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2016 (1) TMI 1178

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..... ed to sell the shares-it was a pure and simple case of selling of shares. The assesse had not entered in to any negotiations with Oracle and transferred the shares as per a scheme that was approved by SEBI. The assesse had not advanced any sum to Oracle and had not received any interest from it for delayed repayment of principal amount. In short, the additional consideration received by the assesse from Oracle was not penal interest and was part of the original consideration. Hence, same is not taxable. - Decided in favour of assessee - ITA No.1625/Mum/2014 - - - Dated:- 29-1-2016 - Sh. Rajendra, Accountant Member And Ram Lal Negi, Judicial Member. Assessee by : Shri Arvind Sonde-AR Revenue by : Jasbir Chauhan-CIT-DR ORDER PER RAJENDRA, AM Challenging the order of the Assessing Officer(AO) dated,28.3.2013 passed in pursuance of the directions of the Dispute Resolution Panel-I, Mumbai, dated,19.12.2013,the assessee has raised the present appeal raising five Grounds of Appeal. Assessee-company, incorporated in Mauritius, was registered with SEBI as a sub-account of Morgan Stanley and Company International Ltd.(MSCIL). It filed its return on 17.10.2007 d .....

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..... the same source i.e., the shares transferred to Oracle under the open offer. Alternatively, it was argued that the additional consideration could not be taxed as capital gains under Article-13 of the Treaty, that it was also not covered under any of the specific Articles of the Treaty, that it would fall under the head income from other sources under Article-22 of the Treaty, that the assessee had no Permanent Establishment (PE) in India, that the income from other sources would not be taxable in India as per the provisions of the Act. He further made one more alternative argument with regard to rate of tax to be levied. He contended that AO had erred in not taxing the additional consideration in accordance with the provisions of section 115AD of the Act, that he should have applied the rate of 20.91% as against the rate of 41.82%. The AR referred to page No.29,87,118 and 119 of the paper book and stated that original and revised schedule proved that additional compensation @ ₹ 16 per share was for a period upto Jan.2007, that there was delay in making the offer and not in making payment, that it was not interest. He relied upon the order of the Tribunal dt.14.8.2013 in the .....

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..... was made by Oracle to the shareholders of I-flex at the price of ₹ 1,475/- per share, that the open offer indicated that additional offer of ₹ 11.35 per share was to be payable to the shareholders, that as per the letter of open offer the additional consideration per share was to be paid due to delay in making the open offer and dispatch the letter of the offer based on the time line prescribed by SEBI, that later on the consideration of open offer was revised to ₹ 2,084/- per share, that the additional consideration for delay was revised to ₹ 16/- per share, that the open offer letter and public announcement indicated that a revised offer of ₹ 2,100/- per share (including additional consideration of ₹ 16/-) was to be payable for the shares tendered by the share holders under the open offer, that in response to the open offer the assessee tendered its holding of 13,97,879 shares of I-flex, that it received ₹ 2,89,77,45,900/-, that the said sum included additional consideration of ₹ 2.20 crores. In our opinion, the basic issue to be decided is to determine as to whether the amount of ₹ 2.20 crores received by the assessee as .....

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..... ation. Hence, same is not taxable. Ground no. is decided in favour of the assesse. We find that in the case of Genesis Indian Investment Company Ltd. (ITA/2878/Mum /2006 / dated 14.08.2013) similar issue has been decided by the Tribunal. We would like to reproduce the facts of the case that are narrated at paragraph 3 of the order and same reads as under: Ground No. 1 regarding taxing the additional amount of ₹ 7,07,76,547/- received by the assessee as per the order of SEBI being 15% interest for delay in payment of proceeds of shares tendered under the open offer of Castrol UK. The assessee is a company incorporated in Mauritius and has obtained registration with the Securities Exchange Board of India (SEBI) as a sub-account of Genesis Asset Managers Ltd., registered Foreign Institutional Investor (FII). The assessee was holding the shares of Castrol India Ltd. which is a subsidiary of Castrol Ltd. UK. Due to Global Acquisition of Burmah Castrol Plc by the British Petroleum through the press announcement of its intention to acquire the entire share capital of Burmah Castrol Plc on 14.3.2000, the consequential open offer was announced for acquisition of 20% of the i .....

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..... td. on 21.9. 2001. The assessee tendered 2053552 equity shares on 17.10.2001 under the open offer however 1042518 equity shares of the assessee were accepted by the Castrol UK on 23.11. 2001.Thus, the assessee received additional amount of ₹ 7,07,76,547/- and net amount after deduction of TDS at ₹ 4,10,50,397/- on account of interest @ 15% per annum. The Assessing Officer while completing assessment treated the said amount of ₹ 7,07,76,547/- as interest income and taxed the same @ 48%. The assessee challenged the order of the Assessing Officer before the CIT(A) inter alia contended that the additional consideration received from Castrol UK is exempted under the provisions of Article 13(4) of Indo Mauritius Treaty because the said amount was nothing but capital gain arising to the assessee from transfer of shares. Alternatively the assessee contended that the receipt of the amount in question is not the interest under Article 11 of the Indo Mauritius Treaty because it is not an income from debt claim and there is no debtor-creditor relationship between the assessee and Castrol UK. The CIT(A) did not accept the contention of the assessee and upheld the action of the .....

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..... e as interest on the amounts which were determined to be payable by the assessee in respect of certain contracts executed by the assessee and in regard to the payments under which there was a dispute between the two parties. The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts, he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well settled that interest can be assessed under the head Income from other sources only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the .....

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