Mohan Rajashekar Vs ITO (ITAT Bangalore)
Bengaluru ITAT: Success Fee Paid for Share Divestment Allowable Under Section 48; Advisory Services Need Not Constitute Brokerage or Agency
The Bengaluru Bench of the ITAT held that a success fee paid to a financial adviser for facilitating the sale of shares is deductible under section 48(i) while computing capital gains, where the expenditure is incurred wholly and exclusively in connection with the transfer. The Tribunal observed that advisory services rendered for identifying investors, negotiating the transaction, coordinating due diligence, and achieving deal closure have a direct nexus with the transfer of shares, even if the adviser did not act as a broker or intermediary.
In the present case, the assessee sold 13,770 shares of Team Concepts Private Limited and claimed deduction of ₹1.475 crore paid to Singhi Advisors Private Limited as a success fee. The Assessing Officer disallowed the claim on the grounds that the engagement was with the company, the buyer denied engaging any intermediary, and the consultant had not introduced the purchaser. However, the Tribunal found that the engagement letter, invoices, confirmation issued by the consultant, payment through the assessee’s personal bank account, and contemporaneous email correspondence established that the consultant had rendered advisory services in connection with the divestment of the assessee’s shareholding and that the success fee had been offered to tax by the recipient.
Holding that the consultant was engaged as a financial adviser and not as a broker or agent, the Tribunal concluded that the expenditure had a direct and exclusive nexus with the transfer of the shares and therefore qualified for deduction under section 48(i). Accordingly, the Tribunal directed the Assessing Officer to allow deduction of the success fee of ₹1.475 crore while computing the assessee’s capital gains. The appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
