Law: Income Tax Act, 1961

Section: 48

JUDGMENT 1. The revenue has preferred this appeal against the order passed by the Tribunal allowing the entire legal and professional charges paid by the assessee to MIFL, in calculating the 'capital gains arising from the transaction in question. 2. The assessee is an individual, carrying on the profession of technical consultancy under the field of design and development of telecom products. This appeal relates to the assessment year 2005-2006. The assessee declared the capital gains of Rs. 13,41,19,572/- in the returns of income after claiming deduction of Rs.2,00,84,088/- which represented legal and professional charges paid to M/s. Marchmont International Finance Limited (hereinafter referred to as 'MIFL'). The assessee was a shareholder in M/s. Deccannet Designs Limited (hereinafter referred to as 'DDL'). He holds 9,01,080 shares out of the total shares of 30,73,299. Thus, he was the major shareholder in the company of which he was a director. There were six other substantial shareholders who between themselves held 19,90,746 shares but none of them individually holds as many shares as the assessee did. There were several other individual shareholders who together held 1,81,473 shares. On 28.07.2004 an agreement was entered into between DDL, the assessee and the six major shareholders on the one hand and M/s. Flextronix International Asia Pacific Ltd., under which the Flextronix decided to acquire the shares of these seven persons in DDL for consideration. The assessee's shareholding was valued at USD 5,090,115/- and the price per share came to USD 5.65. The shares of other six major shareholders was valued at USD 9,814,356/- which gave per share the value of USD 4.93. Thus, the shares held by the assessee were valued at 72 cents more than the shares held by the other six major shareholders. Under the agreement, the fees payable to MIFL by the assessee and the other shareholders was USD 600,000 to be sharedpro rata by the assessee and the other shareholders. However, the assessee has entered into a separate agreement with MIFL on 25.11.2003 which listed services rendered by MIFL in relation to the acquisition agreement. This agreement also prescribes the…

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