has to be
borne solely by the seller.
14.Further, the learned counsel has referred to Clause 6.1 of the
Agreement which deals with 'Purchase Price', where the value of the asset
has been mentioned as Rs.325,000,000/- and the said amount shall be
considered full and final consideration for the business subject to the Post-
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Closing Adjustment of Bad Debts and accounts receivable provided in
Clause 11.2.1 of the Agreement. Further, the condition also states that the
purchaser shall have no obligation to make any other payments to the seller
with respect to the liabilities for any taxes or levies whatsoever which may
be assessed against the income or profit realised by the seller as a result of
the transaction. The learned counsel has also referred to Clause 6.2 which
speaks of the Retention money, Clause 17.1 which speaks with Non-
Competition, Clause 23.1 which deals with Taxation. Further, the learned
counsel has referred to Schedule 1 of the Agreement which deals with
Seller's Warranties and in particular, to Clause 4.2 which deals with
Possession and states that the seller has sole and exclusive possession of the
property and there is no claim of adverse possession which could be made
by any person and also Clause 10 which deals with Litigation. Therefore, it
is submitted that the facts clearly demonstrate that the amount retained in
the Escrow account which is a subsequent arrangement between the parties
can have no impact of the purpose of computation of capital gains on the
total sale consideration fixed under the Business Sale Agreement.
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15.In support of his contention, the learned senior standing counsel
placed reliance on the decision of the Hon'ble Supreme Court in the case of
Commissioner of Income Tax vs. Attili N.Rao [(2001) 252 ITR 0880(SC)]
for the proposition as to what would full price realised would be in the
context of computation of capital gains. Reliance was placed on the decision
of the Hon'ble Division Bench of this Court in the case of Commissioner of
Income Tax vs. N.M.A.Mohammed Haniffa [(2001) 247 ITR 0066], the
decision of the Hon'ble Supreme Court in the case of Commissioner of
Income Tax and another vs. George Henderson & Co. Ltd. [(1967) 66
ITR 0622 (SC)], the decision of the High Court of Delhi in the case of
Commissioner of Income Tax vs. Smt.Nilofer I.Singh [(2009) 309 ITR
0233] and the decision of the Hon'ble Division Bench of this Court in
D.Zeenath vs. Income Tax Officer [(2019) 413 ITR 0258 (Mad)]. On the
above ground, the learned senior standing counsel sought for sustaining the
order passed by the Tribunal.
16.In reply, Mr.Vikram Vijayaraghavan, learned counsel for the
appellant submitted that all the decisions relied on by the revenue are all
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pertaining to cases relating to mortgage and the terms and conditions of the
Agreement between the assessee and the purchaser will clearly show that
the retention money was neither received nor agreed in favour of the
assessee in the assessment year under consideration.
17.We have heard the learned counsel for the parties and carefully
perused the materials placed on record.
18.The controversy which has led to the present appeal emanates
from the Business Sale Agreement dated 07.11.2001 entered into between
the assessee and the SEPR. The said agreement was for selling of right, title
and interest in the FCR business carried out in the factory at Palghat to the
purchaser for a lump sum consideration. Clause 2.37 of the Agreement
defines 'Purchaser Price' to mean the amount paid by the purchaser to the
seller in consideration for the business which is the sum of the value of the
assets and the Net Working Capital and shall be considered full and final
consideration. Clause 6 of the Agreement deals with 'Purchase
Consideration' and in Clause 6.1, the purchaser price for the sale by the
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seller of the business was fixed at Rs.325,000,000/- and this was to be
considered as the full and final consideration for the business which is the
subject matter of sale. In Clause 6 of the Agreement, a separate clause has
been mentioned as Clause 6.2 which deals with Retention money. The
parties agreed that a sum of Rs.32,500,000/- shall be held in the retention
account on the terms and conditions provided in the Agreement and the
Retention Account Agreement. The interest accrued on the retention sum
shall belong to the seller and shall be paid to the seller as per the Retention
Account Agreement.
19.In Clause 15, the parties have agreed as to for what purpose the
retention sum has been retained and to what sums it would be used to
indemnify the transaction. Clause 15.1 states that the retention sum shall be
paid by the purchaser in the Retention Account at the closing date for the
purpose of ensuring that sufficient funds will be available to indemnify the
purchaser against any damages or losses arising from or any of the
following, namely, (1) Indemnification for Breach of Warranty; (2)
Indemnification for other losses; (3) Unpaid Accounts Receivables and
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(4) Pursuant to other obligations to pay or reimburse the Purchaser as
provided in the Agreement.
20.Admittedly, in none of the four heads the indemnification had to
be extended and it is not in dispute that the entire amount was received by
the assessee without any deduction and the said amount of Rs.3.25 Crores
was offered for taxation by the assessee in the subsequent year. Therefore,
the question would be as to whether the assessee was right in excluding the
amount retained in the Escrow account as retention amount while making
computation of capital gains. The Assessing Officer and the Tribunal
faulted the assessee for doing so but the CIT(A) granted relief to the
assessee. Therefore, we need to examine as to whether the CIT(A) was
right in reversing the order passed by the Assessing Officer or in other
words whether the Assessing Officer and the Tribunal were right in not
granting the relief to the assessee. The CIT(A) has not specifically
examined as to whether the entire amount of Rs.3.25 Crores has been
received by the assessee without any deduction and offered for taxation.
But the CIT(A) solely proceeds on the basis that the Escrow account has
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been opened and amount has been retained as retention money to be utilized
by the purchaser for indemnification for breach of warranty or any other
losses. As noticed above there were four heads under which the retention
money would be used to indemnify against losses and admittedly on none of
the four heads there was any payment which was required to be made. The
CIT(A) concluded that the retention sum retained in the Escrow account had
not accrued to the assessee in the year under consideration.
21.In the case of Hindustan Housing & Land Development Trust
Ltd. relied on by the assessee, the question was whether the revenue can
claim that the sum payable to the assessee as compensation can be said to
have accrued to it as income during the previous year ended 31 st march,
1956, relevant to the assessment year 1956-57. The meaning of the words
'arising or accruing' was considered and explained to mean that they
describe a right to receive profits and that there must be a debt owed by
somebody unless and until there is created in favour of the assessee a debt
due by somebody. It was observed that it cannot be said that he has
acquired a right to receive the income or the income has accrued to him. On
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facts, it was found that the award in the land acquisition case made by the
arbitrator enhancing the compensation payable to the assessee was entirely
in dispute in the appeal filed by the State Government and the dispute being
real and substantial, the assessee was not permitted to withdraw the amount
deposited by the State Government without furnishing security bond for
refunding the amount in the event of the appeal being allowed. Therefore, it
was held that there was no absolute right to receive the amount at that stage.
22.The said decision, in our considered view, would not render
assistance to the assessee as the terms and conditions of the Business Sale
Agreement are vivid and clear. The total sale consideration being the full
and final payment has been clearly mentioned. After fixing the sale
consideration to be full and final, the parties mutually agreed to retain a
specified quantum of money in an Escrow account to meet any one of the
exigencies as mentioned in Clause 15 of the Agreement. Therefore, for all
purposes the entire sale consideration had accrued in favour of the assessee
during the year under consideration and admittedly, possession of the asset
was also handed over to the assessee. Apart from that, from the sum of
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Rs.3.25 Crores which was retained in the Escrow account, no deductions
were made from the said account and the entire amount has been received
by the assessee without any deductions and offered to tax.
23.In the case of Anup Engineering Ltd., the Court examined the
contract between the parties to ascertain whether a sum of Rs.40 lakhs was
income of the assessee and it was held that only when the right of the
assessee to receive Rs.40 lakhs was established, the income would accrue
and arise and not otherwise. In the said case, on facts it was found that the
entire consideration for sale of the plant did not accrue to the assessee on
account of impending liability on the warrant clause as the plant was not
found to be satisfactory and a customer had a right to retain the part of the
sale consideration under the terms of the sale contract. The said decision
cannot be applied to the facts and circumstances of this case as it is not in
dispute that the entire consideration had accrued to the assessee and out of
the same by agreement between the parties a specified amount was retained
in the Escrow account which would mean that the account is operatable only
with the consent and consensus of both parties. This can in no manner be
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construed to take the case of the assessee outside the purview of accrual of
the sale consideration in favour of the assessee during the assessment year
under consideration.
24.The decision in Ignified Boilers (I) Ltd. was a case where the
contract between the parties had a specific clause that 10% of the contract
price would be retained by the principal contractor and it would be paid
after one month subject to the satisfactory performance of the boilers. Such
is not the facts in the case on hand as the Business Sale Agreement clearly
specified that full and total sale consideration is payable and subsequent
conduct of the parties in earmarking a particular sum of money in an Escrow
account cannot change the facts and circumstances of the case.
25.The decision in the case of Amarshiv Construction Pvt. Ltd.,
wherein it was held that the retention money of the contractor for
performance guarantee continued to retain the character of retention money
though temporary release of the same was permitted on furnishing of Bank
Guarantee and cannot be equated with the control over the said amount still
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remained with principal. Equally so, the other decisions relied on by the
learned counsel for the assessee cannot be applied to the facts and
circumstances of this case.
26.In N.M.A.Mohammed Haniffa, the term full value of
consideration was explained and it was pointed out that the said term clearly
indicates that what is required to be taken note of is the total consideration
received for the transfer and in this context, the term 'total' and 'full value'
would have the same meaning, the consideration may be received or it may
accrue as a result of transfer. Further, it was pointed that the word 'received'
does not necessarily connote the actual receipt of the cash into the hands of
the assessee-transferor. Further, if the transferor instead of receiving the
full value himself and thereafter discharge the mortgage to which the
property has been made subject, allows the transferee to retain and apply
part of the total consideration to effect such discharge, such discharge by
the vendee is on behalf of the vendor and the payment of money to the
mortgagee is from out of the moneys payable by the vendee to the vendor
and the amount so applied for discharge of the mortgage forms part of the
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total consideration irrespective of whether the vendee or the vendor
discharges the mortgage.
27.In George Henderson & Co. Ltd., which was referred to by the
Tribunal, the Hon'ble Supreme Court had pointed out that the expression
'full value' means the whole price without deduction whatsoever and it
cannot refer to adequacy or inadequacy of the price bargained for, nor has it
any necessary reference to the market value of the capital asset which is the
subject matter of the transfer.
28.On facts, when we examine the Business Sale Agreement, it is not
disputed by the parties that the full and final consideration is
Rs.325,000,000/- after having agreed upon the full and final consideration,
the parties agreed to retain a particular amount of money in an Escrow
account which cannot be construed to take away the case of the assessee
from the expression 'accrued' occurring in Section 48 of the Act.
29.Therefore, the above decisions relied on by the revenue will
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T.C.A.No.1112 of 2010
clearly explain that the conduct of the assessee and the purchaser in
retaining a particular amount of money in the Escrow account cannot take
away the amount from the purview of full consideration received/accruing
in favour of the assessee for the purpose of computation of capital gains
under Section 48 of the Act. As already pointed out, the assessee has
received the entire amount of Rs.325,000,000/- without any deduction.
Even going by the case as projected by the assessee, the amount of Rs.3.25
Crores is retained in an Escrow account and the right of the assessee has not
been disputed and that amount was retained to cover four contingencies
which are part of the indemnity clause and assuming certain payoffs were to
be made from the retention money that will not in any manner alter the full
and total consideration received by the assessee pursuant to the Business
Sale Agreement and if such is the factual position, undoubtedly, the entire
sale consideration had accrued in favour of the assessee during the
assessment year under consideration. Even assuming that certain payments
have been made from the amount retained in the Escrow account, it will not
make or in any manner reduce the cost of acquisition.
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T.C.A.No.1112 of 2010
30.Thus, for all the above reasons, we are of the clear view that the
Tribunal was right in allowing the appeal filed by the revenue and set aside
the order passed by the CIT(A).
31.In the result, the tax case appeal, filed by the appellant-assessee, is
dismissed and the substantial question of law is answered against the
assessee. No costs.
(T.S.S., J.) (S.S.K., J.)
Index: Yes 24.08.2021
Speaking Order : Yes
cse
To
The Income Tax Appellate Tribunal,
Chennai.
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T.C.A.No.1112 of 2010
T.S.Sivagnanam, J.
and
Sathi Kumar Sukumara Kurup, J.
cse
Pre-delivery Judgment made in
T.C.A.No.1112 of 2010
24.08.2021
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