MORGAN STANLEY MAURITIUS COMPANY LTD, MUMBAI V. DDIT (IT) 4(1), MUMBAI

ITA 1625/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4149 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 27-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDEAR JASBIR CHAUHAN
• Keywords: Double taxation relief; Permanent establishment; Difference of opinion; Change of opinion
• Section: 143(3); 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.1625/MUM/2014, /ASSESSMENT YEAR-2007-08 MORGAN STANLEY MAURITIUS COMPANY LTD., C/O., M/S. SRBC & ASSOCIATES LLP, CHARTERED ACCOUNTANTS, 14 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT MARG, DADAR (WEST),MUMBAI-28. PAN:AADCM 5927 G VS. DCIT (INTL. TAXATION)-4(1) SCINDIA HOUSE, BALLARD ESTATE N.M. MARG, MUMBAI-400 038. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI ARVIND SONDE-AR / REVENUE BY : JASBIR CHAUHAN-CIT-DR / DATE OF HEARING : 27.01.2016 / DATE OF PRONOUNCEMENT : 29.01.2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) 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 REGI STERED WITH SEBI AS A SUB-ACCOUNT OF MORGAN STANLEY AND COMPANY INTERNATIONAL LTD.(MSCI L).IT FILED ITS RETURN ON 17.10.2007 DECLAR -ING TOTAL INCOME OF RS.5.24 LAKHS . THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT ON 30. 11.2009, U/S. 143(3) OF THE ACT, ACCEPTING THE INCO ME OF THE ASSESSEE. ON 30.3.2012 A NOTICE U/S. 148 WAS ISSUED BY THE AO TO INITIATE RE- ASSESSMENT PROCEEDINGS. IN RESPONSE TO THE NOTICE, THE ASSESSEE INFORMED THAT THE RETURN FILED ON 17.12.20 07 COULD BE TREATED AS RETURN FILED IN COMPLIANCE TO THE NOTICE ISSUED BY HIM.DURING THE R E-ASSESSMENT PROCEEDINGS,THE ASSESSEE RAISED OBJECTIONS ABOUT RE-OPENING OF THE ASSESSMENT AS WE LL AS ON MERITS.THE AO COMPLETED THE ASSESSMENT U/S. 144C(1) R.W.S. 143(3) AND 147 OF TH E ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.2,26,02,228/-. FACTS OF THE CASE: 2. ON PERUSAL OF THE RECORD,AFTER COMPLETING THE ORIGI NAL ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD TENDERED RS.13,79,979/- SHARE S 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 RS.2.20 CRORES FROM ORACLE FOR DELAY IN MAKING P AYMENT OF SALES CONSIDERATION.HE HELD THAT THE ADDITIONAL CONSIDERATION WAS NOT LINKED TO ORIG INAL CONSIDERATION AND HENCE IT WAS TO BE TREATED SEPARATELY,THAT AMOUNT RECEIVED BY THE ASSE SSEE WAS PENAL IN NATURE,THAT WHILE MAKING THE PAYMENT OF ADDITIONAL CONSIDERATION THE DEDUCTO R I.E., ORACLE HAD DEDUCTED TDS,THAT THE ITA/1625/M/14,AY.07-08-MORGAN STANLEY 2 DEDUCTION OF TAX PROVED THAT IT WAS NOT PART OF SAL ES CONSIDERATION,THAT THE PENAL INTEREST HAD TO BE TAXED @41.82 %. 3. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) ARGUED THAT THE ADDITIONAL CONSIDERATION WAS NOT RECEIVED IN RESPECT OF ANY MONIES BORROWED OR THAT INCURRED OR FOR USE OF MONEY BY ORACLE, THAT THE ADDITIONAL CONSIDERATION WAS ALSO NOT A SERVICE FEE/CHARGE IN RESPECT OF MONEY BORROWED/ CREDIT FACILITY WHICH WAS NOT UTILIZED BY ORACLE,TH AT THE AMOUNT IN QUESTION WOULD NOT FALL WITHIN THE DEFINITION OF INTEREST AS PER SECTION 2(28A) O F THE ACT, THAT FOR A RECEIPT TO BE TAXED AS INTERE ST EXISTENCE OF A DEBTOR/CREDITOR RELATIONSHIP WAS A M UST AS PER ARTICLE-11 OF THE DTAA,THAT THERE WAS NO DEBTOR/CREDITOR RELATIONSHIP BETWEEN THE ASS ESSEE AND ORACLE,THAT THE ASSESSEE HAD NOT MADE AVAILABLE ANY CAPITAL/FUNDS TO ORACLE,THAT THE MONEY RECEIVED BY IT CONSTITUTED AN INTEGRAL PART OF THE SALES RECEIPTS OF THE SHARES,THAT THE C ONSIDERATION AND SALE PRICE AROSE FROM 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 SPECI FIC ARTICLES OF THE TREATY, THAT IT WOULD FALL UNDER THE HEAD INCOME FROM OTHER SOURCES UNDER AR TICLE-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.H E FURTHER MADE ONE MORE ALTERNATIVE ARGUMENT WITH REGARD TO RATE OF TAX TO BE LEVIED.HE CONTENDE D THAT AO HAD ERRED IN NOT TAXING THE ADDITIONAL CONSIDERATION IN ACCORDANCE WITH THE PRO VISIONS OF SECTION 115AD OF THE ACT, THAT HE SHOULD HAVE APPLIED THE RATE OF 20.91% AS AGAINST T HE 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 COMPENSATIO N @ RS.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 CASE OF GENESIS INDIAN INVESTMENT COMPANY LTD.(ITA/2878/MUM/2006).HE REFER RED TO THE CASES OF SAINIRAM DOOMGARMAL(42 ITR392) ; SAHANI 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 INFO RMATION WAS AVAILABLE ON THE RECORD.HE RELIED UPON THE CASES OF KELVINATOR OF INDIA LTD.(320ITR56 1) AND COCA COLA EXPORT CORPORATION(231 ITR 200). THE DEPARTMENT REPRESENTATIVE (DR) CONTENDED THAT A DDITIONAL CONSIDERATION WAS RECEIVED FOR DELAY IN MAKING THE PAYMENT OF SALES CONSIDERATION, THAT IT COULD NOT BE TAKEN AS PART OF TOTAL SALE VALUE, THAT ORACLE HAD DEDUCTED TDS WHILE MAKING PA YMENT TO THE ASSESSEE, THAT DEDUCTION OF TAX AT SOURCE INDICATED THAT THE AMOUNT WAS NOT PAR T OF SALE CONSIDERATION BUT REPRESENTED THE INTEREST PORTION FOR DELAYED PAYMENTS, THAT SAME HA D TO BE TREATED AS INCOME FROM OTHER SOURCES, THAT THE LETTER OF OFFER MADE BY ORACLE TALKED ABOU T INTEREST PAYMENT OF RS.11.35 PER SHARE, THAT THE ASSESSEE HAD ACCEPTED THE OPEN OFFER, THAT THER E WAS DEBITOR/CREDITOR RELATIONSHIP BETWEEN THE ASSESSEE AND ORACLE,THAT THE BUYER OF THE SHARE SHO ULD 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 U NDER THE HEAD OTHER INCOME, THAT THE ADDITIONAL CONSIDERATION WAS INTEREST FOR LATE PAYM ENT OF THE SALE PROCEEDS, THAT THE INTEREST ITA/1625/M/14,AY.07-08-MORGAN STANLEY 3 INCOME TAXABLE IN THE HANDS OF THE ASSESSEE COULD N OT BE TREATED AS INCOME FROM SECURITIES,THAT THE PROVISIONS OF SECTION 115AD WERE NOT APPLICABLE IN THE CASE UNDER CONSIDERATION. HE FURTHER ARGUED THAT THE AO HAD RIGHTLY RE-OPENED THE MATTER AS PER THE PROVISIONS OF SECTION 147 OF THE ACT,THAT WHILE FRAMING THE ORIGINAL ASSE SSMENT HE HAD NOT FORMED ANY OPINION,THAT THERE WAS NO QUESTION OF CHANGE IN OPINION IN THE C ASE 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 SHARE HOLDERS OF I-FLEX AT THE PRICE OF RS.1,475/- PER SHARE, THAT THE OPEN OFFER INDICATED THAT ADDITIONAL OFFER OF RS11.35 PER SHARE WAS TO BE PAYABLE TO THE SHARE HOLDERS,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 DISP ATCH THE LETTER OF THE OFFER BASED ON THE TIME LINE PRESCRIBED BY SEBI,THAT LATER ON THE CONSIDERA TION OF OPEN OFFER WAS REVISED TO RS.2,084/- PER SHARE,THAT THE ADDITIONAL CONSIDERATION FOR DEL AY WAS REVISED TO RS.16/- PER SHARE,THAT THE OPEN OFFER LETTER AND PUBLIC ANNOUNCEMENT INDICATED THAT A REVISED OFFER OF RS.2,100/- PER SHARE (INCLUDING ADDITIONAL CONSIDERATION OF RS.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 RECE IVED RS.2,89,77,45,900/-, THAT THE SAID SUM INCLUDED ADDITIONAL CONSIDERATION OF RS.2.20 CRORES . IN OUR OPINION,THEBASIC ISSUE TO BE DECIDED IS TO D ETERMINE AS TO WHETHER THE AMOUNT OF RS.2.20 CRORES RECEIVED BY THE ASSESSEE AS ADDITIONAL CONSI DERATION IS TAXABLE OR NOT ?WHILE GOING THROUGH THE PAGE NOS. 117 AND 119 OF THE PAPER BOOK,WE FIND THA T THE OFFER LETTER CONTAINS TWO SCHEDULES ORIGINAL AND REVISED, THAT THE REVISED SC HEDULE CONTAINS THE DETAILS OF ADDITIONAL CONSIDERATION TO BE PAID BY ORACLE.IN OUR OPINION, IT CANNOT BE TREATED AS PENAL INTEREST OR INTEREST FOR LATE PAYMENT OF CONSIDERATION BY ORAC LE.WE FIND THAT INITIALLY THE ADDITIONAL CONSIDERATION WAS FIXED AT RS.11.35 PER SHARE,BUT,B ECAUSE OF THE DELAY IN MAKING THE OPEN OFFER AND DISPATCH THE LETTER OF THE OFFER,SAME WAS LATER ENHANCED TO RS.16.00 PER SHARE.THUS,THERE WAS INCREASE IN THE OFFER PRICE OF THE SHARES.IT IS A F ACT 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 P RICE.CONSIDERING ALL THESE FACTORS,WE ARE OF THE OPINION THAT ADDITIONAL CONSIDERATION RECEIVED BY T HE ASSESSEE IS PART AND PARCEL OF THE TOTAL CONSIDERATION. IT CANNOT BE SEGREGATED UNDER THE HE ADS ORIGINAL SALE CONSIDERATION AND PENAL INTEREST RECEIVED FROM ORACLE.THE BUSINESS WORLD I S GOVERNED BY ITS OWN RULES AND CONVENTIONS.IF CONSIDERING THE TIME FACTOR ORACLE D ECIDED TO INCREASE THE SHARE PRICE IN THE OFFER LETTER IT HAS TO BE TAKEN AS A PART OF ORIGINAL TRA NSACTION.IT IS NOTEWORTHY THAT IN THE ORIGINAL OFFE R INTEREST @ RS.11.35 PER SHARE WAS OFFERED BY ORACLE .AFTER CONSIDERING THE DELAY IN DISPATCH LETTER AND OTHER RELEVANT FACTORS IF IT DECIDED TO INCREAS E THE INTEREST @ OF 16 PER SHARE IT WAS A BUSINESS DECISION.THE ASSESSE HAD NO CONTROL OVER THE DECISI ON MAKING PROCESS OF ORACLE.IF WE SEE THE TRANSACTION FROM THE DEBTOR/CREDITOR ANGLE IT IS CL EAR 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 NEGOTIATIONS WITH ORACLE AND TRANSFERRED THE SHARES AS PER A SCHEME THAT WAS APPROVED BY SEBI.THE ASSESSE HAD NOT ADVANCED A NY SUM TO ORACLE AND HAD NOT RECEIVED ANY INTEREST FROM IT FOR DELAYED REPAYMENT OF PRINC IPAL AMOUNT.IN SHORT,THE ADDITIONAL ITA/1625/M/14,AY.07-08-MORGAN STANLEY 4 CONSIDERATION RECEIVED BY THE ASSESSE FROM ORACLE W AS NOT PENAL INTEREST AND WAS PART OF THE ORIGINAL CONSIDERATION.HENCE,SAME IS NOT TAXABLE.GR OUND NO. IS DECIDED IN FAVOUR OF THE ASSESSE. WE FIND THAT IN THE CASE OF GENESIS INDIAN INVESTM ENT 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 RS. 7,07,76,547/- RECEIVED BY THE ASSESSEE AS PER THE ORDER OF SEBI BEING 15% INTERE ST FOR DELAY IN PAYMENT OF PROCEEDS OF SHARES TENDERED UNDER THE OPEN OFFER OF CASTROL UK. THE AS SESSEE IS A COMPANY INCORPORATED IN MAURITIUS AND HAS OBTAINED REGISTRATION WITH THE SE CURITIES & EXCHANGE BOARD OF INDIA (SEBI) AS A SUB-ACCOUNT OF GENESIS ASSET MANAGERS LTD., REGIS TERED FOREIGN INSTITUTIONAL INVESTOR (FII). THE ASSESSEE WAS HOLDING THE SHARES OF CASTROL INDIA LT D. 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 ANNOUNC ED FOR ACQUISITION OF 20% OF THE ISSUE CAPITAL OF CASTROL INDIA LTD. ON 10.7.2000 B.P. PLC APPROAC HED THE SEBI SEEKING EXEMPTION FROM THE REQUIREMENT OF MAKING A PUBLIC OFFER FOR ACQUISITIO N 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 WH ICH WAS NOT ACCEPTABLE TO THE HOLDING COMPANY. ACCORDINGLY, THE REQUEST FOR EXEMPTION WAS WITHDRAWN ON 6.12.2000 AND THE HOLDING COMPANY PROCEEDED TO TAKE STEPS TO MAKE PUBLIC OFFE R TO THE SHAREHOLDERS OF CASTROL INDIA LTD. ON 11.12.2000 CASTROL UK MADE OPEN OFFER FOR ACQUIS ITION OF 20% OF THE ISSUED CAPITAL OF CASTROL INDIA LTD. WITH SEBI INDICATING THE OFFER PRICE OF RS. 311.91 PER EQUITY SHARE BASED ON THE MARKET PRICE AS ON 7.7.2000. THEREAFTER ON 16.2.2001 THE S EBI INTER ALIA DIRECTED THE CASTROL UK TO REVISE THE MINIMUM OFFER PRICE TAKING 14.3.2000 AS THE RELEVANT DATE AND THE PRICE AS ON THAT DATE IS RS. 350.02. THE HOLDING COMPANY CHALLENGED THE O RDER 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 HOLDIN G COMPANY FILED AN APPEAL BEFORE THE HON'BLE JURISDICTION HIGH COURT. IN THE MEAN TIME, 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 FROM 14.3.2000 TILL THE ACTUAL DATE OF PAYMENT OF CONSID ERATION. THE HON'BLE HIGH COURT UPHELD THE SEBI DIRECTIONS TO REVISE THE OFFER PRICE BASED ON THE PRICE ON 14.3.2000 @ RS. 350.02 PER EQUITY SHARE VIDE ITS DECISION DATED 8.8.2001. THE HOLDING COMPANY ALSO CHALLENGED THE DIRECTION OF THE SEBI TO PAY INTEREST @ 15% BEFORE THE SECURITIES AP PELLATE TRIBUNAL BUT COULD NOT SUCCEED. THE TRIBUNAL HELD THAT CASTROL UK IS LIABLE TO PAY INTE REST TO THE SUCCESSFUL OFFER AT 15% PER ANNUM ON OPEN OFFER PRICE HOWEVER FROM 8.8.2000 TILL THE ACT UAL 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 TRIBUNA L 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 SHA REHOLDERS OF CASTROL INDIA LTD. ON 21.9. 2001. THE ASSESSEE TENDERED 2053552 EQUITY SHARES ON 17.1 0.2001 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 RS. 7,07,76, 547/- AND NET AMOUNT AFTER DEDUCTION OF TDS AT RS. 4,10,50,397/- ON ACCOUNT OF INTEREST @ 15% P ER ANNUM. THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT TREATED THE SAID AMOUNT OF RS . 7,07,76,547/- AS INTEREST INCOME AND TAXED THE SAME @ 48%. THE ASSESSEE CHALLENGED THE ORDER O F THE ASSESSING OFFICER BEFORE THE CIT(A) INTER ALIA CONTENDED THAT THE ADDITIONAL CONSIDERAT ION RECEIVED FROM CASTROL UK IS EXEMPTED UNDER ITA/1625/M/14,AY.07-08-MORGAN STANLEY 5 THE PROVISIONS OF ARTICLE 13(4) OF INDO MAURITIUS T REATY 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 T HE 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 AO. TRIBUNAL DECIDED THE MATTER IN FOLLOWING MANNER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ORDER OF SEBI FOR PAYMENT OF INTEREST AND PARTICULARLY THE R ATE OF INTEREST WAS CHALLENGED BY THE HOLDING COMPANY BEFORE THE SAT AS WELL AS HON'BLE HIGH COUR T. IT IS CLEAR THAT THE PAYMENT OF INTEREST WAS DIRECTED BY THE SEBI UNDER REGULATIONS 22 AND T HEREFORE IT WAS HELD THAT THIS IS NOT A PENALTY BUT THE PAYMENT OF INTEREST ON ACCOUNT OF FAILURE T O 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 PREVAILI NG ON STOCK EXCHANGE. THE CONSIDERATION FOR ACQUIRING THE SHARES UNDER OPEN OFFER WAS DETERMINE D AT RS. 350.02 WHICH WAS THE MARKET PRICE AS ON 14.3.2000 WHEN THE HOLDING COMPANY MADE A PUB LIC ANNOUNCEMENT OF ACQUISITION. HOWEVER, THE CASE IN HAND THE INTEREST RECEIVED BY THE ASSESSEE IS FOR THE PERIOD PRIOR TO THE TENDERING OF SHARES AND ACCEPTANCE OF THE SAME THER EFORE, THE INTEREST RELATES TO THE DELAY IN COMPLETING THE PROCESS OF BUY BACK OF SHARES UNDER OPEN OFFER. THERE IS A DIFFERENCE BETWEEN THE INTEREST WHICH CAN BE TREATED AT PAR OF CONSIDERATI ON 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 SHARE S. IT IS NOT A CASE OF DELAY IN MAKING THE PAYMENT OF THE DETERMINED CONSIDERATION AFTER THE T RANSACTION OF PURCHASE OF SALE IS OVER. THEREFORE, IN OUR CONSIDERED VIEW THIS AMOUNT OF IN TEREST WHICH RELATES TO THE PERIOD PRIOR TO TENDERING AND ACCEPTANCE OF THE SHARES FALLS WITHIN THE AMBIT OF CONSIDERATION RECEIVED BY THE ASSESSEE AGAINST THE SHARES TENDERED IN THE OPEN OF FER. IN THE CASE OF CIT VS GOVINDA CHOUDHURY AND SONS (SUPRA) THE HON'BLE SUPREME COURT HAS DECI DED THE NATURE OF INCOME RECEIVED AS INTEREST AS UNDER: 'THIS BRINGS US TO A CONSIDERATION OF THE SECOND QU ESTION. THE SUM OF RS. 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 EXE CUTED BY THE ASSESSEE AND IN REGARD TO THE PAYMENTS UNDER WHICH THERE WAS A DISPUTE BETWEE N 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 ST ATE GOVERNMENT AND HE HAS ALSO TO RECKON WITH DELAYS IN PAYMENT OF AMOUNTS THAT ARE D UE 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 THI ASSESSEE'S RECEIPTS FROM THE CONTR ACTS. IT IS OBVIOUSLY ATTRIBUTABLE AND INCIDENTAL TO THE BUSINESS CARRIED ON BY HIM. IT WO ULD 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 A SSESSED 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 TH E BUSINESS WHICH IS CARRIED ON BY HIM. IN OUR VIEW, THE INTEREST PAYABLE TO HIM CERTAINLY PARTAKES OF THE SAME CHARACTER AS THE RECEIPTS FOR THE PAYMENT OF WHICH HE WAS OTHERWISE ENTITLED UNDER THE CONTRACT AND WHICH ITA/1625/M/14,AY.07-08-MORGAN STANLEY 6 PAYMENT HAS BEEN DELAYED AS A RESULT OF CERTAIN DIS PUTES BETWEEN THE PARTIES. IT CANNOT BE SEPARATED FROM THE OTHER AMOUNTS GRANTED TO THE ASS ESSEE UNDER THE AWARDS AND TREATED AS 'INCOME FROM OTHER SOURCES'. THE SECOND QUESTION I S, THEREFORE, ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 7. IN THE CASE IN HAND THE INTEREST IS RECEIVED IN PURSUANCE TO THE DIRECTIONS OF THE SEBI AND DUE TO DELAY IN COMPLETION OF THE PROCESS OF BUY BACK O F SHARES AS PRESCRIBED UNDER THE SEBI REGULATIONS. THE REAL ACQUISITION OF SHARES TOOK PL ACE ONLY IN THE MONTH OF NOVEMBER 2001 AND PRIOR TO THE SAID DATE IT CANNOT BE SAID THAT THE I NTEREST WAS PAID DUE TO DELAY IN THE PAYMENT OF CONSIDERATION. THEREFORE, WE HELD THAT THE ADDITION AL AMOUNT RECEIVED BY THE ASSESSEE BEING 15% INTEREST FROM 8.8.2000 TO 22.11.2001 IS PART OF SAL E CONSIDERATION AND ACCORDINGLY WILL BE TREATED AS PART OF CAPITAL GAIN AND NOT THE INCOME FROM INT EREST. SINCE,WE HAVE DECIDED THE GROUND NO.2.1 IN FAVOUR O F THE ASSESSE,SO,WE ARE NOT DEALING WITH ALTERNATIVE GROUNDS RAISED BY IT (GROUND NO.2.2 AND 2.3)AND GROUND NO.3.SIMILARLY,THE TECHNICAL- ISSUE OF REOPENING IS NOT BEING ADJUDICATED,AS MATT ER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSE ON MERITS.GROUND NO.4 AND 5 ARE CONSEQUENTIAL IN NATUR E.SO,WE ALLOW THEM FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE ASSESSE STANDS ALLO WED. . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2016. 29 TH , 2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 29.01. 2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.