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TMI Blog2011 (12) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... and payments and not the compensation for enhancement in the value of the asset. The interest received by the assessee as per the directions of the SEBI and in pursuance of the decision of the Hon'ble Supreme Court (supra) cannot be treated as part of sale consideration of shares and accordingly, the lower authorities have rightly treated the income from other sources. - ITA No. 5584/Mum/2010, - - - Dated:- 28-12-2011 - R.K. Panda, Vijay Pal Rao, JJ. D.P. Bapat for the Appellant O.A. Mao for the Respondent ORDER Vijay Pal Rao, Judicial Member 1. This appeal by the assessee is directed against the order dated 10.3.2010 of the CIT(A) for the AY 2006-07. 2. The assessee has raised the only issue in this appeal as under: "On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in confirming the amount of Rs.1,00,57,681/- as interest income and not allowing it as part of full value of consideration in computing long term capital gains in respect of buy back of shares and consequently erred in confirming long term capital gains at Rs.2,16,52,094/- as against Rs.3,16,12,208 as claimed by the appellant." 2.1 The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Before us, the ld AR of the assessee has submitted that the assessee has no statutory rights to receive the interest or any compensation. The amount of interest received by the assessee is prior to the payments as well as actual transfer of the shares. Therefore, it is a part of the sale consideration and not a separate income of the assessee. There is no agreement or statutory rights to receive such interest. There is also no mercantile system to receive the interests. This amount is only compensatory in nature and cannot be treated as separate income. He has further contended that the interest paid by the acquirer of the shares is the part of sale consideration as held by the Authority for Advance Rulings in the case of Burmah Castrol Plc., In Re., reported in 307 ITR 324 wherein interest paid by the acquirer held as cost of acquisition of shares. 4.1 The ld AR has submitted that on similar analogy of interest received by the assessee on buy-back of share by acquirer should be part of the sale consideration. He has also relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Ghanshyam (HUF) reported in 315 ITR 001 (SC) and submitted that the Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the shareholder did not have any right to get interest and they were only to be compensated for the loss of interest and nothing more. Therefore, when there is no right or any agreement to receive the interest then, the amount received by the assessee is only part of the sale consideration. 5 He has refereed the additional ground raised by the assessee and submitted that the additional ground raised by the assessee is purely legal in nature and therefore, in view of the decision of the Hon'ble Supreme Court in the case of NTPC reported in it should be admitted for adjudication. 6 On merits, he has submitted that when there is no right to receive the interest and there is no source of income then, there is no provision to tax the same as there is no source. He has relied upon the decision of the Hon'ble Punjab and Haryana High Court in the case of CITv. Chiranji Lal Multani Mal Rai Bahadur (P) Ltd reported in 179 ITR 157 (PandH). 6.1 On the other hand, the ld DR has submitted that interest received by the assessee for delay in payment of offer price. The income includes any amount received by the assessee which does not fall under any other head would fall u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the target company had been made without any public announcement, the provisions of the Regulations had been violated. Upon an inquiry made in this behalf, the Board came to the conclusion that the acquirer had actually acquired the control over the target company on 21:1 1 .1 97. By reason of an order dated 16.10.2002, the Board directed: "13.1 In view of the findings made above, in exercise of the powers conferred upon me under sub-section (3) of Section 4 read with Section 118 SEBI Act 1992 read with regulations 44 and 45 of the said Regulations. I hereby direct the Acquirer to make public announcement as required under Chapter 111 of the said Regulations in terms of regulations 10 and 12 taking 21.11.97 as the reference date for calculation of offer price. The public announcement shall be made within 45 days of passing of this order. 13.2 Further, in terms of sub regulation (12) of regulation 22, the payment of consideration to the shareholders of the Target company has to be made within 30 days of the closure of the offer. The maximum time period provided in the said Regulations for completing the offer formalities in respect of an open offer is 120 days from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accepted upon public announcement of offer and who have suffered loss owing to blockage of amount by not being able to sell the shares held by them. The object of the said provision is to protect the interest of such shareholders who had suffered a loss for delay in making the public announcement and, thus may have to be compensated. The very fact that the bench mark as regard the rate of interest has been fixed is also a pointer to the fact that the interest is to be paid to such investors who had suffered some loss." 8.2 It is further observed by the Hon'ble Supreme Court that the shareholders who, by reason of default on the part of the acquirer have been deprived of interest payable on the difference of the offer price and market price would be entitled to interest and the said interest is not penal in nature. Accordingly, the amount of dividend received by the shareholder during the period from 1998 till the payment is made by the acquirer was directed to be set off/adjusted towards the interest payable to them. Though the interest payable to the shareholder was not statutory right or a right arising from contract but the nature of payment of interest is to compensate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereinabove, we have to go by the provisions of the 1894 Act which awards " interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. So also additional amount under section 23(1A) and solatium under section 23(2) of the 1894 Act forms part of enhanced compensation under section 45(5)(b) of the 1961 Act." 8.5 The Hon'ble Supreme Court has made a fine distinction between the additional amount payable u/s 23, award of interest u/s 28 and interest payable u/s 34 of the Land Acquisition Act. It was held that the additional amount u/s 23 (1A) and solatium u/s 23(2) of Land Acquisition Act forms part of enhanced compensation u/s 45(5)(b) of I T Act 1961. Thus, when the amount is paid as a compensation for enhancement in the value of the asset transferred, the same will be part of full consideration; but when the interest is paid as compensation to loss of interest, then it cannot be treated part of sale consideration. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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