Supreme Court explains Commercial Expediency.
Sale of shares for Rs 56 lacs accompanied with payment of non-compete fees amounting to Rs 6.60 crores- Supreme Court explains commercial expediency in a landmark judgement and allows the appeal.
The apex court on 22nd July,2020 in the case of Shiv Raj Gupta Vs CIT-Delhi in Civil Appeal No 12044 of 2016 was considering an appeal where shares were sold by the appellant herein with his family members to Shaw Wallace for Rs 56 lacs , whereas he was paid a sum of Rs 6.60 crores as non compete fees and the department termed the transaction as colourable device (McDowell’s case) by arguing that the non compete fees was taken to reduce the consideration for sale of shares to avoid the tax. The apex court while finding fault with the judgement of the high court for deciding on the aspect of non compete fees even though no substantial question of law was formulated which was answered by the court and thus the court did not follow the law laid down in Section 260A of the Income-tax Act, 1961 read with Section 100 of the CPC 1908. The court finally held that a catena of judgments has held that commercial expediency has to be adjudged from the point of view of the assessee and that the Income Tax Department cannot enter into the thicket of reasonableness of amounts paid by the assessee. Finally the judgement of the high court was set aside by allowing the appeal.
This is a latest landmark judgement on commercial expediency and will be helpful in lot of cases.