Section 4 of ITA, 1961 – Income – Capital or revenue – Sale of shares upon open offer letter – Additional consideration paid in terms of letter of open offer due to delay in making offer and dispatch of letter of offer – Additional consideration part of share price of original transaction not penal interest for delayed payment – Additional consideration was capital receipt

Section 4 of ITA, 1961 – Income – Capital or revenue –
Sale of shares upon open offer letter – Additional consideration paid in terms
of letter of open offer due to delay in making offer and dispatch of letter of
offer – Additional consideration part of share price of original transaction
not penal interest for delayed payment – Additional consideration was capital
receipt

An
open offer was made by Oracle to the shareholders of I-flex at the price of Rs.
1,475 per share. The letter of open offer stated that additional consideration
per share would be paid due to delay in making the open offer and dispatch of
the letter of offer based on the time-line prescribed by the Securities and
Exchange Board of India. The consideration was revised to Rs. 2,084 per share
and the additional consideration for delay was revised to Rs. 16 per share. In
response to the open offer, the assessee tendered its holding of 13,97,879
shares in I-flex and received Rs. 2,89,77,45,900, which included additional
consideration of Rs. 2.20 crores. The Department contended that the additional
sum received was a revenue receipt and taxable in the hands of the assessee.

The
Tribunal held that the additional consideration received was for delayed
payment of principal and that it was part of the original consideration and
hence not taxable.

On
appeal by the Revenue, the Bombay High Court upheld the decision of the
Tribunal and held as under:

“i)   The additional amount received by the
assessee was part of the offer from the sale of shares made by it. The reason
to have increased the sum per share by the company Oracle to the shareholders
of I-flex might be on account of delay of issuance of the shares, but it was
part of the sale price of the share. The revised offer which the company
announced for issuance of the shares included the additional component of the
increased sum per share and was embedded in the share price. This component
could not be treated as interest on delayed payment on price of the share.

ii)   The additional sum was part of the sale price
and retained the same character as the original price of the share. The
additional receipt of the assessee relatable to this component was a capital
receipt.”