Sub- Whether payment to shareholders out of sale proceeds of a property belonging to the company, to end dispute amongst the shareholder can be cost of improvement for computation of capital gains?
The Apex court in this case was dealing with the deduction which was claimed by the company towards payment made to shareholders to settle disputes amongst the shareholders in relation to a property belonging to the company which was sold and the claim was made towards cost of improvement. The original assessment was completed as per the return but later on proceedings were initiated u/s 263.
The Supreme Court while allowing the SLP of the department relied on the landmark decision in the case of Malabar Industrial where thread bare discussion was made regarding when an order can be said to be erroneous and prejudicial to the interest of revenue.
It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263.
In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under Section 263 not vested in it.
The impugned judgment and order passed by the High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act is hereby restored.
There was not much discussion in the judgement on the facts but what would have weighed in the mind of judges was the argument by the department that the dispute had nothing to do with the property belonging to the company and as such there was no question of allowing deduction towards cost of improvement.
This judgement would be latest in relation to 263 proceedings.
Author Bio
The author should have given brief facts of the dispute, which are not considered appropriate for deductions from taxable income