ACIT, New Delhi V. Shri Raj Kumar Aggarwal, New Delhi

ITA 2020/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58897 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 07-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI SHAMIM YAHYA ITA NO. 2020/DEL/2009 ASSESSMENT YEAR: 2006-07 ASSISTANT CIT, VS. SHRI RAJ KUMAR AGGARWAL, CIRCLE 37(1), U-6, GREEN PARK EXTENSION, NEW DELHI. NEW DELHI. (PAN: AACPA6397C) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP KU MAR, CIT (DR) RESPONDENT BY: SHRI K. SAMPATH, ADV. DATE OF HEARING : 07.03.2012 DATE OF PRONOUNCEMENT : 15.03.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 27.02.2009 PASSED FOR ASSESSMENT YEAR 2006-07. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED C IT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.41,73,321. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL. HE HAS FILED HIS RETURN OF INCOME ON 18.12.2006 DECLARING AN INCOME OF RS.155,27,356. THE CASE OF THE ASSESSEE WAS SELECTE D FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SECTION 143(2) OF THE INCOME-TAX ACT, 1961 WAS ISSUED AND SERVED UPON THE ASSESSEE. IN RESPONSE TO THE NO TICE, SHRI MYANK GOEL, 2 FCA APPEARED BEFORE THE ASSESSING OFFICER AND FURNI SHED THE REQUISITE DETAILS FROM TIME TO TIME. ASSESSING OFFICER HAS OB SERVED THAT ACCORDING TO AIR INFORMATION, ASSESSEE HAS RECEIVED A SUM OF RS. 41,73,321 ON ACCOUNT OF INTEREST OTHER THAN SECURITIES FROM SWEDISH MATCH S INGAPORE PTE LIMITED. HE ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE INVITING HIS EXPLANATION AS TO WHY THE ALLEGED INTEREST INCOME BE NOT ASSESSED AS INCO ME OF THE ASSESSEE. IN RESPONSE TO THE QUERY OF THE ASSESSING OFFICER, IT WAS CONTENDED BY THE ASSESSEE THAT M/S. SWEDISH MATCH SINGAPORE PTE LTD. WAS IN THE PROCESS OF ACQUIRING FULLY PAID UP EQUITY SHARES REPRESENTING UP TO 26% OF THE ISSUED AND PAID UP EQUITY SHARES CAPITAL OF M/S. WIMCO LTD . M/S. SWEDISH MATCH SINGAPORE PTE LTD. HAD COME UP WITH AN OPEN OFFER F OR ACQUISITION OF SHARES OF WIMCO FROM THE GENERAL PUBLIC IN PURSUANCE OF IN STRUCTION OF SEBI, IT GAVE AN OPEN OFFER WITH A PRICE OF RS.59.54 PER SHA RES. THE ASSESSEE HAD PURCHASED 1,70,362 SHARES OF WIMCO ON 8 TH AND 9 TH SEPTEMBER 2005 @ 58.93 PER SHARE. THE ASSESSEE HAD SOLD ALL THESE SH ARES TO M/S. SWEDISH MATCH SINGAPORE PTE LTD. AFTER 20 DAYS I.E. ON 29 TH SEPTEMBER, 2005 @ RS.59.54 PER SHARE. HE HAS EARNED SHORT TERM CAPITA L GAIN BECAUSE SHARES WERE SOLD WITHIN 20 DAYS. ASSESSING OFFICER HAS OBS ERVED THAT M/S. SWEDISH MATCH SINGAPORE PTE HAD PURCHASED, THE SHARES AT RS .59.54 WHICH INCLUDE RS.35 PER SHARE AS COST AND INTEREST OF RS.24.54 PE R SHARES FOR THE PERIOD 3 27.1.2001 TILL SEPTEMBER 27, 2005. ON THE BASIS OF THIS ARRANGEMENT, ASSESSING OFFICER CONSTRUED THAT ASSESSEE HAD RECEI VED INTEREST OF RS.24.54 PER SHARE. HE ACCORDINGLY CALCULATED THE SHORT TERM CAPITAL LOSS ACCRUED TO THE ASSESSEE ON SALE OF SHARES, ADJUSTED THAT SHORT TERM CAPITAL LOSS AGAINST THE CAPITAL GAIN AND THEREAFTER ASSESSED THE INTERE ST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THIS WAY, AN ADDITI ON OF RS.41,73,321 WAS MADE. 3. ON APPEAL, LEARNED FIRST APPELLATE AUTHORITY HAS DELETED THE ADDITION BY OBSERVING AS UNDER: 3. I HAVE CONSIDERED FACTS OF THE CASE. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE SHARES OF M/S. WIMCO LTD. PURC HASED BY THE APPELLANT HAD INTEREST COMPONENT BUILT INTO IT AND, THEREFORE, THE ASSESSING OFFICER HAS EXCLUDED THE INTEREST COMPONE NT AND TREATED THE SAME AS INCOME FROM OTHER SOURCES. THIS ACTION OF T HE ASSESSING OFFICER HAS RESULTED IN SHORT TERM CAPITAL LOSS, WH ICH HAS BEEN SET OFF AGAINST THE CAPITAL GAINS DURING THE YEAR. THUS, ON ONE HAND THE TOTAL INCOME HAD BEEN WAS REDUCED AND, ON THE OTHER HAND, THE TAXABLE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES H AS BEEN INCREASED. 4 3.1 IT IS, NOTED FROM THE LETTER OF OFFER ISSUED BY SWEDISH MATCH, SINGAPORE P.T.E. LTD. (ACQUIRER) THAT THIS COMPANY WAS IN THE PROCESS OF ACQUIRING FULLY PAID-UP EQUITY SHARES REPRESENTI NG UP TO 26% OF THE ISSUED AND PAID-UP EQUITY SHARE CAPITAL OF M/S. WIM CO LTD. (TARGET COMPANY) AT RS.59.54 PER SHARE, COMPRISING OF RS.35 PER SHARE (OFFER PRICE) AND ACCRUED INTEREST THEREON OF RS.24.54 PER SHARE CALCULATED @ 15% PER SHARE FROM JANUARY 27, 2001 TILL SEPTEMBER 29,2005. THE APPELLANT HAD PURCHASED SHARES OF M/S. WIMCO LTD. T HROUGH NAVRATAN CAPITAL & SECURITIES P. LTD., A MEMBER OF NATIONAL STOCK EXCHANGES, AT AN AVERAGE RATE OF RS.58.93 PER SHARE ON 8 TH AND 9 TH SEPTEMBER, 2005. THESE SHARES WERE SOLD @ 59.54 PER SHARE. THUS, THE AVERAGE COST OF ACQUISITION OF THE SHARES IN TH E HANDS OF THE ASSESSEE WAS RS.59.93 PER SHARE. THERE MAY BE DIFFE RENT COMPONENTS OF THIS AMOUNT, BUT THE FACT REMAINS THAT THE COST OF ACQUISITION OF THESE SHARES QUA THE APPELLANT WOULD BE THE AMOUNT HE HAS PAID TO ACQUIRE THESE SHARES. THE COST OF ACQUISITION CANNO T BE BIFURCATED INTO DIFFERENT COMPONENTS IN THE HANDS OF THE ACQUIRER. THE AMOUNT HAS BEEN PAID BY THE ASSESSEE FOR ACQUIRING THE ASSET I .E. SHARES OF M/S. WIMCO LTD. THE WHOLE AMOUNT WOULD, THEREFORE, BE CO ST OF ACQUISITION IN HIS HANDS. THE FULL VALUE OF CONSID ERATION RECEIVED BY THE ASSESSEE ON SALE OF THE SHARES CANNOT BE SPLIT AND TAXED UNDER THE HEAD CAPITAL ASSETS AND PARTLY UNDER INCOME FROM OTHER SOURCES. THE ACTION OF THE ASSESSING OFFICER IN TAXING THE G ROSS AMOUNT OF INTEREST COMPONENT AMOUNTING TO RS.41,73,321 AS INC OME FROM OTHER SOURCES IS NOT CORRECT EVEN FROM ANOTHER ANGLE. IF THIS AMOUNT IS TREATED AS INTEREST INCOME, THE AMOUNT PAID BY THE APPELLANT AS INTEREST COMPONENT FOR ACQUIRING THESE SHARES HAS ALSO TO BE DEDUCTED. THIS, AS 5 EXPLAINED ABOVE, WOULD ULTIMATELY RESULT IN THE SAM E AMOUNT OF INCOME I.E. RS.1,03,220 AS INCLUDED IN THE CAPITAL GAIN SHOWN BY THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT A SIMILAR ISSUE WAS CONSIDERED BY THE AUTHORITY FOR A DVANCE RULING IN THE CASE OF BURMAH CASTROL PLC. REPORTED IN 175 TAXMAN 353 (AAR, NEW DELHI). HE POINTED OUT THAT THIS DECISION HAS A PER CUSSIVE VALUE UPON THE ITAT. IN THIS CASE, THE ISSUE CONSIDERED BY THE LEA RNED AUTHORITY IS WHETHER ON THE SAID FACTS AND IN LAW, WHILE CALCULATING THE AMOUNT OF LONG TERM CAPITAL GAIN CHARGEABLE TO TAX INTEREST PAID BY THE APPLICANT TO THE SHAREHOLDER OF FOSECO INDIA LTD. AS PER THE DIRECTI VE OF THE SEBI DESERVES TO BE TREATED AS A PART OF THE COST OF ACQUISITION OF SHARES. LEARNED AUTHORITY HAD HELD THAT IT IS INSEPARABLE PART OF THE COST. T HE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS THE CONCLUSION DRAWN IN PARAGRAPH 8 OF THIS ORDER WHICH READS AS UNDER: 8. IT DOES NOT REQUIRE MUCH OF ARGUMENT TO DEMONST RATE THAT INTEREST PAID TO THE SHAREHOLDERS PURSUANT TO THE O RDER OF A STATUTORY BODY LEGITIMATELY ENTERS INTO THE COST OF ACQUISITI ON OF SHARES IN ADDITION TO THE PAYMENT OF PRICE. INTEREST WAS PAID TO THE SHAREHOLDERS OF FIL IN ORDER TO COMPENSATE FOR THE DELAY. BUT FO R THE PAYMENT BY WAY OF INTEREST, IT WOULD NOT HAVE BEEN POSSIBLE TO ACQUIRE THE SHARES. 6 THE PAYMENT OF INTEREST IN ADDITION TO THE PRICE IS NOTHING BUT AN INTEGRAL PROCESS OF ACQUISITION OF SHARES. EITHER I N PLAIN SENSE OR COMMERCIAL SENSE, IT BECOMES AN INSEPARABLE PART OF COST OF ACQUISITION. BY NO PROCESS OF REASONING, THE INTERE ST AMOUNT PAID TO THE SHAREHOLDERS PRIOR TO ACQUISITION CAN BE DISSOC IATED FROM THE COST OF ACQUISITION OF SHARES. 5. ON THE STRENGTH OF THIS ORDER, COUPLED WITH THE FINDINGS OF THE LEARNED CIT(APPEALS), LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT FOR AN INVESTMENT OF 20 DAYS BY NO STRETCH OF IMAGINATION, ASSESSEE CAN EARN THIS MUCH INTEREST INCOME. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. ON AN ANALYSIS OF THE FACTS, WE FIND THAT THE COST WHICH WAS PAID BY THE ASSESSEE FOR ACQUIRING THE SHARE IS RS. 58.93 PER SHARE. THE ALLEGED INTEREST COMPONENT CALCULATED BY THE ASSESS ING OFFICER WAS EMBEDDED IN THE COST OF ACQUISITION OF THE SHARES. THE SWEDISH MATCH SINGAPORE PTE HAD PAID THE INTEREST COMPONENTS BY C ONSIDERING THE PERIOD OF JANUARY 27, 2001 TILL SEPTEMBER 29, 2005 WHEREAS AS SESSEE HAD PURCHASED THE SHARES ON 8 TH AND 9 TH OF SEPTEMBER AND HE SOLD THEM ON 29 TH SEPTEMBER 2005. LEARNED FIRST APPELLATE AUTHORITY HAS CONSIDE RED ALL THESE ASPECTS 7 ELABORATELY. THE INTEREST INCOME CANNOT BE ASSESSED SEPARATELY IN THE HANDS OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, T HIS APPEAL OF THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 15.03.201 2 SD/- SD/- ( SHAMIM YAHYA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/03/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR