DAI ICHI KARKARIA LTD, MUMBAI V. ADDL CIT CIR 1(1), MUMBAI

ITA 5584/MUM/2010

• Counselvise Citation: 558419914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D P BAPAT
• Keywords: Advance ruling; Cost of acquisition
• Section: 45(5); 56

Judgement Text

1 DAI ICHI KARKARIA LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI D DD D BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R K PANDA R K PANDA R K PANDA R K PANDA , ,, , AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 5584/MUM/2010 5584/MUM/2010 5584/MUM/2010 5584/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2006 2006 2006 2006- -- -07 0707 07) )) ) DAI ICHI KARKARIA LTD 3 RD FLOOR LIBERTY HOUSE SIR V T MARG, MUMBAI VS THE ASST COMMR OF INCOME TAX CIR 1(1), MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACD0548F AAACD0548F AAACD0548F AAACD0548F ASSESSEE BY SH D P BAPAT REVENUE BY SH O A MAO DT.OF HEARING 22 ND NOV 2011 DT OF PRONOUNCEMENT 28 TH DEC 2011 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM 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 AP PEAL 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 `. 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 CAPI TAL GAINS AT `. 2,16,52,094/- AS AGAINST ` 3,16,12,208 AS CLAIME D BY THE APPELLANT. 2.1 THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROU ND VIDE LETTER DT 15.11.2011 AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CONTENDED THAT THE AMOUNT OF INTEREST OF 1 1,00,57,681/- ASSESSED BY T HE ASSESSING OFFICER IS NOT CHARGEABLE TO TAX UNDER ANY PROVISIO N OF THE I T ACT. 2 DAI ICHI KARKARIA LTD 3 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF ` 3,16 ,12,208/- ON BUY BACK OF SHARES OF COLOUR CHEM LTD. THE ASSESSEE HAS SOLD 71 ,233 SHARES @ `. 318 SHARES AND HAS ALSO RECEIVED INTEREST @ `. 149.62 ON THESE SHARES. IT WAS NOTICED THAT THE ASSESSEE HAD CONSIDERED INTEREST AS A PART OF S ALE CONSIDERATION AND WORKED OUT LONG TERM CAPITAL GAIN AS UNDER: TOTAL CONSIDERATION RECEIVED: ` 3,33 ,09,975/- LESS COST OF ACQUISITION ` 16,97,767/- LONG TERM CAPITAL GAIN ` 3, 16,12,208/- TAXABLE AT 11.22% TAX ` 35,46,890/- 3.1 THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXP LAIN AS TO WHY THE INTEREST OF ` 1,06,57881 RECEIVED ON THE INVESTMENT SHOULD B E TREATED AS INCOME FROM OTHER SOURCES AND TAXED AS SUCH. THE ASSESSEE VIDE ITS LETTER DATED 31.10.2008 HAS SUBMITTED THAT THE SAID INTEREST WAS PAID PURSU ANT TO THE ORDER OF THE SUPREME COURT TO ELIGIBLE SHAREHOLDERS. FURTHER COL OUR CHEM LTD HAS NOT DEDUCTED TAX WHILE MAKING PAYMENT OF THE SAME UNDER SECTION 194A OF THE ACT. HENCE, THE SAME WAS CONSIDERED AS PART OF SALE CONS IDERATION FOR CALCULATION LONG TERM CAPITAL GAIN. AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HELD AS UNDER: THE ASSESSEE HAS RECEIVED INTEREST IN TERMS OF THE SUPREME COURT ORDER MENTIONED IN THE PARA 4.1 OF THE LETTER OF OF FER TO BUY THE SHARES OF COLOUR CHEM LTD BY EBITO CHEMIEBETELLIGUN GEN AG, CLARAINT INTERNATIONAL LTD AND CLARIANT AG. THE SUP REME COURT IN ITS ORDER HAS WORKED OUT INTEREST AT ` 149.62 PER SHARE . ASSESSEES CASE FALLS UNDER INCOME BY WAY OF INTEREST ON SECUR ITIES WHICH IS SPECIFICALLY COVERED U/S 56(20(ID) OF INCOME TAX AC T. IN FACT THE MATTER HAS BEEN DISCUSSED IN DETAIL BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SHIPPING CORPORATI ON LTD. (240 ITR 24), WHEREIN, IT HAS BEEN HELD THAT THE RATIO OF TH E DECISION OF SUPREME COURT IS APPLICABLE FOR EXISTING COMPANY A LSO. 3 DAI ICHI KARKARIA LTD 3.1 ON APPEAL, THE CIT(A) CONCURRED WITH THE VIEW O F THE ASSESSING OFFICER . 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D 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 P AYMENTS 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 AGREEM ENT 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 CANN OT 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 B Y 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 CO ST 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 DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. GHANSHYAM (HUF) REPORT ED IN 315 ITR 001(SC) AND SUBMITTED THAT THE HONBLE SUPREME COURT HAS HELD THAT THE INTEREST PAYABLE PRIOR TO THE POSSESSION TAKEN OVER SHALL BE PART OF THE COMPENSATION. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE GUJARA T HIGH COURT IN THE CASE OF MANUBHAI BHIKHABHAI V. CIT REPORTED IN 205 ITR 505 (GUJ). 4.2 THE LD AR OF THE ASSESSEE HAS NARRATED THE LITI GATION HISTORY OF THE CASE OF ACQUIRING THESE MAJORITY SHARE HOLDINGS OF CLARIANT INTERNATIONAL LTD (SUPRA) AS UNDER: THE PURPOSE OF SUPREME COURT AWARDING INTEREST OF RS 149.62 PER SHARE (NET OFF DIVIDENDS) IS TO COMPENSATE THE SHAR EHOLDERS OF TARGET COMPANY FOR THE LOSS OF TIME OR DELAY IN MAKING THE OFFER. HENCE SUCH INTEREST CAN UNDER NO STRETCH OF IMAGINATION BE CON STRUED TO BE 4 DAI ICHI KARKARIA LTD INTEREST INCOME ACCRUING IN THE HANDS OF THE APPELL ANT. IN FURTHERANCE TO THE ABOVE, WE WOULD LIKE TO DRAW YOUR ATTENTION TO THE DEFINITION OF INTEREST AS PER SECTION 2(28A) OF THE ACT, REPRODUCED BELOW: INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEY BORROWED OR DEBT INCURRED (INCLUDING A DEPOSI T, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVI CE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT IN CURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN U TILISED; IT IS AMPLY CLEAR FROM THE ABOVE MENTIONED DEFINITI ON, THAT TO BE CONSIDERED AS INTEREST THE AMOUNT SHOULD ARISE FROM MONEY BORROWED OR DEBT INCURRED. IN THE GIVEN CASE, THE APPELLANT HAS INVESTED IN SHARES OF THE TARGET COMPANY I.E. CCL AND HAS NOT G IVEN ANY LOANS. FURTHER, THE SCOPE OF DEFINITION CANNOT BE EXPANDED TO INCLUDE IN ITSELF SOMETHING WHICH IN ITS VERY BASIC NATURE DOE S NOT AMOUNT TO INTEREST. SEPARATELY, THE OBLIGATION OF MAKING THE PUBLIC OFF ER IS TRIGGERED AS THE SEBI REGULATIONS AND THE REGULATIONS PROVIDE FOR COMPENS ATING THE SHARE HOLDERS OF THE TARGET COMPANY IN CASE OF DELAY OR D EFAULT IN MAKING SUCH AN OFFER BY THE ACQUIRER I.E.EBITO FURTHER, IT IS EVIDENT FROM THE FACTS OF THE CASE T HAT THE COMPENSATION IS NOT ON THE GROUNDS THAT EBITO FIRST MADE A PUBLI C OFFER AND THEN DELAYED THE PAYMENT OF THE CONSIDERATION TO THE SHA REHOLDERS OF CCL. IN FACT, THE COMPENSATION WAS AWARDED FOR MAKING GO OD THE LOSS CAUSED TO THE SHAREHOLDERS OF CCL, DUE TO THE DELAY IN MAKING THE OFFER OF BUY BACK BY EBITO. 4.3 THE LD AR HAS POINTED OUT THAT WHILE DECIDING T HE ISSUE OF INTEREST THE HONBLE SUPREME COURT HAS CLEARLY HELD THAT THE SHA REHOLDER DID NOT HAVE ANY RIGHT TO GET INTEREST AND THEY WERE ONLY TO BE COMP ENSATED 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 T HE ASSESSEE IS ONLY PART OF THE SALE CONSIDERATION. 5 DAI ICHI KARKARIA LTD 5 HE HAS REFEREED THE ADDITIONAL GROUND RAISED BY T HE ASSESSEE AND SUBMITTED THAT THE ADDITIONAL GROUND RAISED BY TH E ASSESSEE IS PURELY LEGAL IN NATURE AND THEREFORE, IN VIEW OF THE DECISION OF TH E HONBLE 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, THE RE IS NO PROVISION TO TAX THE SAME AS THERE IS NO SOURCE. HE HAS RELIED UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CITV. CH IRANJI LAL MULTANI MAL RAI BAHADUR (P) LTD REPORTED IN 179 ITR 157(P&H). 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 I NCOME INCLUDES ANY AMOUNT RECEIVED BY THE ASSESSEE WHICH DOES NOT FALL UNDER ANY OTHER HEAD WOULD FALL U/S 56 OF THE I T ACT SINCE THE MONEY WAS LYING WITH TH E ACQUIRER AND THE INTEREST IS COMPENSATION FOR SUCH LOSS. HE HAS SUBMITTED THAT A S PER THE PROVISION OF SEC. 46(A), ONLY THE CONSIDERATION RECEIVED BY THE SHARE HOLDER, AFTER ADJUSTMENT OF THE COST OF THE ACQUISITION OF SHARES IS DEEMED AS CAPITAL GAIN ARISING TO SUCH SHAREHOLDER. HE HAS RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES. 7 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. BEFORE DISCUSSING THE RELEVANT CONTENTION AND LEGAL PROPOSITION, WE WOULD LIKE TO REPRODUCE THE FACTUAL BACKGROUND GIVING RISE TO THE DISPUTE OF INTEREST PAYMENT AND TRANSFER OF THE SHA RES UNDER BUY-BACK SCHEME. AS NARRATED BY THE SUPREME COURT IN THE DECISION DT 25.8.2004, IN THE CASE OF CLARIANT INTERNATIONAL LTD & ANR VS SEBI. 6 DAI ICHI KARKARIA LTD COLOUR CHEM LTD. IS A TARGET COMPANY. ITS SHARES A RE LISTED ON THE BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE. APPELLANT NO.1 (CLARIANT) IN CIVIL APPEAL NO.3183 OF 2003 IS A SWISS COMPANY BEING SUBSIDIARY OF ANOTHER SWISS COMPANY, CLARIANT AG. HOECHST IS A GERMAN COMPANY WHEREAS. FBITO CHEMIEBETEILIGUNGE N AG (FBITO) IS A SWISS COMPANY. IN FBITO CLARIANT HELD 49% AND HOECHEST 51% SHARES. AN AGREEMENT WAS ENTERED INTO BY AND BETWEE N HOECHST AND CLIARIANT PURSUANT WHERETO AND IN FURTHERANCE W HEREOF GERMAN SPECIALTY CHEMICALS BUSINESS WAS TRANSFERRED TO THE LATTER BY TRANSERRING583708 EQUITY SHARES OF ` 100/- EACH OF THE TARGET COMPANY. ON OR ABOUT 21.11.1197 WITH A VIEW TO GIV E EFFECT TO THE SAID AGREEMENT, CLARIANT SOUGHT FOR AN EXEMPTION F ROM COMPLIANCE OF THE REQUIREMENTS OF MAKING OPEN AFTER TO THE SHA REHOLDERS OF THE TARGET COMPANY IN TERMS OF THE PROVISIONS OF THE SE CURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997 (FOR SHORT, THE REGULA TIONS). SUCH EXEMPTION HOWEVER WAS NOT GRANTED. HOECHST IN THE O THER MENTIONED SITUATION DECIDED TO SELL OFF THE SHARES HELD BY IT IN THE TARGET COMPANY TO EBITO, A COMPANY WHICH WAS FLOATE D ON 19.5.2000 AS A SPECIAL PURPOSE VEHICLE. ACTUAL TRAN SFER TOOK PLACE ON 13.10.2000. EBITO BY REASON OF THE AFOREMENTIONE D TRANSFER BECAME A 1 00% SUBSIDIARY OF CLARIANT. A COMPLAINT WAS RECEIVED BY THE SECURITIES AND EXCH ANGE BOARD OF INDIA (FOR SHORT, THE BOARD) TO THE EFFECT THAT A S BY REASON OF THE AFOREMENTIONED ARRANGEMENT AS 50.1 % SHARES/VOTING TIGHTS AND CONTROL 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 EXERCI SE OF THE POWERS CONFERRED UPON ME UNDER SUB-SECTION (3) OF S ECTION 4 READ WITH SECTION 118 SEBI ACT 1992 READ WITH REGUL ATIONS 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 & 1 2 TAKING 21.11.97 AS THE REFERENCE DATE FOR CALCULATION OF O FFER PRICE. THE PUBLIC ANNOUNCEMENT SHALL BE MADE WITHIN 45 DAY S OF PASSING OF THIS ORDER. 13.2 FURTHER, IN TERMS OF SUB REGULATION (12) OF RE GULATION 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 T HE SAID REGULATIONS FOR COMPLETING THE OFFER FORMALITIES IN RESPECT OF AN OPEN OFFER IS 120 DAYS FROM THE DATE OF PUBLIC 7 DAI ICHI KARKARIA LTD ANNOUNCEMENT. THE PUBLIC ANNOUNCEMENT IN THE INS TANT CASE OUGHT TO HAVE BEEN MADE TAKING 21 .1 .97 AS A REFERENCE DATE AND THUS THE ENTIRE OFFER PROCESS WO ULD HAVE BEEN COMPLETED LATEST BY 2 1.3.98. SINCE NO PUBLIC ANNOUNCEMENT FOR ACQUISITION OF SHARES OF THE TARGE T COMPANY HAS BEEN MADE, WHICH HAS ADVERSELY AFFECTED INTEREST OF SHAREHOLDERS OF TARGET COMPANY, IT WOUL D BE JUST AND EQUITABLE TO DIRECT THE ACQUIRER TO PAY INTERES T @15% PER ANNUM ON THE OFFER PRICE, THE ACQUIRER IS HEREBY AC CORDINGLY DIRECTED TO PAY INTEREST (15% PER ANNUM TO THE SHAREHOLDERS FOR THE LOSS OF INTEREST CAUSED TO THE SHAREHO1DERS FROM 22.3.98 TILL THE DATE OF ACTUAL PAYMENT OF CONSIDER ATION FOR THE SHARES TO BE TENDERED IN THE OFFER DIRECTED TO BE MADE BY THE ACQUIRER. AN APPEAL WAS PREFERRED THERE AGAINST BY THE ACQUIR ER WHEREIN THE PRIMAL QUESTION RAISED WAS THE RATE OF INTEREST FOR THE DEL INVOLVED IN MAKING PAYMENT TO THE SHAREHOLDERS WHO TENDERED THE SHARE IN THE PUBLIC OFFER REQUIRED TO BE MADE IN TERMS OF TH E REGULATIONS. IT IS NOT IN DISPUTE THAT THE VALUE OF THE SHARE AS ON 24.2.1998 WAS `.220/- ON 22.10.2002 ` 213/- AND ON THE DATE OF PU BLIC ANNOUNCEMENT I.E. ON 7.4.2003 THE VALUE OF THE SHAR E WAS `209/-, ` 233/- ` 203/- AND ` 220/, WHEREAS THE OFFER PRICE WAS ` 318/-. 8 THE MATTER WAS CARRIED TO THE HONBLE SUPREME COU RT ON THE ISSUE OF RATE OF INTEREST PAYABLE BY M/S CLARIANT INTERNATIONAL L TD., IN PURSUANCE TO THE DIRECTIONS GIVEN BY THE SEBI AND CONFIRMED BY THE T RIBUNAL. WHILE DECIDING THE ISSUE OF RATE OF INTEREST, THE HONBLE SUPREME COUR T HAS OBSERVED THAT; BY REASON OF REGULATION 44, AS SUBSTITUTED IN 2002, THE DISCRETIONARY JURISDICTION OF THE BOARD IS CURTAILE D. IN TERMS OF REGULATIONS 1997 COULD AWARD INTEREST BY WAY OF DAM AGES BUT BY REASON OF REGULATION 2002, ITS POWER IS LIMITED TO GRANT INTEREST TO COMPENSATE THE SHAREHOLDERS FOR THE LOSS SUFFERED B Y THEM ARISING OUT OF THE DELAY IN MAKING THE PUBLIC OFFER. 8.1 THUS, IT IS CLEAR FROM THE OBSERVATIONS OF THE HONBLE SUPREME COURT THAT INTEREST PAYABLE AS PER REGULATIONS 44 IS TO COMPEN SATE THE SHAREHOLDERS FOR LOSS SUFFERED BY THEM FOR DELAY IN MAKING THE PUBLI C OFFER. 8.2 THE HONBLE SUPREME COURT HAS FURTHER OBSERVED AT PAGE 29 AS UNDER: 8 DAI ICHI KARKARIA LTD THE SHAREHOLDERS CONTEMPLATED UNDER CLAUSE (I) OF REGULATION 44 MUST BE THOSE SHAREHOLDERS WHOSE SHARES HAVE BEEN A CCEPTED UPON PUBLIC ANNOUNCEMENT OF OFFER AND WHO HAVE SUFFERED LOSS OWING TO BLOCKAGE OF AMOUNT BY NOT BEING ABLE TO SELL THE S HARES HELD BY THEM. THE OBJECT OF THE SAID PROVISION IS TO PROTEC T THE INTEREST OF SUCH SHAREHOLDERS WHO HAD SUFFERED A LOSS FOR DELAY IN MAKING THE PUBLIC ANNOUNCEMENT AND, THUS MAY HAVE TO BE COMPEN SATED. 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 INTERE ST IS TO BE PAID TO SUCH INVESTORS WHO HAD SUFFERED SOME LOSS. 8.2 IT IS FURTHER OBSERVED BY THE HONBLE SUPREME C OURT THAT THE SHAREHOLDERS WHO, BY REASON OF DEFAULT ON THE PART OF THE ACQUIR ER HAVE BEEN DEPRIVED OF INTEREST PAYABLE ON THE DIFFERENCE OF THE OFFER PRI CE AND MARKET PRICE WOULD BE ENTITLED TO INTEREST AND THE SAID INTEREST IS NOT P ENAL IN NATURE. ACCORDINGLY, THE AMOUNT OF DIVIDEND RECEIVED BY THE SHAREHOLDER DURI NG 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 P AYABLE TO THE SHAREHOLDER WAS NOT STATUTORY RIGHT OR A RIGHT ARISING FROM CON TRACT BUT THE NATURE OF PAYMENT OF INTEREST IS TO COMPENSATE THE LOSS DUE TO THE DE LAY IN THE PAYMENT BY THE ACQUIRER AND THUS, THE INTEREST WAS PAID TO COMPENS ATE THE SHAREHOLDER WHO ARE DEPRIVED OF INTEREST PAYABLE ON DIFFERENCE OF OFFER PRICE AND MARKET PRICE. 8.3 THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE INTEREST RECEIVED BY THE ASSESSEE SHOULD BE PART OF THE SALE CONSIDERATION O F THE SHARES. RELIANCE WAS PLACED ON THE DECISION OF AUTHORITY FOR ADVANCE RUL ING IN THE CASE OF BURMAH CASTROL PLC. (SUPRA) WHEREIN IT WAS HELD THAT THE INTEREST PAID TO THE SHAREHOLDER PURSUANT TO THE ORDER OF A STATUTORY BODY SHOULD BE ADDED AS COST OF ACQUISITION OF SHARES, IN OUR VIEW MERELY BY REASON THAT THE IN TEREST PAID BY THE ACQUIRER WOULD BE PART OF ACQUISITION OF SHARES WOULD NOT IPSO FACTO CONCLUDE THAT THE SAID INTEREST IN THE HAND OF THE SHAREHOLDER WOULD BE PART OF SALE CONSIDERATION. 9 DAI ICHI KARKARIA LTD 8.4 THE HONBLE SUPREME COURT IN THE CASE OF CIT V. GHANSHYAM (HUF) (SUPRA) AFTER ANALYSING THE PROVISIONS OF LAND ACQU ISITION ACT, 1894 HAS GIVEN A DETAILED FINDING ON THE ISSUE OF INTEREST PAYABLE U /S 23, 28 AS WELL AS SECTION 34 OF THE LAND ACQUISITION ACT. THE HONBLE SUPREME C OURT HAS ANALYSED THE ISSUE WHETHER THE INTEREST PAID ON ENHANCED COMPENSATION U/S 23,28 AND INTEREST U/S 34 WOULD BE TREATED AS PART OF COMPENSATION U/S 45( 5) OF THE I T ACT 1961 AS UNDER: IT IS TO ANSWER THE ABOVE QUESTIONS THAT WE HAVE A NALYSED THE PROVISIONS OF SECTIONS 23, 23(1A), 23(2), 28 AND 34 OF THE 1894 ACT. AS DISCUSSED HEREINABOVE, SECTION 23(1A) PROVIDES F OR ADDITIONAL AMOUNT. IT TAKES CARE OF INCREASE IN THE VALUE AT T HE RATE OF 12 PER CENT. PER ANNUM. SIMILARLY, UNDER SECTION 23(2) OF THE 1894 ACT, THERE IS A PROVISION FOR SOLATIUM WHICH ALSO REPRES ENTS PART OF ENHANCED COMPENSATION. SIMILARLY, SECTION 28 EMPOWE RS THE COURT IN ITS DISCRETION TO AWARD INTEREST ON THE EXCESS A MOUNT OF COMPENSATION OVER AND ABOVE WHAT IS AWARDED BY THE COLLECTOR. IT INCLUDES ADDITIONAL AMOUNT UNDER SECTION 23(1A) AND SOLATIUM UNDER SECTION 23(2) OF THE SAID ACT. SECTION 28 OF THE 1894 ACT APPLIES ONLY IN RESPECT OF THE EXCESS AMOUNT DETERM INED BY THE COURT AFTER REFERENCE UNDER SECTION 18 OF THE 1894 ACT. IT DEPENDS UPON THE CLAIM, UNLIKE INTEREST UNDER SECTION 34 WH ICH DEPENDS ON UNDUE DELAY IN MAKING THE AWARD. IT IS TRUE THAT I NTEREST' IS NOT COMPENSATION. IT IS EQUALLY TRUE THAT SECTION 45(5) OF THE 1961 ACT REFERS TO COMPENSATION. BUT, AS DISCUSSED HEREINABO VE, 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 INTER EST 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 ADDITIONA L AMOUNT UNDER SECTION 23(1A) AND SOLATIUM UNDER SECTION 23(2) OF THE 1894 ACT FORMS PART OF ENHANCED COMPENSATION UNDER SECTION 4 5(5)(B) OF THE 1961 ACT. 8.5 THE HONBLE SUPREME COURT HAS MADE A FINE DISTI NCTION 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 T HAT 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, WH EN THE AMOUNT IS PAID AS A COMPENSATION FOR ENHANCEMENT IN THE VALUE OF THE AS SET TRANSFERRED, THE SAME 10 DAI ICHI KARKARIA LTD WILL BE PART OF FULL CONSIDERATION; BUT WHEN THE IN TEREST IS PAID AS COMPENSATION TO LOSS OF INTEREST, THEN IT CANNOT BE TREATED PART OF SALE CONSIDERATION. ACCORDINGLY, THE INTEREST RECEIVED BY THE ASSESSEE, AS HELD BY THE HONBLE SUPREME COURT WHILE DECIDING THE DISPUTE OF RATE OF INTEREST IS ONLY A COMPENSATION FOR LOSS OF INTEREST DUE TO DELAY IN P UBLIC OFFER AND PAYMENTS AND NOT THE COMPENSATION FOR ENHANCEMENT IN THE VALUE O F THE ASSET. IT IS PERTINENT TO NOTE THAT THE OFFER PRICE WAS MORE THEN THE VA LUE OF THE SHARE FROM 24.2.98 TILL 7.4.2003. 8.6 THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF MANUBHAI BHIKHABHAI V. CIT REPORTED IN 205 ITR 505 (GUJ) IS NOT ON THE POINT AS THE ISSUE IN THE SAID CASE WAS THE ADDITION OF ` 49/-PER SHARE, WHICH WAS CLAIMED AS LOSS, AND IN OUR CONSIDERED OPINION THE SAID DECISION IS NOT APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 8.7 FURTHER THE DECISION IN THE CASE OF CIT V. CHIR ANJI LAL MULTANI MAL RAI BAHADUR (P.) LTD REPORTED IN 179 ITR 157(P&H) IS ON THE POINT THAT THE INTEREST AWARDED BY THE JUDGMENT AND DECREE OF THE HONBLE H IGH COURT FOR REFUND OF SECURITY, WHICH WAS FORFEITED BY THE GOVERNMENT. TH E HONBLE HIGH COURT HAS HELD THAT THE AMOUNT OF INTEREST RECEIVED BY THE AS SESSEE BY WAY OF COMPENSATION FOR WRONGFUL DEPRIVATION OF THE SECURI TY DEPOSIT AND WAS A CASUAL RECEIPT AND COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. 9 THUS, IT IS CLEAR THAT THE INTEREST AWARDED IN TH E SAID CASE WAS FOR WRONGFUL WITHHOLDING OF THE AMOUNT, WHICH IS NOT THE CASE BE FORE US; THEREFORE, THE SAID DECISION WOULD NOT HELP THE CASE OF THE ASSESSEE. 10 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT TH E INTEREST RECEIVED BY THE ASSESSEE AS PER THE DIRECTIONS OF THE SEBI AND IN P URSUANCE OF THE DECISION OF THE 11 DAI ICHI KARKARIA LTD HONBLE 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. ACCORDINGLY, BOTH THE ISSUES I .E. MAIN AND ADDITIONAL ARE DECIDED AGAINST THE ASSESSEE. 11 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 28 TH , DAY OF DEC 2011. SD/ SD/- ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED:28 TH , DEC 2011 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI