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2016 (1) TMI 1178 - ITAT MUMBAI

2016 (1) TMI 1178 - ITAT MUMBAI - TMI - Nature of additional consideration received - taxability - interest income or not - Held that:- Additional consideration received by the assessee is part and parcel of the total consideration. It cannot be segregated under the heads ‘original sale consideration’ and ‘penal interest received from Oracle. The business world is governed by its own rules and conventions. If considering the time factor Oracle decided to increase the share price in the offer let .....

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ip between the assesse and Oracle. The assesse owned shares of I-flex and in response to the open offer by Oracle it decided 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 .....

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anel-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 declaring total income of ₹ 5.24 lakhs. The Assessing Officer (AO) completed the assessment on 30. 11.2009, u/s. 143(3) of the Act, accepting the income of the assessee. On 30.3.2012 a notice u/s. 148 was iss .....

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e: 2.On perusal of the record, after completing the original assessment proceedings, the AO found that the assessee had tendered ₹ 13,79,979/- shares of I-flex Solution Ltd. held by it to Oracle Global (Mauritius) Ltd.(Oracle)under the open offer, that it had received additional consideration of ₹ 2.20 crores from Oracle for delay in making payment of sales consideration. He held that the additional consideration was not linked to original consideration and hence it was to be treated .....

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itional consideration was also not a service fee/charge in respect of money borrowed/ credit facility which was not utilized by Oracle, that the amount in question would not fall within the definition of interest as per section 2(28A) of the Act, that for a receipt to be taxed as interest existence of a debtor/creditor relationship was a must as per Article-11 of the DTAA, that there was no Debtor/Creditor relationship between the assessee and Oracle, that the assessee had not made available any .....

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rom 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 r .....

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ahani Steel Works & Press Works Ltd. (152 ITR 39); K.G. Subramaniam (195 ITR 199) and Hindustan Conducors P. Ltd. (247ITR 762). With regard to reopening, he contended that it was a case of change of opinion, that no new material was discovered by the AO, that all the information was available on the record. He relied upon the cases of Kelvinator of India Ltd.(320ITR561) and Coca Cola Export Corporation (231 ITR 200). The Department Representative (DR) contended that additional consideration .....

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that the assessee had accepted the open offer, that there was debtor/creditor relationship between the assessee and Oracle, that the buyer of the share should have paid the whole amount as per the scheduled dates of payments, that the nature of all consideration received by assessee was in the nature of interest that it was governed by Article-11 of the India Mauritius DTAA Treaty, that it could not be taxed under Article-22 of the treaty under the head other income , that the additional conside .....

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case under consideration. He relied upon the cases of ESS Kay Engineering (P) Ltd. (247ITR 818); A.L.A Firm (102 ITR 622) and EMA India Ltd. (226 CTR 659). 4.We have heard the rival submissions and perused the material placed before us. We find that an open offer 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 .....

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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 additional consideration is taxable or n .....

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spatch the letter of the offer, same was later enhanced to ₹ 16.00 per share. Thus, there was increase in the offer price of the shares. It is a fact that the regulatory authority i.e. SEBI had approved the transaction, that the transaction could not be completed in due time because of certain reasons, that Oracle had revised the offer price Considering all these factors, we are of the opinion that additional consideration received by the assessee is part and parcel of the total considerat .....

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rs if it decided to increase the interest @ of 16 per share it was a business decision. The assesse had no control over the decision making process of Oracle. If we see the transaction from the debtor/creditor angle it is clear that there was no such relationship between the assesse and Oracle. The assesse owned shares of I-flex and in response to the open offer by Oracle it decided to sell the shares-it was a pure and simple case of selling of shares. The assesse had not entered in to any negot .....

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y 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 .....

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n offer was announced for acquisition of 20% of the issue capital of Castrol India Ltd. On 10.7.2000 B.P. Plc approached the SEBI seeking exemption from the requirement of making a public offer for acquisition of upto 20% of the shares of Castrol India Ltd. The said exemption application was disposed of by the SEBI vide order dated 7.8.2000 by granting exemption subject to certain conditions which was not acceptable to the holding company. Accordingly, the request for exemption was withdrawn on .....

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on that date is ₹ 350.02. The holding company challenged the order of SEBI by filing an appeal before the Securities Appellate Tribunal (SAT). The Securities Appellate Tribunal upheld SEBI's directions vide order dated 27.4.2001 against which the holding company filed an appeal before the Hon'ble Jurisdiction High Court. In the meantime, on 23.7.2001 the SEBI directed the merchant banker to proceed with the offer formalities and pay interest @ 15% per annum on offer price period fr .....

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offer price however from 8.8.2000 till the actual date of payment of consideration instead of 14.3.2000 directed by the SEBI. The holding company again filed an appeal before the Hon'ble High Court against the Securities Appellate Tribunal order upholding payment of interest @ 15%. The Hon'ble High Court upheld the orders of the SAT regarding payment of interest. Subsequently, Castrol UK posted offer letter to shareholders of Castrol India Ltd. on 21.9. 2001. The assessee tendered 205355 .....

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he 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 n .....

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was directed by the SEBI under regulations 22 and therefore it was held that this is not a penalty but the payment of interest on account of failure to make the payment by the acquirer as per the time schedule prescribed under SEBI regulations. It is clear that this payment of interest @ 15% was not on account of any accretion in the value of the asset in question because the market price of the share is determine as per the rates prevailing on stock exchange. The consideration for acquiring the .....

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ideration and the interest which is different form compensations or consideration. If the interest is paid for delay in making the payment then it cannot be treated as part of consideration. In the case in hand the delay for which the interest has been received by the assessee is in the process of buy back of shares in the open offer after announcement of the intention of acquiring of shares. It is not a case of delay in making the payment of the determined consideration after the transaction of .....

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#8377; 2,77,692 was received by the assessee 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 amo .....

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