Case Law Details
Brief of the Case
Authority for Advance Rulings held In the case of Lead Counsel of Qualified Settlement Fund (QSF), USA, that it is clear that even if right to sue is considered as capital asset covered under the definition of transfer within the meaning of section 2(47), its cost of acquisition cannot be determined. In the absence of such cost of acquisition, the computation provisions failed and capital gains cannot be calculated. Therefore, right to sue cannot be subjected to income tax under the head ‘capital gains’. Further the income in the nature of settlement amount in lieu of surrender of ‘right to sue’ is not covered in section 56 (1). Therefore, the question of treating the same as income from other sources would not arise at all. In the circumstances, the issue of taxability of QSF being a separate legal entity as per US law or being assessable as representative assessee in India becomes irrelevant. The QSF is merely acting as a custodian of the amount to be distributed to authorized claimants after the order of the US court is available. Such amount can be characterized Custodia Legis only and is not to be considered for tax purposes.
Facts of the Case
The Satyam Computers Services Limited is an Indian company incorporated under the Companies Act, 1956. Its shares were listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). In May 2001, it issued 14.5 lakhs American Depositors Shares (ADS) which were listed on the New York Stock Exchange (NYSE). In May, 2005 it issued another 130.41 lakhs ADS and listed on NYSE. On 7.1.2009, the then Chairman of Satyam filed a letter to the Board of Directors admitting that the company’s balance-sheet was inflated on account of false inflated receipts, incomes and profits over several years. As a result of public disclosure of this fraud, the prices of. Satyam ADS fell on NYSE from USD 9.35 on 7.1.2009 to USD 1.14 on 9.1.2009. Several US investors of Satyam filed suits against Satyam in various jurisdictions in United States claiming damages. All these suits were consolidated on 9.4.2009 by the United States judicial panel on multi district litigation into one proceeding in the United States Court.
The Plaintiffs claimed that as a direct and proximate result of wrongful acts and misconduct of Satyam and its auditors, the plaintiffs suffered damages for which Satyam and other defendants were liable. On 16.2.2011 a settlement agreement was arrived at between Lead Plaintiffs and Satyam whereby in lieu of Satyam paying US dollar 125 million, the Lead Plaintiffs and the class members agreed to release and waive their claims against Satyam. Following the announcement of the Satyam settlement, PWC entities and Lead Plaintiffs commenced negotiations regarding claims against PWC entities. Subsequently the PWC entities also entered into the settlement agreement to eliminate the burden, expense, uncertainty and distraction of further litigation and agreed to pay US dollars 25.5 millions as a consideration for their release in terms of the stipulations
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If i am not wrong, this ruling has been rendered irrelevant with the advent of Finance Bill, 2016