Monday, September 30, 2013

Ex-auditor couldn’t complaint against new auditor if client found no discrepancy in audit report of new auditor


a) 'A', auditor of the company, was replaced by ‘B’. A made a complaint against B levying various allegations against him;

b) The Council, found B prima facie guilty of professional misconduct and, accordingly, referred the matter to the Disciplinary Committee;

c) Disciplinary Committee found B guilty of professional misconduct under sections 21 and 22. The Council made a reference seeking confirmation of removal of B’s name from the register of members of the ICAI.

The High Court held as under:

1) A had no locus standi to make a complaint as the company whose audit report was stated to have been prepared by B contrary to the prescribed norms, had not made any complaint against B;

2) The Disciplinary Committee had not referred to particular portions of the report which were found not in conformity with the prescribed norms;

3) B was not shown to have been served with a notice of hearing by the Disciplinary Committee. The entire proceeding of the Disciplinary Committee was contrary to the settled principles of natural justice;

4) A undisputedly was biased against B, because of his having been replaced as auditor of the aforesaid company. Therefore, case put forth by him could not be accepted in the absence of independent corroboration. Thus, the reference made by council was to be rejected - ICAI v. Vijay Kumar [2013] 37 203 (HC-P&H)

Wife proves to be a lucky mascot; husband gets HRA exemption on rent paid to wife

In the instant case the AO disallowed assessee's claim for HRA exemption on the ground that assessee and his wife were living together and claim of payment of rent by assessee to his wife was made to reduce his tax liability. The CIT(A) confirmed the addition on the ground the tenant (i.e., assessee) landlord (i.e., his wife) were staying together which indicated that the whole arrangement was a colourable device. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The section 10(13A) provides that exemption would be allowable to an assessee for any allowance granted to him by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the him;

2) However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent;

3) Admittedly, the AO had given a finding of fact that the assessee and his wife were living together as a family. Therefore, it could be inferred that the house owned by wife of the assessee was occupied by the assessee also;

4) The assessee had submitted the rent receipt(s) and payments had been duly verified. Therefore, the assessee had fulfilled the twin requirements of the provision, i.e., occupation of the house and the payment of rent. Thus, he was entitled to exemption under section 10(13A) - Bajrang Prasad Ramdharani v. ACIT [2013] 37 186 (Ahmedabad - Trib.)

Thursday, September 26, 2013

Arrears received by lawyer who stopped his practice on being elevated as judge not taxable as business income

Arrears of professional fee received by assessee after he had discontinued his legal profession of lawyer on being elevated as a judge of High Court couldn’t be taxed as business income despite insertion of section 176(4) in the Act

In the instant case the assessee was a practising lawyer before his elevation as a judge of the Delhi High Court. He received certain amount of arrears of his professional fees for professional services rendered in the earlier years before his elevation as a Judge of the High Court. The AO held that such receipts were chargeable to tax under section 176(4). On appeal, the CIT (A) deleted the addition made by the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) As per provisions of section 176(4), in the case of cessation of a profession by a professional, the receipt of any sum after such cessation shall be deemed to be the income of the professional and would be taxed in the year of receipt as if, it had been received prior to the cessation of the profession;

2) Section 176(4) introduces a legal fiction, which should be limited only to the purpose for which it has been created. Section 176(4) merely treats the receipt as the income of the recipient. In the absence of any further fiction in the section, the character of such receipt cannot be determined and no further fiction can be introduced so as to determine the head of charge under which such receipt would fall;

3) Thus, the express language of section 176(4) does not render the receipt to be treated as profit and gains of business or profession (PGBP). Therefore, in spite of introduction of section 176(4) in the Act, the receipts in question couldn’t be treated as the assessee's income falling under the head "PGBP”, even though they were the fruits of the assessee's professional activities;

4) It was due to the absence of any legislative provision that these receipts couldn’t be treated as business income falling under the head "PGBP”. They couldn’t be included in the total income of the assessee, even though the amount was received by the assessee before the discontinuance of his profession due to his elevation as the High Court Judge. Thus, the order of CIT (A) was to be confirmed. – ITO v. Justice Rajiv Shakdher [2013] 36 585 (Delhi - Trib.)

Tuesday, September 24, 2013

Sum paid to access commercial information for further transmission to principal isn’t a ‘royalty’

Where assessee made remittance for procurement of commercial information for onward transmission to its principal, remittance made was not for availing technical services and did not amount to royalty

In the instant case the assessee had entered into a master clinical services agreement with its principal 'BHAG' for clinical trials. Assessee had arrangement with CSPL to provide information on clinical trial test undertaken by CTU of University of Kelmia, Sri Lanka. It applied for issue of certificate for non-deduction of tax on remittances made to CSPL which had no PE in India. The AO held that remittance for clinical services was in nature of royalty and was liable to be taxed in India. On appeal, the CIT (A) reversed the order of AO.

The Tribunal held in favour of assessee as under:

1) The services in question were services for supply of information which assessee was not using for any technical know-how but it was working as a conduit for supply of this information further to its principal;

2) Thus, the assessee was making remittance for procurement of commercial information for onward transmission to its principal;

3) The remittance made by the assessee was not for availing of technical services and did not amount to royalty.  It was not liable for withholding taxes. Thus, the order of CIT (A) was to be upheld – ITO, TDS v. Kendle India (P.) Ltd [2013] 37 140 (Delhi - Trib.)

Monday, September 23, 2013

Yog trust is tax exempt; its main object is to impart training in Yoga, for education and curing of diseases

The predominant object of imparting Yoga training through well structured Yoga shivirs is to provide medical relief and impart education, which fall under the category of charitable objects defined under section 2(15).

The Tribunal held as under:

1) Yoga can be safely accepted as a system that fits into the definition of medical relief. As a science it is a well recognized system of medicine, which has therapeutic effects in treating serious ailments;

2) The predominant objective of the assessee-trust was to provide medical relief through Ayurveda and propagation of  Yoga for the purpose of curing various diseases;

3) Any form of educational activity involving imparting of systematic training, to develop the knowledge, skill, mind and character of  students is to be regarded as 'education', covered under section 2(15);

4) Thus, imparting of Yoga training through well structured Yoga shivirs would fall under the category of imparting education, which is one of the charitable objects defined under section 2(15);

5) The various other objectives of assessee-trust were merely ancillary to its main object, which was to provide medical  relief and impart education and would not in any way constitute objectives of  general public utility;

6) The proviso to section 2(15) applies only to trusts falling in the last limb of the definition of charitable purpose, that too if such trust carries on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to a trust providing education and medical relief. Thus, revenue was not justified in refusing the exemption claimed by assessee-trust under sections 11 and 12 - Divya Yog Mandir Trust v. JCIT [2013] 37 227 (Delhi - Trib.)

Safe Harbour Rules finalized; assessees can opt for any period up to five assessment years

Safe Harbour means the circumstances in which the income-tax authorities accept the transfer price declared by assessee. Draft Safe Harbour Rules were placed in public domain on 14.08.2013 for seeking comments from various stakeholders. After receiving their inputs Safe Harbour Rules (‘SHRs’) have been finalized. The gist of modifications incorporated in the final Safe Harbour Rules are as under:

1) The SHRs shall be applicable from the assessment year 2013-14 for five assessment years. An assessee can opt for the safe harbour regime for a period of his choice but not exceeding 5 assessment years;

2) Earlier ceiling of Rs 100 crores has been removed for transactions in the nature of routine ITES/ITS, corporate guarantees and KPO;

3) Routine IT/ITES transactions have been provided safe harbour margin of 20% for transactions up to 500 crores and 22% for transactions above Rs.500 crores;

4) On corporate guarantees reduced safe harbour margin of 1.75% is applicable for transactions above Rs 100 crores if wholly owned subsidiary has been rated to be having adequate to highest safety norms by rating agency;

5) The definition of KPO has been rationalized to provide a reasonable distinction from routine BPO activity and its safe harbour margin has been reduced from 30% to 25%;

6) Once the option exercised by the assessee is held as valid it shall remain so for the opted period unless the assessee voluntarily opts out of safe harbour regime by furnishing a statement to this effect to the Assessing Officer;

7) The assessee is required to submit a statement regarding the quantum of international transactions, its nature, the operating margins, etc., for the period for which safe harbour option is exercised;

8) The option exercised by the assessee can be held as invalid subsequently if there is change in the facts and circumstances relating to the eligibility of the assessee or in international transaction.

Transaction amongst Indian PE of foreign co. and another resident entity isn’t an ‘international transaction’

Substance over form rule under section 92B(2) applies only when third party is interposed in international transaction (‘IT’) between two associated enterprises (‘AEs’). Transactions between resident assessee and resident AE of foreign parent company can't be deemed as IT by invoking the substance over form rule under section 92B(2).

The Tribunal held as under:

1) The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs. Section 92A defines the term "AEs". Section 92A(1) provides the broad parameters on satisfaction of which two or more enterprises constitute AEs;

2) Sub-section (2) of section 92A enlists specific situations which make two or more enterprises associates of each other for the purposes of sub-section (1). One of the essential limbs or constituents of an IT is "AEs".

3) The deeming fiction under section 92A(2) are limited to the parameters of management, control or capital. Section 92B(2)travels beyond these parameters. Though section 92B(2) is a part of section 92B with the heading "Definition of IT", yet it is to be read as an extension of section 92A(2) and not as an extension of section 92B(1);

4) Section 92B(2) only deems certain transactions to be 'transactions between AEs' and not as 'IT between two enterprises'. Section 92B(2) was enacted to hit at those cases where two AEs intend to have an IT but want to avoid transfer pricing provisions by interposing a third party as an intermediary. In such cases, the third party intermediary will generally not be the ultimate consumer of the services or goods;

The intermediary would facilitate the transfer of services or goods from one enterprise to its AE with no value addition or insignificant value addition. The intermediary is used to break a transaction into two different parts, which when viewed in isolation would not satisfy the requirements of section 92A;

6) The legal form of the transaction in such circumstances is ignored. The substance of the transaction is given effect to, not by disregarding the existence of the intermediary but by deeming the transaction with the intermediary itself to be one with an AE.

7) The legal fiction created in respect of the specified transaction can be used only for the purpose of examining whether such transaction constitutes an 'IT' under section 92B(1)? In case section 92B(1) is not attracted, the fiction under section 92B(2) ceases to operate - IJM (India) Infrastructure Ltd. v. ACIT [2013] 37 200 (Hyderabad - Trib.)

ITAT elucidates law on condonation of delay; arguments as to sufficient cause isn’t a license to file belated appeal

Liberal view in condoning delay is one of the guiding principles in the realm of belated appeals, which can't be equated with a license to file appeals at will-disregarding the time-limits fixed by the statutes

In the instant case the assessee moved an application before the FAA for condoning the delay in filing appeal. The FAA dismissed the appeal filed by assessee.

On appeal, the Tribunal explains basic principles of condonation of delay as under:

1) If sufficient causes for delay are presented, discretion is available to the FAAs to condone the delay and admit the appeal. The expression 'sufficient cause' is not defined, but it means a cause which is beyond the control of the assessee;

2) Any cause which prevents a person approaching the FAA within given time limit is considered as a sufficient cause. The test whether or not a cause is sufficient is to see whether it could have been avoided by the party by the exercise of due care and attention;

3) In every case of delay, there is some lapse on the part of the assessee. If there are no mala fides the FAA should consider the application of the assessee. But when there is reasonable ground to think that the delay was occasioned otherwise than a bonafide conduct, then the FAA should lean against acceptance of the explanation;

The application for condonation of delay should be supported by an affidavit, showing that there is sufficient cause for condonation.

Condonation of delay, though an equitable relief, yet, cannot be accorded merely on sympathy or compassion and the grounds offered have to be evaluated to test whether the party in default had been guilty of conscious and deliberate inaction.

Based on the above principles it held in favour of revenue as under:

A. Adopting a liberal view in condoning delay is one of the guiding principles in the realm of belated appeals, but liberal approach cannot be equated with a license to file appeals at will-disregarding the time-limits fixed by the Statutes;

B. For a period of more than three years, it did not bother to find out the outcome of the appeal it had filed. The behaviour of the assessee could be termed as personified inaction and negligence which would not constitute reasonable cause;

C. Assessee, a corporate-assessee, filing returns of income of lacs of Rupees and assisted by highly qualified professionals couldn't take umbrella of ignorance of the provisions of law. Therefore, the order of FAA was to be upheld - Prashant Projects Ltd. v. Dy. CIT [2013] 37 137 (Mumbai - Trib.)

Payment for lease is different from ‘for obtaining a lease’; only former is subject to sec. 194-I TDS, says ITAT

ayment of lease premium for allotment of plot of land is not liable to TDS liability under section 194-I
In the instant case, the assessee-realtors took a plot of land from MMRD Ltd. and made payment of lease premium for allotment of a plot. It also paid for additional FSI. The AO held that the assessee was required to deduct tax under section 194-I in respect of the aforesaid payment to MMRD. According to him, the assessee had not complied with the provisions of section 194-I, it had committed default within the meaning of section 201(1) and, therefore, the assessee was to be treated as assessee-in-default. On appeal by the assessee, the CIT (A) reversed the findings of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

From lease deed it was clear that the premium was not paid under a lease but was paid as a price for obtaining the lease, hence, it preceded the grant of lease. Therefore, it couldn’t be equated with the rent which was paid periodically. Thus, the assessee had made payment to MMRD under development control for acquiring leasehold land and additional built-up area. The case of CIT v. Khimline Pumps Ltd. [2002] 125 Taxman 104 (Bom.) was squarely and directly applicable to the facts of the case wherein the jurisdictional High Court had held that payment for acquiring leasehold land was a capital expenditure. Considering the facts in totality - in the light of the judicial decisions vis-à-vis provisions of section 194-I, definition of rent as provided under the said provision, there was no reason to tamper or interfere with the findings of the CIT (A) – ITO(TDS) v. Wadhwa & Associates Realtors (P.) Ltd [2013] 36 526 (Mumbai - Trib.)

Flat owner can sell or mortgage his flat to seek borrowings without the permission of society

The Supreme Court held as under:

It was too late to contend that flat owners couldn’t sell, let out, hypothecate or mortgage their flats for availing of loans without permission of the builder, Society or the Company. So far as a builder was concerned, the flat owner would pay the price of the flat;

2) So far as a society or company was concerned, in which the flat owner was a member, he was bound by the laws or Articles of Association of the Company, but his right over the flat was exclusive. That right was always transferable and heritable. Of course, he would have charge over the flat if any amount was due to them of the flat;

3) Neither the Companies Act nor any other Statute has any provision prohibiting the transfer of interest to third parties or to avail of loan for the flat owners' benefit. A legal bar on the transferability of such a interest would create chaos and confusion. The right or interest to occupy any such flat was in respect of property and, hence, had a stamp of transferability - Hill Properties Ltd. v. Union Bank of India [2013] 37 150 (SC)

ST demand can't be made under a category not specified in the show cause notice

Where show cause notice sought classification under consulting engineering services but demand was confirmed under "Erection, Commissioning and Installation Services", demand was, prima facie, not maintainable

In the instant case the department issued a show-cause notice to the assessee for the period from 1997-98 to 9-9-2004 seeking payment of service tax under category of consulting engineering services. The adjudicating authority came to conclusion that services rendered by assessee were not 'consulting engineers' services but were taxable under Erection, Commissioning and Installation Services and confirmed demand accordingly. The assessee argued that demand was invalid as show-cause notice did not put them on notice as to that services would be classified under 'Erection, Commissioning and Installation Services'. Thus, this stay petition was filed by assessee for the waiver of pre-deposit requirement.

The Tribunal held as under:

1) The assessee  was not put to notice as regards the classification of its services under "Erection, Commissioning and Installation Services";

2) The assessee had made out a prima facie case for the waiver of the pre-deposit requirement of the amounts involved, as the Board's circular dated 8-8-2007 specifically clarified that services provided by assessee would be classifiable under the category of Erection, Commissioning and Installation Services from 10-9-2004 only;

3) In view of this, the application filed by the assessee for the waiver of the pre-deposit requirement and stay of recovery was allowed -  Kalpataru Power Transmission Ltd. v. Commissioner of Central Excise  [2013] 36 581 (Ahmedabad - CESTAT)

Consideration received by an advocated in form of land to undertake patta and layout of properties is taxable as capital gains and not as professional receipts

Facts of the case:

A. The assessee, an practising advocate, entered into an agreement as per which he had to undertake the job of obtaining patta and design the layout of the properties and for the services rendered the owners agreed to transfer 3 plots of land to him;

B. In pursuance of the agreement, possession of the property was handed over to the assessee and General Power of Attorney was executed in his favour;

C. Sale agreement was executed in respect of three plots of land for a consideration of Rs. 1.5 crores out of which the assessee received a consideration of Rs. 90 lakh as ‘confirming party’.

D. The AO held that such receipt was to be assessed as income from professional services. On appeal, the CIT(A) reversed the order of AO and held that the receipt could only be taxed as capital gains. The Tribunal upheld the order of AO.

The High Court held as under:

1) The agreement entered between the assessee and the owners made no reference at all to the professional status of the assessee for taking his services. There was no mention about his being an Advocate and that his services were being taken only in that capacity;

2) The possession given of the entire 5 plots of land to the assessee was with the specific object of getting patta and layout of the property. The sale agreement made it very clear that the transfer of 3 plots of land to the assessee was intended by way of consideration for securing patta and layout and, as such, the original owners had entrusted the entire land to the assessee;

3) The assessee had rightly placed his reliance on section 2(47)(v) of the Income-tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882, that the receipt would attract capital gains at his hands. There was nothing on record to show that the services to be rendered were taken in the capacity as a lawyer. Therefore, the Consideration received by an advocated in form of land to undertake patta and designing of layout of properties is taxable as capital gains and not as professional receipts  – CIT v. J. Mahalingam [2013] 37 38

Thursday, September 12, 2013

Proviso to sec. 206C providing for immunity on TCS default in tax neutral situation has retro effect, rules SB

The first proviso to section 206C(6A) introduced by the Finance Act, 2012 with effect from 1-7-2012 relieves the assessee from consequences of assessee-in-default for non-collection of TCS based on proof of “no loss to Revenue” in the form of a CA’s certificate certifying specified matters.

As the said proviso seeks to rationalize TCS provisions and is also beneficial in nature in the sense that it seeks to provide relief to collectors of taxes from consequences of short collecting TCS after ensuring that Revenue’s interest is well-protected. Said proviso shall apply retrospectively even to pending matters also, though it is expressed to be applicable with effect from 1-7-2012 – Bharti Auto Products v. CIT [2013] 37 37

Child birth is a natural process, an act of god, and not illness; sec. 10(23C) relief denied to maternity hospital

Section 10(23C) benefit can't be granted to maternity hospital as child birth is a natural process of God which in no way could be said to be any illness as contemplated under section 10(23C)(iiiae)

The Tribunal held as under:

1) The child birth is the natural process of God and it certainly is the God's grace which is extended to sustain us through it. It is the act of God who designs a child conceived in the womb to be born into this world;

2) In olden days deliveries of children were perfectly conducted by midwives at home, but in the modern age, it is only because the anxiety of people that they would not be able to manage the discomfort or pain during labour, they choose to take better facilities in the hospitals in presence of Doctors for this purpose;

3) Thus, the assessee's maternity hospital had been facilitating the deliveries, i.e., a natural process of God, which in no way could be said to be any illness to be treated in the hospital as envisaged under section 10(23C)(iiiae);

4) The CIT(A) rightly disallowed the claim of assessee as the ingredients of section 10(23C)(iiiae) were not fulfilled – Dy. CIT v. Nehru Prasutika Asptal Samiti [2013] 37 1 (Agra - Trib.)

Assessee's contract couldn't be deemed as composite contract if all its activities were identifiable separately

Where activities undertaken by assessee were identifiable separately, such activities couldn’t be termed as 'composite contract'

In the instant case the assessee was involved in the activity of "Construction of Civil Work" as well as "Erection, Commissioning and Installation Services" for setting-up of the power plant.   It outsourced the 'Civil Work' on which it did not take any Cenvat credit of input services or capital goods and the sub-contractor had paid the service tax on that activity. For the activity of 'Commissioning and Installation', assessee took the Cenvat credit and discharged its service tax liability accordingly without claiming the benefit of Exemption Notification Nos. 15/2004 or 19/2005 or 1/2006. However, the Department argued that assessee's contract was a composite contract taxable in its entirety under "Erection, Commissioning and Installation Services" and it was liable to pay service tax on entire value.

The Tribunal allowed the stay application with the following observation:

In the case of CCE v. BSBK Pvt. Ltd. [2010] 26 STT 263 (New Delhi - Cestat) the Tribunal held that when the activities undertaken by the applicants were identifiable separately, , the whole of the activity couldn’t be termed as "composite contract". In the instant case also the activities undertaken by the appellants could be identified separately, therefore, following the decision in the case of BSBK Pvt. Ltd. (supra), it was held that the assessee had made out a prima facie case for 100 percent waiver of service tax, interest and penalty. – Bharat Heavy Electrical Ltd. v. Commissioner of Service Tax [2013] 36 366 (Chennai - CESTAT)

No TDS on sum paid to banks for utilization of credit card facilities; they are in nature of bank charges & not commission

Payments to banks for utilization of credit card facilities are in nature of bank charges, and not commission, and, therefore, no tax is deductible at source from said payments under section 194H

In the instant case the assessee-company was engaged in the business of aviation, i.e., transportation of passengers and cargo by air. During assessment the AO held that assessee ought to have deducted tax at source on amounts retained by the banks in respect of air tickets booked through credit cards. The AO further stated that as per the agreement between the banks and the assessee, the banks were supposed to provide the assessee with the facility of their credit card internet payment gateway to enable the assessee to collect the payments made by the customers. Therefore, such payments were squarely covered by the definition of "commission or brokerage" as contemplated by section 194H. The CIT(A) reversed the order of AO. The aggrieved revenue filed the instant appeal.

The Tribunal held as under:

1) Section 194H is applicable where any commission has been paid by the principal to the commission agent. This was not a commission payment but a fees deducted by the bank. If there was an agreement, that was between the credit cardholder and the bank. It was not the case that banks had advised the assessee to sell their goods to its customers then he would pay them commission;

2) The provisions of section 194H of the Act were not applicable as the banks were making payments to the assessee after deducting certain fees as per the terms and conditions in the credit cards and it was not a commission but a fee deducted by the banks;

3) Payments made to the banks on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act and, hence, no TDS was required to be deducted under section 194 H of the Act.  Thus, the order of CIT(A) was to be upheld – ITO v. Jet Airways (India) Ltd [2013] 36 379 (Mumbai - Trib.)

TP adjustment for controlling premium upheld; transfer of shares as per SEBI Regulation can’t be deemed to be at ALP

TP adjustment for control premium upheld as it is only the seller who can demand control premium in case he is selling the controlling stake. Even price charged for transfer of shares is as per SEBI Regulations, it can't be deemed to be at ALP

In the instant case the assessee belonged to Lanxess (‘L’) Group which was engaged in the chemical business globally. It held 50.97% shares of L in which RA Group also held 18.33%. The assessee sold its entire shareholding in L group to the INEOS ABS at a negotiated price of Rs. 196.36 per share, whereas the RA group had been paid at Rs. 201 per share. The INEOS ABS was a joint venture of L group and INEOS group in which the holding company of the assessee had 49% share shareholding. Since assessee had not been paid anything towards control premium though it had sold the controlling stake in the company, the TPO proposed adjustment on account of control premium at 25% of share value. The AO made adjustment consequent to order passed by TPO.

The Tribunal held as under:

1) The TPO referred to the report of Phillip Sounders Jr. PHD ('Phillip') (who gave a finding that control premium varied from 30% to 50% of the public unquoted price) to estimate the control premium;

2) The TPO/AO had compared price paid to the assessee with the price paid to RA Group who held only 18.83% share which was not a controlling stake. The RA Group was a good internal CUP as both the assessee and RA Group had sold the shares of the same company and buyer was also the same. Therefore, the transaction was identical except the fact that the assessee had sold the controlling stake;

3) Thus, only what was required to be considered was adjustment on account of controlling stake transferred by the assessee by estimating the price for the controlling stake. The report by Phillip which was based on research undertaken in respect of several public quoted companies could be used as reliable material. Considering this the adjustment of 25% of the share value made by AO/TPO on account of controlling premium was justified;

4) The argument of the learned AR that the assessee was selling the business and, therefore, could not expect control premium, had no merit. In fact, it was only the seller who could demand control premium in case he or she was selling the control stake;

The ld. AR for the assessee had also argued that the general public shareholders had also been paid at the rate of Rs. 201 per share as per SEBI Regulation no. 20(4). But the SEBI regulations does not in any way state that price negotiated by the assessee with the buyer is at arm's length price. Thus, order of AO was to be upheld - Lanxess India (P.) Ltd. v. ACIT [2013] 36 350 (Mumbai - Trib.)

Payment for delay in completion of buy back process under open offer to be deemed as cap gains and not interest

Interest received by assessee for delay in completion of the process of buy-back of shares under open offer to be deemed as capital gain and not interest income

In the instant case the assessee, a company incorporated in Mauritius, had obtained registration with the SEBI as a registered FII. It was holding the shares of Castrol India Ltd. which was a subsidiary of Castrol Ltd. UK ('Castrol UK'). The Castrol UK announced open offer for acquisition of issue capital of Castrol India Ltd. The assessee tendered certain equity shares under open offer. It received compensation from Castrol UK for delay in payment of shares tendered under the open offer. The AO treated the said compensation as interest income and taxed the same. The CIT(A) upheld the action of the AO. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) It was clear that the payment of interest was directed by the SEBI and, therefore, it was not a penalty but the payment of interest on account of failure to make the payment by the acquirer as per the time schedule prescribed under the SEBI regulations;

2) However, in the instant case the interest received by the assessee was for the period prior to the tendering of shares and acceptance of the same, therefore, the interest related to the delay in completing the process of buy-back of shares under an open offer;

3) If the interest would have been paid for delay in making the payment then it couldn't be treated as part of consideration. In the instant case, the delay for which the interest had been received by the assessee was in the process of buy-back of shares in the open offer after announcement of the intention of acquiring of shares;

4) It was not a case of delay in making the payment of the determined consideration after the transaction of purchase of sale was over. Thus, this additional amount received by the assessee being interest was part of sale consideration and, accordingly, would be treated as part of capital gain and not the income from interest - Genesis Indian Investment Co. Ltd. v. CIT(A) [2013] 36 300 (Mumbai - Trib.)