2019 (5) TMI 1007 - HC - Income Tax

Characterization of income - compensation received by the appellant from Oracle Global (Mauritius) Ltd. for delay in payment of proceeds of shares tendered under the open offer - Capital Gains or Interest Income - HELD THAT - Undisputed facts are that the sum of ₹ 16/per share which resulted into additional receipt of ₹ 2.20 Crores to the Assessee, was part of the offer for sale of shares made by the Assessee. The reason for increasing the offer by the said sum of ₹ 16 per share may be on account of delay in issuance of the shares, nevertheless, the same was nothing but part of the sale price of the share. The revised offer which the company announced for issuance of the shares quoted the price of the share at ₹ 2,100/. This included the additional component of ₹ 16/per share. Looked from any angle thus, the shares were sold @ ₹ 2,100/per share. The component of ₹ 16/per share was embedded in the share price. This component cannot be seen as an interest on delayed payment on price of the share. This amount of ₹ 16/, thus, was part of the sale price of the share and would retain the same character as the original price of the share. The receipt of ₹ 2.20 Crores relatable to this component of ₹ 16/per share was thus clearly a capital receipt. In case of Genesis Indian Investment Company Ltd. 2013 (8) TMI 838 - ITAT MUMBAI were somewhat different. Under the circumstances, we have proceeded to dispose of this Appeal, despite the fact that this Court has admitted the Revenue's Appeal in case of Genesis Indian Investment Company Ltd. ( supra ). - Decided against revenue.

Summary

Issues:
1. Classification of additional sum received by the Assessee from Oracle Global (Mauritius) Ltd.

Analysis:
1. The main issue in this case was whether the additional sum of ?2.20 Crores received by the Assessee from Oracle Global (Mauritius) Ltd. should be considered as part of the Capital Gains or as Interest Income.

2. The Assessee received the additional sum upon allotment of shares due to a delay in payment. The Revenue argued that this sum should be considered a revenue receipt and taxed accordingly.

3. The Tribunal, in its judgment, analyzed the details of the open offer made by Oracle to the shareholders of Iflex. It noted the increase in the offer price per share due to the delay in making the offer, resulting in the additional consideration of ?16 per share. The Tribunal concluded that this additional consideration was part of the total consideration and not separate as 'original sale consideration' or 'penal interest'.

4. The Tribunal emphasized that the additional consideration was a business decision by Oracle, approved by SEBI, and part of the original transaction. It clarified that the Assessee had no control over this decision-making process and that the additional sum was not penal interest but an integral part of the total consideration for the shares sold.

5. The Tribunal also referred to a previous decision in a similar case to support its judgment. The court rejected the Revenue's argument that the decision in the previous case being challenged meant this case should be admitted, highlighting the differences in facts between the two cases.

6. Ultimately, the High Court dismissed the Income Tax Appeal, ruling that the additional sum of ?2.20 Crores, which was part of the share price and not penal interest, was a capital receipt and not taxable as Interest Income. The court found no question of law arising from the case and upheld the Tribunal's decision in favor of the Assessee.