Payment of interest in addition to price is nothing but an integral process of acquisition of shares

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 selected 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 notice, Shri Myank Goel, FCA appeared before the Assessing Officer and furnished the requisite details from time to time.

Assessing Officer has observed 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 Singapore 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 income 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 for acquisition of shares of WIMCO from the general public in pursuance of instruction of SEBI, it gave an open offer with a price of Rs.59.54 per shares. The assessee had purchased 1,70,362 shares of WIMCO on 8th and 9th September 2005 @ 58.93 per share. The assessee had sold all these shares to M/s. Swedish Match Singapore Pte Ltd. after 20 days i.e. on 29th September, 2005 @ Rs.59.54 per share. He has earned short term capital gain because shares were sold within 20 days. Assessing Officer has observed 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 per shares for the period 27.1.2001 till September 27, 2005. On the basis of this arrangement, Assessing Officer construed that assessee had received 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 interest income under the head “income from other sources”. In this way, an addition of Rs.41,73,321 was made.

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 Assessing Officer was embedded in the cost of acquisition of the shares. The Swedish Match Singapore Pte had paid the interest components by considering the period of January 27, 2001 till September 29, 2005 whereas assessee had purchased the shares on 8th and 9th of September and he sold them on 29th September 2005. Learned First Appellate Authority has considered all these aspects elaborately. The interest income cannot be assessed separately in the hands of the assessee. In view of the above discussion, this appeal of the revenue is dismissed.

INCOME TAX APPELLATE TRIBUNAL , DELHI 

ITA No. 2020/Del/2009 –  Assessment Year: 2006-07

Please become a Premium member. If you are already a Premium member, login here to access the full content.