1992 (12) TMI 93 - AT - Income Tax

Summary

Issues Involved:

1. Nature of the award amount paid by the Indian shareholders to the foreign shareholders.
2. Whether the award amount is revenue deductible.
3. Aggregation of dividends declared by NIIL for the assessment year 1982-83.

Detailed Analysis:

1. Nature of the Award Amount:

The core issue was whether the award amount paid by the Indian shareholders to the foreign shareholders was part of the price for acquiring the right shares or compensation for the loss of dividends. The Tribunal concluded that the award amount was essentially an additional price paid by the Indian shareholders to acquire the right shares. This conclusion was based on the Supreme Court's observation that the Indian shareholders had unjustly enriched themselves at the cost of the foreign shareholders by issuing the right shares at par when their value was much above par. The Supreme Court fixed the 'fair premium' at Rs. 90 per share, which was seen as the additional price for the right shares.

2. Revenue Deductibility of the Award Amount:

The assessees argued that the award amount was compensation for the loss of dividends and should be deductible from their dividend income. However, the Tribunal rejected this argument, stating that the award amount was not compensation but an additional price paid for acquiring the right shares. Consequently, it was considered an outlay on capital account and not revenue deductible.

3. Aggregation of Dividends:

The assessees contended that the dividends declared for the years 1977 to 1980 should not be aggregated for the assessment year 1982-83 due to the delay in holding the Annual General Meetings (AGMs) caused by litigation. The Tribunal held that under the scheme of the Income-tax Act, dividend income is taxable in the year it is declared and received. Since the AGMs were held during the previous year relevant to the assessment year 1982-83, the dividends declared in those meetings were rightly aggregated and brought to tax in the assessment for that year.

Conclusion:

The appeals were dismissed. The Tribunal upheld the lower authorities' decisions, concluding that the award amount was an additional price for the right shares and not revenue deductible. Additionally, the dividends declared during the previous year relevant to the assessment year 1982-83 were correctly aggregated for taxation in that year.