ACIT CIR 16(2), MUMBAI v. MEHER RUSI DALAL, MUMBAI

ITA 4569/MUM/2009 | 2005-2006
Pronouncement Date: 28-09-2011 | Result: Dismissed

Appeal Details

RSA Number 456919914 RSA 2009
Assessee PAN AAEPD7555R
Bench Mumbai
Appeal Number ITA 4569/MUM/2009
Duration Of Justice 2 year(s) 1 month(s) 23 day(s)
Appellant ACIT CIR 16(2), MUMBAI
Respondent MEHER RUSI DALAL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 28-09-2011
Date Of Final Hearing 05-09-2011
Next Hearing Date 05-09-2011
Assessment Year 2005-2006
Appeal Filed On 05-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI R.V. EASWAR HONBLE PRESIDENT AND SHRI P.M. JAGTAP ACCOUNTANT MEMBER I.T.A. NO.4569/MUM/2009 (ASSESSMENT YEAR : 2005-06) ASST. COMMISSIONER OF INCOME TAX CIRCLE 16(2) MATRU MANDIR TARDEO ROAD MUMBAI-400 006 APPE LLANT. VS. MRS. MEHER RUSI DALAL NESS BAUG A BLOCK FLAT NO.12 6 TH FLOOR NANA CHOWK MUMBAI-400 007. PAN AAEPD7555R RESPOND ENT. APPELLANT BY :SHRI G. SRINIWAS RAO . RESPONDENT BY :SHRI K. GOPAL. DATE OF HEARING : 05-09-2011 DATE OF PRONOUNCEMENT : 28-09-2011. O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)- 16 MUMBAI DATED 26.03.2009AND THE SOLITARY ISSUE A RISING OUT OF THE SAME FOR OUR CONSIDERATION IS WHETHER THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) IS JUSTIFIED INTHEFACTS AND CIRCUMSTANCES OF THE CASE TO DELETE THE DISALLOWANCE OF RS.4 06 44 329 MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION FOR SERVICE CHARGES IN COMPUTING THE INCOME UNDER THE HEAD INCOME FROM CA PITAL GAINS. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HER RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 21.10.2005 DECLARIN G TOTAL INCOME OF RS.68 13 160. THE 2 ITA NO.4569/MUM/2009 SAID INCOME WAS INCLUSIVE OF LONG TERM CAPITAL GAI NS OF RS.64 38 091 DECLARED BY THE ASSESSEE AS ARISING FROM SALE OF LAND AT WORLI. IN THE COMPUTATION OF CAPITAL GAINS GIVEN IN HER RETURN OF INCOME DEDUCTION OF RS.4 06 44 329 W AS CLAIMED BY THE ASSESSEE ON ACCOUNT OF SERVICE CHARGES PAID. DURING THE COURSE OF ASSES SMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON BY THE A.O. TO JUSTIFY THE SAID CLAIM. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT OF RS.12 19 32 988 WAS REC EIVED BY HER ON ACCOUNT OF THE ACQUISITION OF LAND BY THE MINISTRY OF DEFENCE BEIN G PLOT NO.53A SCHEME NO.52 OF WORLI ESTATE OF MUNICIPAL CORPORATION OF GREATER MUMBAI ( MCGM). IT WAS EXPLAINED THAT THE SAID PLOT OF LAND WAS ORIGINALLY GIVEN BY THE MUNIC IPAL CORPORATION OF GREATER MUMBAI ON LEASE TO JASSAWALA WHO IN TURN REQUESTED THE MCGM T O PREPARE THE AGREEMENT FOR BUILDING LEASE IN RESPECT OF THE SAID PLOT IN THE NAME OF (1 ). MRS. JERBANOO K.J. CURSETJI (2) DR. K.J CURSETJI AND (3) MR.JAMSHED K CURSETJI TO WHICH THE MCGM AGREED. BEFORE THE AGREEMENT COULD BE PREPAREDAS REQUESTED BY MR. JASSAWALA MRS . JERBANOO K J. CURSETJI AND DR.K.J CURSETJI ON THE ONE PART AND MR. JAMSHED K CURSETJI ON THE OTHER PART HOWEVER REQUESTED MCGM TO DIVIDE THE ORIGINAL PLOT NO. 53 I NTO TWO PARTS VIZ. 53A AND 53B AND TO TRANSFER THE DIVIDED PLOT NO; 53A TO THE NAME OF MR S. JERBANOO K.J.CURSETJI AND DR. K.J. CURSETJI AND PLOT NO.53 B IN THE NAME OF MR. JMSHE D K. CURSETJI. THE MCGM VIDE ITS RESOLUTION NO 685 011:11.1938 AGREED TO THIS REQUE ST. AS PER THIS AGREEMENT AND ON THE BASIS OF CERTAIN CONDITIONS AN INDENTURE WAS ENTER ED INTO ON 29.03.1972 ACCORDING TO WHICH PLOT NO. 53A WAS LEASED OUT TO MRS. JERBANOO K.J. CURSETJI AND DR K.JCURSETJI. IN THE MEANWHILE THE PLOT WAS OCCUPIED BY THE NAVAL A UTHORITIES IN THE YEAR 1941 DURING THE COURSE OF 2ND WORLD WAR TO LOCATE A COASTAL BATTERY . IN THE YEAR 1982 MRS. JERBANOO K.J. CURSETJI AND DR. K.J. CURSETJI FILED A WRIT PE TITION IN THE HIGH COURT OF JUDICATURE IN MUMBAI PRAYING THAT EITHER THE NAVAL AUTHORITIES SH OULD VACATE THE PREMISES OR THEY SHOULD ACQUIRE THE PROPERTY. THE PETITION WAS WITHD RAWN WITH THE UNION OF INDIA AGREEING THAT ACQUISITION PROCEEDINGS WOULD BE INITIATED BU T THE NAVAL AUTHORITIES DID NOT INITIATE THE PROCEEDINGS AS AGREED UPON. ON 7.8.1993 MRS. J ERBANOO K.J CURSETJI (DR. K.J. CURSETJI HAD PASSED AWAY IN THE MEANWHILE) ENTERED INTO AN A GREEMENT FOR SALE OF PLOT NO. 53A ON 3 ITA NO.4569/MUM/2009 AS IS WHERE IS BASIS WITH MR. SURESH H MANSUKHINI MR. KISHOR A. MANSUKHANI AND MR. ASHOK P. SHAH. ACCORDING TO THE TERMS OF THE AGREE MENT THE PURCHASERS AGREED TO PAY THE VENDOR AN AMOUNT OF RS. 2.75 CRORES FOR ACQUIRI NG THE RIGHTS IN THE PROPERTY. AN AMOUNT OF RS. 2 LAKHS WAS TO BE GIVEN AS AN ADVANCE AND THE BALANCE OF RS 273 CRORES WOULD BE PAID WITH21% INTEREST AFTER THE PROPERTY W AS RELEASED BY THE INDIAN NAVY. THE VENDOR WAS TO EXECUTE THE POWER OF ATTORNEY IN FAVO UR OF THE PURCHASERS TO ENABLE THEM TO REPRESENT THE VENDOR IN THE URBAN LAND CEILING P ROCEEDINGS AND ALSO TO TAKE STEPS FOR HAVING THE PROPERTY RELEASED. IT WAS ALSO A CONDITI ON THAT WITHIN 15 DAYS OF THE EXECUTION OF THE SAID AGREEMENT THE VENDOR AND PURCHASERS WO ULD APPLY TO THE INCOME-TAX FOR CLEARANCE UNDER CHAPTER XX-C OF THE INCOME-TAX ACT. 1961. IN THE EVENT OF INCOME-TAX AUTHORITIES REFUSING THE APPLICATION FOR TRANSFER O R THE INCOME TAX AUTHORITIES ACQUIRING THE LAND THE EARNEST DEPOSIT (ADVANCE) OF RS.2 LAK HS WOULD BE RETURNED TO THE PURCHASERS AND THE AGREEMENT WOULD HAVE NO VALIDITY THEREAFTER . HOWEVER ON RECEIPT OF THE CLEARANCE FROM THE INCOME-TAX AUTHORITIES IT WAS AGREED THAT THE VENDOR AND PURCHASERS WOULD ENTER INTO A DEED OF TRANSFER / ASSIGNMENT. BUT THE RE WERE ALSO CLAUSES 11(A) TO (C) TO THE AGREEMENT WHICH STIPULATED THAT IF THE PURCHASER W ERE TO ADOPT ANY PROCEEDINGS ON BEHALF OF THE VENDOR AGAINST THE UNION OF INDIA AND IF THE UNION OF INDIA ACQUIRES THE PROPERTY UNDER THE PROVISIONS OF LAND ACQUISITIONAC T THEN THE PURCHASER WOULD REPRESENT THE VENDOR IN THE SAID PROCEEDINGSAND ALL STEPS WOU LD BE TAKEN TO PROCESS AND PRESENT THE CASE BEFORE THE ACQUIRING AUTHORITY FOR GETTING THE MARKET VALUE FIXED FOR ACQUISITION. IN CONSIDERATION OF THE PURCHASER TAKING ALL STEPS AND INCURRING EXPENSES ON BEHALF OF THE VENDOR TO ESTABLISH THE MARKET VALUE OF THE PROPERT Y AT A RELEVANT TIME AND TAKING STEPS TO SEE THAT THE COMPENSATION PAYABLE BY THE UNION O F INDIA IS COMMENSURATE WITH THE PREVAILING MARKET VALUE AND IF NEED BE TO TAKE LEGA L ACTION TO COMPEL UNION OF INDIA TO PAY THE COMPENSATION AT THE HIGHEST PREVAILING VALUE T HE VENDOR AGREED TO PAY THE PURCHASER 1/3RD OF THE TOTAL CONSIDERATION PAYABLE BY THE ACQ UIRING AUTHORITY IN RETURN FOR THE COST EXPENSES AND SERVICES RENDERED BY THE PURCHASERS IN THIS BEHALF. THE VENDOR FILED FORM NO. 371 WITH THE APPROPRIATE AUTHORITY ON 24.8 1993 BUT IT APPEARS THAT THE MATTER WAS 4 ITA NO.4569/MUM/2009 NOT PROCEEDED WITH AND CLEARANCE UNDER CHAPTER XX-C OF THE INCOME-TAX ACT 1961 WAS NOT OBTAINED. THE VENDOR FILED A WRIT PETITION BEFO RE THE HIGH COURT OF BOMBAY (1733 OF 1994) WITH A PRAYER THAT THE UNION OF INDIA BE DIRE CTED TO ACQUIRE THE PROPERTY OR RELEASE THE SAME. THE HIGH COURT OF BOMBAY DISPOSED OF THE PETITION BY ITS ORDER DT.16.8.1994 LAYING DOWN A TIME-BOUND PROGRAM. ON 30.5.1994 AN A WARD WAS PASSED BY THE LAND ACQUISITION AUTHORITY. THE AWARD SO MADE BY THE ACQ UISITION AUTHORITY HOWEVER WAS NOT PAID AND THE MATTER WAS AGAIN TAKEN TO THE COURT. O N 3.11.1994 MRS. JERBANOO K.J. CURSETJI PASSED AWAY AND THEREFORE THE NAME OF THE ASSESSEE IN THE PRESENT CASE WAS SUBSTITUTED IN THE ACQUISITION PROCEEDINGS AS LEGAL HEIR OF MRS. JERBANOO K.J. CURSETJI AND DR. K.J. CURSETJI. THE UNION OF INDIA CONTESTED THE AWARD AND THE LITIGATION WENT UP TO THE APEX COURT. THE ASSESSEE ALONG WITH OTHER COAL REPRESENTATIVES FILED NOTICE OF MOTION NO. 156 OF 1996 IN WRIT PETITION NO. 1733 OF 1994 REQUE STING THAT THE AMOUNT BE PAID TO THEM. THERE WERE MANY ATTEMPTS BY THE UNION OF INDIATO S TOP THE PAYMENT OF THE AWARD TO THE ASSESSEE AND OTHER PARTIES. THE SUPREME COURT OF IN DIA VIDE ITS ORDER 30.10.1998 ALLOWED THE ASSESSEE TO WITHDRAW 50 % OF THE AWARD AMOUNT O F RS. 4 60 25.588/- WITH BOMBAY HIGHCOURT SUBJECT TO THE OUTCOME OF THE APPEAL FILE D BEFORE THE SUPREME COURT.THE ASSESSEE PAID 1/ 3RD OF THE AMOUNT SO RECEIVED TO MR SURESH H.MANSUKHANI AND OTHERS VIDE THE AGREEMENT DT.7.8.1993. THE HONBLE SUPREME COU RT OF INDIA FINALLY AFFIRMED ON5.5.2004 THE ORDER OF THE LAND ACQUISITION OFFICE R DT. 26.09.1997 AND ALLOWED THE ASSESSEE TO WITHDRAW THE BALANCE AMOUNT OF RS.4 60 25.588/- ALONG WITH ADDITIONAL COMPENSATION OF RS. 2 98 81 813/- U/S. 15(IA) OF LA ND ACQUISITION ACT 1984. THE ASSESSEE WITHDREW AN AMOUNT OF RS. 7 59 07 400/- AND PAID 1/ 3 RD OF THE SAME TO MR SURESH H. MANSUKHANI AND OTHERS AS AGREED UPON VIDE AGREEMEN T DT.7.8.1993. IT WAS SUBMITTED THAT THE SERVICE CHARGES PAID BY THE ASSESSEE TO MR. SUR ESH H. MANSUKHANI AND OTHERS CONSTITUTED EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY IN CONNECTION WITH TRANSFER OF LAND AND THE SAME WAS DEDUCTIBLE IN COMPUTATION OF CAPIT AL GAIN ARISING FROM THAT TRANSFER. 3.THE SUBMISSION MADE BY THE ASSESSEE IN ORDER TO J USTIFY HER CLAIM FOR DEDUCTIONON ACCOUNT OF SERVICE CHARGES IN COMPUTATION OF LONG T ERM CAPITAL GAINS WAS NOT FOUND 5 ITA NO.4569/MUM/2009 ACCEPTABLE BY THE A.O. HE HELD THAT WHAT WAS ENTER ED INTO BETWEEN THE ASSESSEES MOTHER MRS. JERBANOO K.J. CURSETJI AND MR. SURESH H MANSUKHANI & OTHERS WAS ONLY THE AGREEMENT FOR SALE AND THERE WAS ACTUALLY NO SALE O F LAND COMPLETED AS PER THE SAID AGREEMENT. ACCORDING TO THE A.O. IF THE SAID AGRE EMENT HAD BEEN A VALID AGREEMENT FOR SALE THE SPECIAL LAND ACQUISITION OFFICER WOULD HA VE GIVEN THE AWARD TO THE PURCHASERS OF THE PROPERTY AS THE AGREEMENT HAD BEEN ENTERED INTO PRIOR TO THE AWARD MADE BY THE SPECIAL LAND ACQUISITION OFFICER. HE HELD THAT THE SAID AGREEMENT THUS WAS BOGUS AGREEMENT AND PAYMENT OF SERVICE CHARGES MADE IN PU RSUANCE OF THE SAID AGREEMENT HAD NO SANCTITY. HE ALSO HELD THAT THE PAYEE APPARENTL Y HAD NO EXPERTISE AND EVEN THE ASSESSEE COULD NOT PRODUCE ANYTHING ON RECORD TO SH OW THAT MR. SURESH H MANSUKHANI & OTHERS HAVE PUT IN SOME EFFORTS TO ENTITLE THEM TO RECEIVE SERVICE CHARGES. HE HELD THAT THE PAYMENT OF SERVICE CHARGES THUS WAS AN ATTEMPT MADE BY THE ASSESSEE TO DIVERT A PORTION OF HER TAXABLE GAIN TO THIRD PARTY THEREBY REDUCING HER TAXABLE INCOME. HE HELD THAT IT WAS A CASE WHERE THE ASSESSEE HAD MADE AN A TTEMPT TO DIVERT HER INCOME UNDER THE GUISE OF A SELF-CREATED ENCUMBRANCE. THE AGREEMENT ENTERED INTO BY HER MOTHER WITH MR. SURESH H MANSUKHANI & OTHERS WAS NEVER ACTED UPON A ND THE SALE WAS NEVER COMPLETED. HE THEREFORE DISALLOWED THE CLAIM OF THE ASSESSEE F OR DEDUCTION ON ACCOUNT OF SERVICE CHARGES PAID TO MR. SURESH H MANSUKHANI& OTHERS IN COMPUTATION OF LONG TERM CAPITAL GAIN IN THE ASSESSMENT COMPLETED U/S.143(3) VIDE ORDER D ATED 20.12.2007. 4. AGAINST THE ORDER PASSED BY THE A.O. U/S. 143(3) AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). IT WAS SUBMITTE D BEFORE THE LEARNED CIT(A) ON BEHALF OF THE ASSESSEE THAT THE AGREEMENT DT. 7.8.1 993 ENTERED INTO BY HER MOTHER MRS. JERBANOO K.J CURSETJI WITH MR SURESH H MANSUKHANI A ND OTHERS WAS A VALID DOCUMENT ACCORDING TO WHICH HER MOTHER HAD AGREED TO SELL HE R RIGHTS IN THE LAND SITUATED AT WORLI FOR A TOTAL CONSIDERATION OF RS.2.75CRORES AND SHE HAD ALSO RECEIVED AN EARNEST DEPOSIT OF RS. 2 LAKHS. IT WAS SUBMITTED THAT THE INDIAN NAVY WAS IN CONTINUED POSSESSION OF THE LAND AFTER IT WAS TAKEN OVER BY THEM IN 1941 FOR 2ND WOR LD W AR PURPOSESAND IT WAS STIPULATED IN CLAUSES 11A TO 11C OF THE AGREEMENT DT. 7.8.1993 THAT IF THE INDIAN NAVY DECIDES TO 6 ITA NO.4569/MUM/2009 ACQUIRE THE LAND THEN MR. .SURESH H. MANSUKHANI AN D OTHERS WOULD AT THEIR COST TAKE NECESSARY STEPS TO ESTABLISH THE PROPER MARKET VALU E OF THE LAND AND ALSO RENDER OTHER SERVICES WHICH WOULD BE REQUIRED FROM TIME TO TIME. IN CONSIDERATION THE ASSESSEES MOTHER HAD AGREED TO PAY 1/3 RD OF THE CONSIDERATION RECEIVED FROM THE UNION OF IN DIA AS COMPENSATION TO MR. SURESH H MANSUKHANI AND OTHERS. IT WAS SUBMITTED THAT THE ASSESSEE HAD INHERITED THE ASSET ALONG WITH THE ENCUMBRANCE CREATED BY HER MOTHER BY THE LAST WILL MADE ON 16.01.1987WHICHWAS PROBATED BY THE HIGH COU RT OF BOMBAY ON 9.11.1995. IT WAS CONTENDED THAT THE ALLEGATION OF INVALID AGREEMENT MADE BY THE AOWAS NOT CORRECT. IT WAS SUBMITTED THAT AFTER SEVERAL ROUNDS OF LITIGATION THE MATTER WAS FINALLY DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE SUPREME COURT VIDE O RDER DT. 5.5.2004 IN PURSUANCE OF WHICH THE ASSESSEE RECEIVED AN AMOUNT OF RS 12 19 3 2.988/- AS TOTAL CONSIDERATION INCLUDING THE INTEREST OF RS.12 98 81 813/- ON THE DELAYED PAYMENT U/S. 15(1A) OF LAND ACQUISITION ACT 1984. THE ASSESSEE SUBMITTED THAT BY VIRTUE OF AGREEMENT DT. 7.8.1993 RIGHTS WERE CREATED FAVOURING MR. SURESH. H MANSUKH ANI AND OTHERS ON THE SAID PLOT OF LAND ANDAS STIPULATED IN THE AGREEMENT THE ASSESSE E HAD TO PAY 1/3RD OF THE CONSIDERATION RECEIVED FROM THE INDIAN NAVY AS COMPENSATION. 5. IT WAS FURTHER SUBMITTED ON BEHALF OF THE ASSES SEE THAT THE MOTHER OF THE ASSESSEE WHO EXPIRED ON 3.11.1994 HAD BEQUEATHED HE R PROPERTIES TO THE ASSESSEE WHICH ALSO INCLUDED THE LAND UNDER CONSIDERATION ALONG WI TH THE ENCUMBRANCE ATTACHED UNDER THE AGREEMENT FOR SALE DT. 7.8.1993. IT WAS SUBMITTED T HAT A LOT OF EFFORTS WERE MADE BY MR SURESH H. MANSUKHANI AND OTHERS AS A RESULT OF WHIC H THE SPECIAL LAND ACQUISITION OFFICER PASSED AN ORDER ON 31.5.1995 FOR THE AMOUNT PAYABLE BY THE INDIAN NAVY TO THE ASSESSEE. THEREAFTER MR. SURESH H. MANSUKHANI AND OTHERS VIG OROUSLY PURSUED THE MATTER FOR RELEASE OF THE PAYMENT BY INDIAN NAVY TO THE ASSESS EE. A COPY OF THE LETTER DT. 2.12.1995 FROM THE COMMISSIONER KONKAN DIVISION ADDRESSED TO MR. SURESH H. MANSUKHANI AND OTHERS STATING THAT PAYMENT ON ACCOUNT OF LAND ACQUISITION WOULD BE RELEASED AT THE EARLIEST WAS ALSO FILED BY THE ASSESSEE TO SUBSTANTIATE THE POIN T THAT MR. SURESH H. MANSUKHANI AND OTHERS HAD ALSO PUT IN SUFFICIENT EFFORTS FOR THE P URPOSE. IT WAS ALSO BROUGHT TO THE NOTICE 7 ITA NO.4569/MUM/2009 OF THE LEARNED CIT(A) THAT MR. SURESH H MANSUKHANI AND OTHERS HAD INCURRED AN AMOUNT OF RS 12 06 317/- TOWARDS THEIR SHARE OF LITIGATIO N EXPENSES WHICH WAS ALREADY POINTED OUT TO THE AO VIDE THEIR LETTER DT.14.12.2007. IT WAS CONTENDED THAT THE DISALLOWANCE OF RS.4 06 44 389/- MADE BY THE AO THUS WAS UNJUSTIFIE D AND THE SAME MAY BE DELETED. 6. THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE WA S FOUND TO BE ACCEPTABLE BY THE LEARNED CIT(A) AND HE DELETED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION TOWARDS SERVICE CHARGES IN COMP UTATION OF LONG TERM CAPITAL GAINS FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NOS.6.1 TO 6.3 OF HIS APPELLATE ORDER : 6.1I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO VERIFIED THE ASSESSMENT RECORDS. THE MAIN REASON FO R DISALLOWANCE OF THE CLAIM OF SERVICE CHARGES IS THAT THE AGREEMENT ON THE BAS IS OF WHICH THE AMOUNT HAS BEEN PAID IS NOT A VALID ONE. THERE ARE TWO PARTS T O THE AGREEMENT FOR SALE WHICH HAS BEEN ENTERED INTO BY THE APPELLANTS MOTH ER MRS. JERBANOO K.J. CURSETJI WITH MR. SURESH H. MANSUKHANI MR.KISHOR M ANSUKHANI AND MR. ASHOK P.SHAH ON 7.8.1993. THE FIRST PART OF THE AGREEMEN T RELATES TO THE SALE OF THE PLOT BEING PLOT NO.53A SECTOR 52 OF WORLI ESTATE G WARD MUMBAI AND WHICH HAS BEEN IN CONTINUOUS OCCUPATION OF THE INDIAN NAV Y SINCE 1941. MRS. JERBANOOK.J.CURSETJI HAD APPROACHED THE HIGH COURT AT BOMBAY IN THE YEAR 1982 WITH A PRAYER THE PROPERTY BE EITHER ACQUIRED BY THE INDIAN NAVY OR IT BE RELEASED. THE HIGH COURT BY ITS ORDER DATED 30.4.19 82 HAD RECORDED THAT THE UNION OF INDIA WOULD ADOPT PROCEEDINGS TO ACQUIRE T HE PROPERTY UNDER THE LAND ACQUISITION ACT 1894 BUT THE UNION OF INDIA HAD FA ILED TO COMMENCE THE PROCEEDINGS TILL THE YEAR 1993 AND MRS. CURSETJI WH O WAS 86 YEARS OF OLD AT THAT POINT AT TIME WAS DESIROUS OF SELLING THE PROP ERTY AND PUTTING THE SALE PROCEEDS INTO A TRUST CREATED BY HER FOR THE BENEFI T OF HER DAUGHTER AND GRAND CHILDREN. THE PURCHASERS WERE WILLING TO ACQUIRE TH E RIGHTS ON THE PROPERTY AND THEREFORE THE AGREEMENT WAS ENTERED INTO FOR THE SA LE OF THE RIGHTS OF THE PROPERTY FOR THE AGREED CONSIDERATION OF RS. 2.75 C RORES. IT WAS ALSO AGREED BETWEEN THE PARTIES THAT THE SALE WOULD GO THROUGH ONLY IF THE PROPERTY WAS RELEASED BY THE LNDIAN NAVY. IT WAS ALSO AGREED TH AT THE VENDOR WOULD SIMULTANEOUSLY EXECUTE A POWER OF ATTORNEY IN FAVOU R OF THE PURCHASERS TO ENABLE THE PURCHASERS TO REPRESENT MRS. JERBANOO K. J. CURSETJI IN URBAN LAND CEILING PROCEEDS AND ALSO TO TAKE STEPS TO GET THE PROPERTY RELEASED. THESE 8 ITA NO.4569/MUM/2009 STEPS WERE TO BE TAKEN WITHIN A PERIOD OF 5 MONTHS FROM THE DATE OF THE AGREEMENT. ON THE RELEASE OF THE PROPERTY AND AFTER OBTAINING THE CLEARANCE FROM THE INCOME TAX AUTHORITIES IT WAS AGREED THAT THE VENDOR AND PURCHASER WOULD EXECUTE THE NECESSARY DEED OF TRANSFER/ASSIGN MENT AND WOULD LODGE THE SAME FOR REGISTRATION UNDER THE INDIAN REGISTRATION ACT. THE SECOND PART OF THE AGREEMENT PROVIDES THAT NOTWITHSTANDING WHAT IS AGREED UPON BETWEEN THE PARTIES IF AN ORDER IS PASSED WHEREBY THE UNION OF INDIA IS ALLOWED BY THE COURT TO ACQUIRE THE PROPERTY UNDER LAND ACQUISITION ACT THEN THE PURCHASERS (MR. SURESH H. MANSUKHANI MR. KISHOR MANSUKHANI AND MR. ASHOK P SHAH) HAVE AGREED TO REPRESENT MRS. JERBANOO K.J. CURSETJI IN THE SAID PROCEEDINGS AND TO TAKE ALL STEPS TOTHEIR PROCEEDINGS DILIGENTLY PROCE SSED AND PRESENT BEFORE THE ACQUIRING AUTHORITIES. THEY WOULD PRESENT BEFORE TH E ACQUIRING AUTHORITY DOCUMENTARY EVIDENCES OF INSTANCES OF SALE IN AND A ROUND THE AREA FOR ESTABLISHING OR FIXING THE MARKET VALUE OF THE PROP ERTY ON THE BASIS OF WHICH THE ACQUIRING AUTHORITY WOULD HAVE TO PAY COMPENSAT ION.IN CONSIDERATION OF THESE STEPS AND ALSO TO PROVIDE FOR THE EXPENSES BE ING INCURRED. MRS. JERBANOO K.J. CURSETJI AGREED TO PAY 1/3RDTOTAL CON SIDERATION PAYABLE BY THE ACQUIRING AUTHORITY TOMR. SURESH MANSUKHANI AND OTH ERS. IT HAS ALSO BEEN STATED THAT IT IS UNDERSTOOD BETWEEN THE PARTIES TH AT ON THE ACQUISITION PROCEEDING BEING COMMENCED BY THE ACQUIRING AUTHORI TY THE VENDOR WOULD BE RELEASED FROM HER OBLIGATION TO SELL THE PROPERTY. THE A.O. CAME TO THE CONCLUSION THAT THE AGREEMENT HAS NO LEGAL VALIDITY AS THE CONDITIONS LAID DOWN IN THE AGREEMENT HAVE NOT BEEN FULFILLED. FIRST OF ALL HE HAS REFERRED TO THE FACT THAT THE APPELLANT DID NOT OBTAIN THE CLEARANC E FROM THE APPROPRIATE AUTHORITY UNDER CHAPTER XX-C OF THE INCOME TAX ACT THOUGH AN APPLICATION IN FORM 37 I WAS FILED. MOREOVER THE PARTIES HAVE FAI LED TO ENTER EXECUTE A DEAL OF TRANSFER AS AGREED UPON. I FIND THAT AS PER TH E AGREEMENT THE DEED OF TRANSFER IS TO BE ENTERED INTO ONLY WHEN THE PROPER TY IS RELEASED BY THE INDIAN NAVY AND NOT OTHERWISE. (PARA 6). THEREFORE IT MAY NOT BE CORRECT TO SAY THAT THE PARTIES TO THE AGREEMENT HAVE NOT GONE BY THE T ERMS OF THE AGREEMENT. ACTUALLY WHEN ONE PART OF THE AGREEMENT COULD NOT BE PROCEEDED WITH THE PARTIES ACTED ON THE BASIS OFTHE SECOND PART OF THE AGREEMENT. THEREFORE IT CAN NOT BE SAID THAT WHEN ONE PART OF THE AGREEMENT COULD NOT BE ACTED UPON THE AGREEMENT HAD BECOME INVALID. WHEN THE PARTIES COULD NOT COMPLETE THE SALE BY EXECUTING A DEED OF SALE/TRANSFERON ACCOUNT OF THE PROPERTY HAVING NOT BEEN RELEASED BY THE INDIAN NAVY THEY RESORTED TO THE SECOND PART OF THE 9 ITA NO.4569/MUM/2009 AGREEMENT CONTAINED IN CLAUSES 11A TO 11C. THE OTHE R POINT WHICH HAS BEEN NOTED BY THE A.O. IS THAT THE APPELLANT WAS REQUIRE D TO EXECUTE A POWER OF ATTORNEY IN FAVOUR OF PURCHASERS TO ENABLE THEM TO PRESENT THE APPELLANT IN LAND CEILING PROCEEDINGS. THE APPELLANT WAS REQUEST ED TO FILE A COPY OF THE POWER OF ATTORNEY WHICH HAS BEEN ISSUED BUT SHE FA ILED TO DO SO. THE APPLLANTS REPRESENTATIVE STATED THAT HE DOES NOT HAVE A COPY OF POWER OF ATTORNEY WHICH HAS BEEN ISSUED I FIND THAT THE ISSUE OF POWER OF ATTORNEY IS NOT VERY MATERIAL AS FAR AS THE TERMS OF AGREEMENT ARE CONCERNED. THI S WAS AS A MEASURE TO HELP THE APPELLANT IN SPEEDING UP THE PROCESS UNDERTHE U RBAN LAND CEILING PROCEEDINGS AND TO GET THE PROPERTY RELEASED EVEN I F THE POWER OF ATTORNEY WAS NOT ISSUED THIS WAS NOT MATERIAL TO THE VALID ITY OF THE AGREEMENT. THEREFORE IT IS NOT CORRECT TO STATE THAT LACK OF PROOF REGARDING ISSUE OF POWER OF ATTORNEY WOULD MAKE THE AGREEMENT FOR SALE AN INVALID ONE. THE A.O. HAS ALSO NOTED THAT THE SPECIAL LAND ACQUISITION OF FICER HAD AWARDED THE COMPENSATION ONLY TO THE APPELLANT AND THERE WAS NO MENTION OF MR. SURESH MANSUKHANI AND OTHERS. ACCORDING TO HIM IF THE AGRE EMENT FOR SALE HAD BEEN A VALID ONE THEN THE PROCEEDINGS WOULD HAVE INDICATED THE NAME OF MR. SURESH MANSUKHANI AND OTHERS. BUT THE CONCLUSION OF THE AO IS NOT CORRECT AS THE DEED OF TRANSFER WOULD HAVE BEEN ENTERED INTO ONLY IF TH E PROPERTY WAS RELEASED BY THE NAVAL AUTHORITIES. ITWAS ONLY IN SUCH A SITUAT ION THAT THE SPECIAL LAND ACQUISITION OFFICER WOULD HAVE BEEN ABLE TO INDICAT E THE NAME OF MR. SURESH MANSUKHANI AND OTHERS AS THE BENEFICIARIES OF THE A WARD OFCOMPENSATION. THIS WILL ALSO APPLY TO HIS OBSERVATION THAT THE SUPREME COURT OF INDIA WHILE DELIVERING THE JUDGEMENT ON THE ISSUE OF THE AWARD HAVE MENTIONED ONLY THE NAME OF THE APPELLANT AS ONE OF THE PARTNERS. IN VI EW OF THIS DISCUSSION I CONCLUDE THAT THE OBSERVATION OF THEA.O. THAT THERE WAS NO VALID AGREEMENT BETWEEN THE APPELLANT AND MR. SURESH H. MANSUKHANI. MR. KISHOR MANSUKHANI AND MR. ASHOK P. SHAH IS NOT CORRECT AND NOT BORNE OUT BY FACTS. 6.2 THE OTHER CONCLUSION OF THE A 0 WAS THAT THE CL AIM OF SERVICE CHARGESWAS A BOGUS ONE. THIS IS BASED ON THE CONCLUSION THAT THE AGREEMENT WASNOT VALID AND THE PAYMENT OF SERVICE CHARGESSHOULD BE ON SOME BAS IS WHICH THE APPELLANT HAS FAILED TO PROVIDE. MOREOVER MR. SURESH MANSUKHANI A ND OTHERS DID NOT HAVE THE EXPERTISE AND THE APPELLANT HAS FAILED TO PROVI DE ANY DETAILS TO SHOW THAT MR. SURESH MANSUKHANI AND OTHERS HAVE TAKEN EFFORTS TO GET THE COMPENSATION. THE SOLICITORS TO THE APPELLANT MRS. MULLA AND MUL LA HAS ALSO FAILED TO PROVIDE ANY INFORMATION OR DETAILS. THE PAYEES MR. SURESH H . MANSUKHANI MR. KISHOR 10 ITA NO.4569/MUM/2009 MANUKHANI AND MR. ASHOK P. SHAH HAVE ALSO ANY EXPL ANATION ABOUT THEIR INVOLVEMENT IN THE PROCESS OF GETTING THE COMPENSAT ION AND THEREFORETHE A.O. WAS OF THE VIEW THAT NO SUCH SERVICE WAS RENDERED B Y THESE PAYEES AND THE PAYMENT OF SERVICE CHARGES WAS BOGUS IN NATURE. I H AVE CONCLUDED INTHE PRECEDING PARAGRAPH THAT THEAGREEMENT ENTERED INTO BY THE APPELLANTS MOTHER MRS. JERBANOO K J CURSETJI AND MR SURESH H MANSUKHA NI. MR. KISHOR MANSUKHANI AND MR. ASHOK P SHAH IS A VALID ONE. SO THE BASIS OF THE PAYMENT IS THE AGREEMENT ENTERED INTO ON 7.8.1993. OF COURSE T HE APPELLANT HAS FAILED TO PROVIDE ANY DETAILS REGARDING THE SERVICES RENDERED BY MR. SURESH MANSUKHANI AND OTHERS. THE APPELLANT WAS ABLE TO PROVIDE ONLY THE COPY OF A LETTER DATED 2 ND DEC. 1995ADDRESSED BY THE COMMISSIONER KONKANI DIV ISION TO SURESH MANSUKHANI STATING THAT EFFORTS WERE MADE TO DISBUR SE THE COMPENSATION AS EARLY AS POSSIBLE. AS PER THE DATES OF AGREEMENT ( CLAUSES 11A TO 11C) THE PURCHASERS HAVE AGREED TO TAKE ALL REQUISITE STEPS ON BEHALF OF THE VENDOR TO ESTABLISH THE MARKET VALUE OF THE PROPERTY AT THE R ELEVANT TIME AND TO SEE THAT THE COMPENSATION PAYABLE IS COMMENSURATE WITH THE P REVAILING MARKET VALUE. IT IS FOR THESE SERVICES THAT 1/3RD OF THE TOTAL CONSI DERATION WAS AGREED TO BE PAID BY THE VENDOR MRS. JERBANOO K.J. CURSETJI. IN THIS CONNECTION THE APPELLANT IS RIGHT IN STATING THAT SHE DID NOT HAVE ANY DISCR ETION IN THE MATTER AS THE PROPERTY HAD BEEN BEQUEATHED TO HER BY WILL DATED 1 6.01.1987 AND WHICH WAS PROBATED BY THE HIGH COURT OF JUDICATURE AT BOMBAY ON 1995. ACCORDING TO THE WILL THE PROPERTY BEING PLOT NO. 53A WORLD MUMBA I 400018 WHICH HAS BEEN BEQUEATHED TO HER IS SUBJECT TO THE AGREEMENT WHICH HAS BEEN ENTERED INTO BY THE TESTATOR AS PER AGREEMENT DATED 7.8.1993. THER EFORE THE APPELLANT WAS FORCED TO MAKE THE PAYMENT WHETHER SHE LIKED IT OR NOT. PERUSAL OF ASSESSMENT RECORDS SHOW THAT ALL THE THREE PAYEES HAVE RESPOND ED TO THE NOTICES ISSUED BY THE A.O. AND HAVE STATED THAT THEY HAVE RECEIVED TH E MONEY FROM THE APPELLANT AND THEY HAVE TILED RETURNS OF INCOME SHOWING THE R ECEIPT OF THE MONEY GIVEN BY THE APPELLANT. THE APPELLANTS SOLICITORS M/S. MULLA AND MULLA HAVE ALSO FILED COPIES OF BANK STATEMENTS SHOWING THE PAYMENT OF TH E SERVICE CHARGES TO MR. SURESH MANSUKHANI AND OTHERS. IT IS TRUE THAT THE A PPELLANT OR THE PAYEES HAVE NOT GIVEN DETAILS OF THE EFFORTS PUT IN BY THEM TO ENTITLE THEM TO RECEIVE THE SERVICE CHARGES. THE APPELLANT BY LETTER DATED 14.1 2.07 HAS STATED THAT MR. SURESH MANSUKHANI AND OTHERS HAVE SPENT AN AMOUNT O F RS.12.O6 317 TO RENDER THE SERVICES FOR GETTING THE MATTER SORTED OUT. THE FACT REMAINS THAT IT TOOK ALMOST 11 YEARS FOR THE ISSUE TO BE SORTED OUT SINC E THE AGREEMENT WAS ENTERED 11 ITA NO.4569/MUM/2009 ON 7.8.1993. LACK OF DETAILS REGARDING THE SERVICES RENDERED BY MR. SURESH MANSUKHANI AND OTHERS WOULD HAVE BEEN MATERIAL IN A SITUATION WHERE THE AGREEMENT WASENTERED INTO BY THE APPELLANT AND THE PAYEES. BUT AS POINTED OUT BY THEAPPELLANT HER HANDS WERE TIED AS THE PROPER TY WAS BEQUEATHED TO HER WITH THEAGREEMENT WHICH HAS ALREADY BEEN ENTERED IN TO BY HER MOTHER WITH MR.SURESH MANSUKHANI AND OTHERS. MR. SURESH MANSUKH ANI AND OTHERS WERE ALREADY IN THE PICTURE AND IT IS POSSIBLE THAT THEY WERE DOING SOME WORK ON THE BASIS OF THE AGREEMENT WHICH IS BORNE OUT BY THE CO PY OF THE LETTER ISSUED BY THE COMMISSIONER KONKAN DIVISION A COPY OF WHICH HAS BEEN FILED. MOREOVER THE PAYEES HAVE RESPONDED TO THE LETTER ISSUED BY T HE A.O. AND THEY HAVE ALSO FILED RETURNS OF INCOME SHOWING THE RESPECTIVE PAYM ENTS. IN VIEW OF ALL THESE I COME TO THE CONCLUSION THAT THE PAYMENT OF SERVICE CHARGES CANNOT BE CONSIDERED AS A BOGUS CLAIM. 6.3 THE A.O. STATED THAT THE APPELLANT HAS CREATED AN ENCUMBRANCE BY HERSELF IN ORDER TO DIVERT A PORTION OF THE RECEIPTS TO AV OID TAX LIABILITY. HE HAS RELIED ON THE DECISION OF CIT VS. ROSHANBABU MOHAMMED HUSS AIN MERCHANT IN THIS CONNECTION. IT HAS ALREADY BEEN CONCLUDED THAT-THE AGREEMENT ENTERED INTO BY THE APPELLANTS MOTHER MRS. JERBANOO K.J. CURSETJI IS A VALID DOCUMENT AND THEREFORE IT IS NOT CORRECT TO SAY THAT THEAPPELLAN T HAS CREATED A SELF ENCUMBRANCE IN ORDER TO DIVERT A PORTION OF THEINCO ME. THE DECISION QUOTED BY THE A.O. IS TO THE EFFECT THAT WHERE AN ASSESSEE AC QUIRES A PROPERTY WHICH IN UNENCUMBERED AND LATER ON HE/SHE CREATES AN ENCUMBR ANCE ON THE PROPERTY AND THEN IT IS TRANSFERRED THE ASSESSEE IS LIABLE FOR THE FULL VALUE OF CAPITAL PAINS. IN THIS CASE IT HAS BEEN SHOWN THAT THE ENCUMBRANC E HAS BEEN CREATED BY THE APPELLANTS MOTHER MRS. JERBANOO K.J. CURSETJI AND THIS HAS BEEN BEQUEATHED TO HER. THEREFORE RELIANCE ON THE DECISION CITED B Y THE A 0 DOES NOT SUPPORT THE CASE MADE OUT BY HIM. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) GIVING RELIEF TO THE ASSESSEE THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 7. THE LEARNED D.R. SUBMITTED THAT THE CLAIM OF THE ASSESSEE ON ACCOUNT OF SERVICE CHARGES WAS HELD TOBE BOGUS BY THE A.O. FOR VALID A ND CONVINCING REASONS. HE TOOK US THROUGH THE RELEVANT PORTION OF THE ASSESSMENT ORDE R AND RELIED ON THE OBSERVATIONS /FINDINGS RECORDED BY THE A.O. IN THIS CONTEXT. HE SUBMITTED THAT THE REASONS GIVEN BY THE A.O. TO TREAT THE TRANSACTIONS INVOLVING PAYMEN T OF SERVICE CHARGES TO BE INVALID 12 ITA NO.4569/MUM/2009 HOWEVER HAVE NOT BEEN PROPERLY APPRECIATED BY THE LEARNED CIT(A) AND HE HAS TREATED THE SAID TRANSACTIONS TO BE VALID IGNORING THE SPEC IFIC ADVERSE OBSERVATIONS/FINDINGS RECORDED BY THE A.O. HE CONTENDED THAT THE RELIEF ALLOWED BY THE LEARNED CIT(A) TO THE ASSESSEE ON THIS ISSUE THUS IS NOT WELL FOUNDEDAND THEIMPUGNED ORDER OF THE LEARNED CIT(A) ALLOWING SUCH RELIEF NEEDS TO BE SET ASIDE. HE ALSO CONTENDED THAT FOR THE PURPOSE OF COMPUTING CAPITAL GAIN THE DEDUCTION IS PERMISS IBLE ONLY IN RESPECT OF COST OF ACQUISITION COST OF IMPROVEMENT AND EXPENSES INCUR RED IN RELATION TO TRANSFER. HE CONTENDED THAT THE PAYMENT IN QUESTION MADE BY THE ASSESSEE ON ACCOUNT OF TRANSFER CHARGES IS NOT COVERED UNDER ANY OF THESE THREE ITE MS WHICH ARE ALLOWABLE AS DEDUCTIONS FOR THE PURPOSE OF COMPUTING CAPITAL GAINS. ACCORD ING TO HIM IT IS ALSO NOT A CASE OF DIVERSION OF INCOME OF THE ASSESSEE BY OVERRIDING T ITLE AS SOUGHT TO BE CLAIMED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND SUBMITTED THAT THE AGREEMENT WITH MR.SURESH H MANSUKHANI& OTHERS WAS N OT MADE BY THE ASSESSEE BUT THE SAME WAS MADE BY HER MOTHER WHO DIED ON 23.11.1994. HE CONTENDED THAT RIGHTS IN THE PROPERTY WERE BEQUEATHED BY MOTHER TO THE ASSESSEE AND ALONG WITH THE SAID RIGHTS THE OBLIGATION TO PAY SERVICE CHARGES WAS ALSO UNDERTAK EN BY THE ASSESSEE. HE CONTENDED THAT MR.SURESH H MANSUKHANI& OTHERS HAD TAKEN OVER THE R ESPONSIBILITY TO LOOK AFTER THE LITIGATION IN CONNECTION WITH ACQUISITION AND COMPE NSATION OF THE PROPERTY ON BEHALF OF THE ASSESSEE AND THEY HAD ACTUALLY INCURRED SUBSTANTIAL LITIGATION EXPENSES ON BEHALF OF THE ASSESSEE. HE SUBMITTED THAT IN THE MONTH OF MAY 2 004 HONBLE SUPREME COURT ULTIMATELY GRANTED THE COMPENSATION TO THE ASSESSEE AND THE COMPENSATION SO RECEIVED BY THE ASSESSEE WAS SUBJECT TO PAYMENT OF SERVICE CHAR GES TO THE EXTENT OF 1/3 RD OF THE TOTAL COMPENSATION RECEIVED AS PER THE AGREEMENT. HE INVITED OUR ATTENTION TO THE RELEVANT CLAUSES OF THE SAID AGREEMENT (COPY PLACED IN THE PAPER BOOK) TO POINT OUT THAT MR. SURESH H MANSUKHANI& OTHERS WERE TO REPRESENT T HE ASSESSEE IN THE PROCEEDINGS INVOLVING ACQUISITION AND DETERMINATION OF COMPENSA TION. HE SUBMITTED THAT FOR THE SAID SERVICES RENDERED BY MR.SURESH H MANSUKHANI& OTHERS SERVICE CHARGES TO THE EXTENT OF 1/3 RD OF THE TOTAL COMPENSATION WERE PAID TO THEM AS PER THE AGREEMENT AND THE SAME 13 ITA NO.4569/MUM/2009 THEREFORE WAS DEDUCTIBLE IN COMPUTATION OF CAPITAL GAINS BEING EXPENSES INCURRED IN RELATION TO THE TRANSFER OF PROPERTY. HE CONTENDED THAT IT WAS ALSO A CASE OF DIVERSION OF INCOME OF THE ASSESSEE BY OVERRIDING TITLE BECAUSE THE OBLIGATION TO PAY THE SERVICE CHARGES WAS BEQUEATHED TO THE ASSESSEE ALONG WITH T HE PROPERTY BY HER MOTHER. HE CONTENDED THAT THE COMPENSATION RECEIVED BY THE ASS ESSEE THUS WAS SUBJECT TO PAYMENT OF SERVICE CHARGES TO MR.SURESH H MANSUKHANI& OTHER S AND IT WAS A CASE OF DIVERSION OF INCOME OF THE ASSESSEE BY OVERRIDING TITLE. IN SUP PORT OF THIS CONTENTION THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF FANCY CORPORATION LTD. VS. DCIT & ANOTHER275 ITR 231 (BOM). 9. IN THE REJOINDER THE LEARNED D.R. SUBMITTED THA T THE PAYMENT OF SERVICE CHARGES WAS AN APPLICATION OF INCOME RECEIVED BY THE ASSESS EE BY WAY OF COMPENSATION AND THE SAME CANNOT BE REGARDED AS DIVERSION OF INCOME OF T HE ASSESSEE BY OVERRIDING TITLE. HE CONTENDED THAT THE RENDERING OF SERVICES BY MR.SURE SH H MANSUKHANI& OTHERS TO JUSTIFY THE HUGE PAYMENT OF ABOUT RS.4 CRORES WAS ALSO NOT PROPERLY ESTABLISHED BY THE ASSESSEE. HE SUBMITTED THAT MR.SURESH H MANSUKHANI& OTHERS HA D SPENT ONLY A SUM OF ABOUT RS.12 LAKHS AS THEIR SHARE OF LITIGATION EXPENSES AND THE REFORE DEDUCTION IF ANY CAN BE GRANTED ONLY TO THAT EXTENT IN COMPUTATION OF CAPITAL GAINS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN SUPPORT OF ASSESSEES CLAI M FOR DEDUCTION ON ACCOUNT OF SERVICE CHARGES PAID TO MR. SURESH H MANSUKHANI& OTHERS ON E OF THE CONTENTIONS RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT IT WAS A C ASE OF DIVERSION OF INCOME OF THE ASSESSEE BY OVERRIDING TITLE. WE ARE UNABLE TO ACC EPT THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE. IN OUR OPINION EVEN THOUGH THE ASSESSEE WAS UNDER AN OBLI GATION TO PAY THE SERVICE CHARGES AS PER THE AGREEMENT WITH SURESH H MANSUKHANI& OTHERS THE MERE EXISTENCE OF SUCH OBLIGATION TO PAY THE SERVICE CHARGES WAS NOT ENOUG H FOR THE APPLICATION OF THE RULE OF 14 ITA NO.4569/MUM/2009 DIVERSION OF INCOME BY OVERRIDING TITLE. THE TRUE TEST FOR APPLICABILITY OF THE SAID RULE IS WHETHER SUCH OBLIGATION IS IN THE NATURE OF A CHARG E ON SOURCE OF INCOME ITSELF AND ONLY IN SUCH CASES WHERE THE SOURCE OF EARNING INCOME IS CH ARGED BY AN OVERRIDING TITLE THE SAME CAN BE CONSIDERED AS DIVERSION OF INCOME BY OVERRID ING TITLE. IN THE CASE OF SHEETALDAS KIRTALAL REPORTED IN 41 ITR 367 IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE TRUE TEST FOR THE APPLICATION OF THE RULE OF DIVERSION O F INCOME BY AN OVERRIDING TITLE IS WHETHER THE AMOUNT THAT HAS TO BE DEDUCTED IN TRUTH NEVER REACHED THE ASSESSEE AS HIS INCOME. OBLIGATION NO DOUBT IS THERE IN EVERY CASE BUT I T IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACTOR. EXPLAINING FURTHER IT WAS OB SERVED BY THE HONBLE SUPREME COURT THAT THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT BY THE NATURE OF THE OBLIGATIO N CANNOT BE SAID TO BE A PART OF THE INCOME OF THE ASSESSEE. WHERE BY THE OBLIGATION I NCOME IS DIVERTED BEFORE IT REACHES TO THE ASSESSEE IT IS DEDUCTIBLE BUT WHERE THE INCOM E IS REQUIRED TO BE APPLIED TO DISCHARGE HIS OBLIGATION AFTER SUCH INCOME REACHES THE ASSESS EE THE SAME CONSEQUENCE IN LAW DOES NOT FOLLOW. IT WAS HELD BY THE HONBLE SUPREME COU RT HELD THAT IT IS THE FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCLUDED AND NOT THE SEC OND. THE SECOND PAYMENT IS MAINLY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONCE OWN INC OME WHICH HAS BEEN RECEIVED AND IS APPLIED. IN THE PRESENT CASE THE COMPENSATION FOR THE PROPERTY WAS RECEIVED BY THE ASSESSEE DIRECTLY WHICH CONSTITUTED ITS INCOME AT T HE POINT WHEN IT REACHED OR ACCRUED TO THE ASSESSEE. THE SERVICE CHARGES ON THE OTHER HA ND HAD BEEN PAID SEPARATELY BY THE ASSESSEE TO DISCHARGE HIS CONTRACTUAL LIABILITY AND IT WAS THUS A CASE OF AN OBLIGATION TO APPLY INCOME WHICH HAD ACCRUED OR ARISEN TO THE ASS ESSEE AND THE SAME AMOUNTS TO A MERE APPLICATION OF INCOME. WE THEREFORE HOLD THAT TH E PAYMENT OF SERVICE CHARGES BY THE ASSESSEE TO MR. SURESH H MANSUKHANI& OTHERS DID NOT AMOUNT TO DIVERSION OF INCOME OF THE ASSESSEE BY AN OVERRIDING TITLE AND THE CONTENT ION RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD CANNOT BE ACCEPTED BEIN G DEVOID OF ANY MERIT. 11. WE HOWEVER FIND MERIT IN THE CONTENTION OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE SERVICE CHARGES PAID BY THE ASSESSEE TO MR . SURESH H MANSUKHANI& OTHERS 15 ITA NO.4569/MUM/2009 REPRESENTED EXPENSES INCURRED BY THE ASSESSEE IN CO NNECTION WITH TRANSFER OF PROPERTY AND THE SAME WAS ALLOWABLE AS DEDUCTION WHILE COMPU TING THE CAPITAL GAINS ARISING FROM THE SAID SALE. IT IS OBSERVED THAT THE SAID PAYMENT WA S MADE BY THE ASSESSEE IN PURSUANCE OF AN AGREEMENT ENTERED INTO BY HER MOTHER WHO BEQUEAT HED THE PROPERTY TO THE ASSESSEE AS PER A WILL SPECIFICALLY ALONG WITH THE OBLIGATION I N TERMS OF THE SAID AGREEMENT. IT IS OBSERVED THAT THE A.O. HOWEVER DOUBTED THE GENUINE NESS OF THE SAID AGREEMENT ON THE GROUND THAT IT WAS ONLY THE AGREEMENT FOR SALE AND THERE WAS ACTUALLY NO SALE OF LAND COMPLETED AS PER THE SAID AGREEMENT. ACCORDING TO HIM IF THE SAID AGREEMENT HAD BEEN A VALID AGREEMENT FOR SALE THE SPECIAL LAND ACQUISIT ION OFFICER WOULD HAVE GIVEN THE AWARD TO THE PURCHASERS OF THE PROPERTY. IN OUR OPINION THIS BASIS GIVEN BY THE A.O. WAS TOTALLY UNJUSTIFIED AND UNFOUNDED. A COPY OF THE RELEVANT AGREEMENT FOR SALE IS PLACED ON RECORD BEFORE US AND A PERUSAL OF THE TERMS AND CONDITIONS THEREOF SHOWS THAT IT WAS IN THE NATURE OF AGREEMENT FOR SALE WHEREBY LAND WAS AGREE D TO BE SOLD SUBJECT TO FULFILLMENT OF CERTAIN TERMS AND CONDITIONS STIPULATED THEREIN. TH ERE WAS THUS NO QUESTION OF COMPLETING THE OUTRIGHT SALE OF LAND TO MR. SURESH H MANSUKHAN I AND OTHERS AND NO QUESTION OF COMPENSATION BEING AWARDED TO THE SAID PARTY BY SPE CIAL LAND ACQUISITION OFFICER. IT CANNOT THEREFORE BE SAID THAT IN THE ABSENCE OF SUC H OUTRIGHT SALE OF LAND OR NON-PAYMENT OF COMPENSATION BY SPECIAL LAND ACQUISITION OFFICER TO MR. SURESH H MANSUKHANI AND OTHERS THE AGREEMENT FOR SALE ITSELF WAS BOGUS AND INFERENCE DRAWN BY THE A.O. TO THIS EFFECT IN OUR OPINION WAS UNTENABLE. 12. IN ANY CASE THE RELEVANT AGREEMENT WAS IN TWO PARTS AS RIGHTLY HELD BY THE LEARNED CIT(A) FIRST RELATING TO THE SALE OF THE LAND AND SECOND RELATING TO PAYMENT OF SERVICE CHARGES BY THE ASSESSEE TO MR. SURESH H MANSUKHANI AND OTHERS OUT OF TOTAL COMPENSATION AS A CONSIDERATION FOR REPRESENTING TH E ASSESSEE IN THE MATTER OF ACQUISITION PROCEEDINGS AND DETERMINATION OF COMPENSATION AND T O TAKE ALL STEPSTO ENSURE THAT THE SAID PROCEEDINGS ARE DILIGENTLY PROCESSED AND PRESE NTED BEFORE THE ACQUISITION AUTHORITIES. THEY WERE ALSO TO PRESENT BEFORE THE ACQUISITION AU THORITIES RELEVANT DOCUMENTARY EVIDENCES OF INSTANCES OF SALE IN AND AROUND THE AR EA FOR ESTABLISHING A MARKET VALUE OF 16 ITA NO.4569/MUM/2009 THE PROPERTY ON THE BASIS OF WHICH THE ACQUIRING A UTHORITY WOULD DETERMINE THE COMPENSATION. THE SECOND PART OF THE AGREEMENT WAS NOT WITHSTANDING WHAT WAS AGREED UPON BETWEEN THE PARTIES IN THE FIRST PART AND THE CASE OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF SERVICE CHARGES PAID TO MR. SURESH MANSU KHANI AND OTHERS WAS LIABLE TO BE CONSIDERED INDEPENDENTLY ON THE BASIS OF SECOND PAR T OF THE AGREEMENT AS RIGHTLY DONE BY THE LEARNED CIT(A). IT IS RELEVANT TO NOTE THAT TH E SAID AGREEMENT WAS MADE BY THE LATE MOTHER OF THE ASSESSEE AND THERE WAS A SPECIFIC MEN TION OF THE SAID AGREEMENT IN HER WILL WHEREBY THE PROPERTY WAS BEQUEATHED TO THE ASSESSEE . IT IS ALSO WORTHWHILE TO NOTE HERE THAT WHEN THE SAID AGREEMENT WAS ENTERED INTO THE ACQUISITION OF LAND AS WELL AS DETERMINATION OF COMPENSATION WAS TOTALLY UNCERTAIN . HAVING REGARD TO ALL THESE MATERIAL FACTS OF THE CASE WE ARE OF THE VIEW THAT THE A.O. WAS NOT JUSTIFIED IN TREATING THE SAID AGREEMENT TO BE BOGUS AND DENYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF SERVICE CHARGES PAID IN PURSUANCE THEREOF. THE LEA RNED CIT(A) ON THE OTHER HAND WAS FULLY JUSTIFIED IN APPRECIATING THE SAID AGREEMENT IN THE RIGHT PERSPECTIVE WHILE CONSIDERING THE CLAIM OF THE ASSESSEE FOR THE SAID DEDUCTION. A S RIGHTLY NOTED BY HIM THE SECOND PART OF THE AGREEMENT PROVIDED THAT NOTWITHSTANDING WHAT WAS AGREED UPON BETWEEN THE PARTIES IF AN ORDER IS PASSED WHEREBY THE UNION OF INDIA IS ALLOWED BY THE COURT TO ACQUIRE THE PROPERTY UNDER LAND ACQUISITION ACT THEN THE P URCHASERS (MR. SURESH H. MANSUKHANI MR. KISHOR MANSUKHANI AND MR. ASHOK P SHAH) HAD AGR EED TO REPRESENT MRS. JERBANOO K.J. CURSETJI IN THE SAID PROCEEDINGS AND TO TAKE ALL ST EPS TO ENSURE THAT THE PROCEEDINGS ARE DILIGENTLY PROCESSED AND PRESENTED BEFORE THE ACQUI RING AUTHORITIES. THEY WERE TO PRESENT BEFORE THE ACQUIRING AUTHORITY DOCUMENTARY EVIDENCE S OF INSTANCES OF SALE IN AND AROUND THE AREA FOR ESTABLISHING OR FIXING THE MARKET VALU E OF THE PROPERTY ON THE BASIS OF WHICH THE ACQUIRING AUTHORITY WOULD HAVE TO PAY COMPENSAT ION. IN CONSIDERATION OF THESE STEPS AND ALSO TO PROVIDE FOR THE EXPENSES BEING INCURRED MRS. JERBANOO K.J. CURSETJI HAD AGREED TO PAY 1/3RD TOTAL CONSIDERATION PAYABLE BY THE ACQUIRING AUTHORITY TO MR. SURESH MANSUKHANI AND OTHERS. IT WAS ALSO UNDERSTOOD BETWE EN THE PARTIES THAT ON THE ACQUISITION PROCEEDING BEING COMMENCED BY THE ACQUIRING AUTHORI TY THE VENDOR WOULD BE RELEASED 17 ITA NO.4569/MUM/2009 FROM HER OBLIGATION TO SELL THE PROPERTY.ACTUALLY WHEN ONE PART OF THE AGREEMENT COULD NOT BE PROCEEDED WITH THE PARTIES ACTED ON THE BAS IS OF THE SECOND PART OF THE AGREEMENT. AS RIGHTLY HELD BY THE LEARNED CIT(A) I T CAN NOT THEREFORE BE SAID THAT WHEN ONE PART OF THE AGREEMENT COULD NOT BE ACTED UPON THE AGREEMENT HAD BECOME INVALID. ON THE OTHER HAND WHEN THE PARTIES COULD NOT COMPLETE THE SALE BY EXECUTING A DEED OF SALE/TRANSFER ON ACCOUNT OF THE PROPERTY HAVING NOT BEEN RELEASED BY THE INDIAN NAVY THEY RESORTED TO THE SECOND PART OF THE AGREEMENT C ONTAINED IN CLAUSES 11A TO 11C AND VALIDLY ACTED UPON THAT DISCHARGING THEIR RESPECTIV E OBLIGATIONS. 13. HAVING HELD THAT THE AGREEMENT WITH MR. SURESH H MANSUKHANI AND OTHERS WAS A VALID AGREEMENT THE NEXT QUESTION WHICH ARISES FOR CONSIDERATION IS WHETHER THE SERVICES AS CONTEMPLATED IN THE SAID AGREEMENT WERE ACTUALLY RENDERED BY MR. SURESH H MANSUKHANI AND OTHERS TO JUSTIFY THE PAYMENT OF SER VICE CHARGES. THIS ASPECT HAS BEEN DULY CONSIDERED AND EXAMINED BY THE LEARNED CIT(A) TO COME TO A CONCLUSION THAT SUCH SERVICES WERE ACTUALLY RENDERED BY MR. SURESH H MAN SUKHANI AND OTHERS. IN THIS REGARD A LETTER DATED 2ND DEC. 1995 ADDRESSED BY THE COMMISS IONER KONKAN DIVISION TO SURESH MANSUKHANI WAS RELIED UPON BY THE LEARNED CIT(A) WH EREIN IT WAS CLEARLY STATED THAT EFFORTS WERE BEING MADE TO DISBURSE THE COMPENSATIO N AS EARLY AS POSSIBLE. MR. SURESH MANSUKHANI AND OTHERS HAD ALSO SPENT A SUM OF ABOUT RS. 12 LAKHS AS THEIR SHARE OF LITIGATION EXPENSES OVER A PERIOD OF TIME. MOREOVER AS RIGHTLY STATED BY THE ASSESSEE SHE HAD NO OPTION BUT TO PAY THE SERVICE CHARGES TO MAS UKHANI AND OTHERS IN DISCHARGE OF HER OBLIGATION IN THE MATTER AS THE PROPERTY HAD BEEN B EQUEATHED TO HER BY WILL DATED 16.01.1987 WHICH WAS PROBATED BY THE HIGH COURT OF JUDICATURE AT BOMBAY IN 1995. ACCORDING TO THE WILL THE PROPERTY BEING PLOT NO. 53A WORLI MUMBAI 400018 WHICH HAD BEEN BEQUEATHED TO HER WAS SUBJECT TO THE AGREEMENT WHICH HAD BEEN ENTERED INTO BY THE TESTATOR IN THE YEAR 1993 ITSELF. MR. MANSUKHANI AN D OTHERS HAD ALSO RESPONDED TO THE NOTICES ISSUED BY THE A.O. AND CONFIRMED OF HAVING RECEIVED THE MONEY FROM THE ASSESSEE AND HAVING FILED THEIR RETURNS OF INCOME SHOWING TH E SAID RECEIPTS AS INCOME. AFTER TAKING INTO CONSIDERATION ALL THESE FINDINGS/OBSERVATIONS RECORDED BY THE LEARNED CIT(A) IN HIS 18 ITA NO.4569/MUM/2009 IMPUGNED ORDER WE FIND OURSELVES IN AGREEMENT WITH THE INFERENCE DRAWN BY HIM THAT THE PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT OF SERVICE CHARGES TO MR. SURESH H MANSUKHANI AND OTHERS WERE GENUINE PAYMENTS MADE TOWARDS VALID CONTRACTUAL OBLIGATION AND THE SAME BEING IN THE NATURE OF EXPENSES INCURRED BY THE ASS ESSEE IN CONNECTION WITH TRANSFER OF CAPITAL ASSETS WERE DEDUCTIBLE IN COMPUTING THE L ONG TERM CAPITAL GAINS ARISING FROM SUCH TRANSFER. WE THEREFORE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPH OLDING THE SAME WE DISMISS THE APPEAL FILED BY THE REVENUE. 14. IN THE RESULT THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED ON THIS 28 TH DAY OF SEPT. 2011. SD/- SD/- (R.V. EASWAR) (P.M. JAGT AP) PRESIDENT. ACCOUNTANT MEMBER MUMBAI DATED: 28 TH SEPT. 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR H-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R ASSTT. REGISTRAR ITAT MUMBAI *REDDY GP