SUPREME COURT OF INDIA
Commissioner of Income-tax, Kolkata
Vasudhara Holdings Ltd.
CIVIL APPEAL NO. 6106 OF 2012
SPECIAL LEAVE TO APPEAL (CIVIL) NO. 16866 OF 2008
AUGUST 28, 2012
1. Heard learned counsel on both sides.
2. Delay condoned.
3. The question which arises for determination in this civil appeal filed by the Department is as follows:
“Whether the sum of Rs. 75,00,000/- received by the assessee as compensation from M/s. Jenson and Nicholson Limited under consent decree dated 1st September, 1998, in Suit No. 321B of 1996 passed by the Calcutta High Court was at all taxable under Section 56 of the Income Tax Act, 1961?”
4. The respondent made an application for allotment of Fully Convertible Debentures of a Company by the name ‘M/s. Jenson and Nicholson Limited’. The said debentures were allotted to the respondent, which were later converted into shares. The shares were received by the respondent on 8th November, 1996. Thereupon, the respondent became entitled for the Right Issue. On allotment of shares under the Right Issue, the respondent acquired about fourteen per cent of the paid up capital of M/s. Jenson and Nicholson Limited, which was above the threshold limit prescribed by the Takeover Code enacted by Securities and Exchange Board of India [‘SEBI’, for short]. Consequently, the respondent became entitled to takeover M/s. Jenson and Nicholson Limited by virtue of allotment of the said shares. Under the said Takeover Code, as it then stood, the respondent acquired the right to make an Open Offer to the other shareholders of M/s. Jenson and Nicholson Limited for acquiring at least twenty five per cent of the paid up share capital of that Company. The respondent forwarded necessary intimation to various Stock Exchanges as also to M/s. Jenson and Nicholson Limited, as provided for in the Guidelines framed by SEBI.
5. On receipt of intimation from the respondent, M/s. Jenson and Nicholson Limited cancelled the Right Issue of Fully Convertible Debentures as well as allotment of shares made in favour of the respondent herein on 16th November, 1996. Against the said action, the respondent filed a civil suit, bearing No.321B of 1996, in the Calcutta High Court. During the pendency of the said suit, the parties entered into a Memorandum of Settlement on 1st September, 1998, under which M/s. Jenson and Nicholson Limited agreed to pay Rs. 75,00,000/- in full and final settlement of the said suit. Pursuant to the said Memorandum of Settlement, the High Court passed a decree dated 1st September, 1998, allowing the consideration of settlement of Rs. 75,00,000/-, which was received by the respondent from M/s. Jenson and Nicholson Limited for giving up the right of Takeover Code enacted by SEBI.
6. The narrow question, which the Court is required to consider in this civil appeal is the nature of the compensation amount received by the respondent in the sum of Rs. 75,00,000/-. As stated above, the Department seeks to tax the said amount under Section 56 of the Income Tax Act, 1961, whereas, according to the respondent, the said amount received by it as compensation for giving up its rights under the Takeover Code was a capital receipt not liable to be taxed under the Income Tax Act, 1961.
7. Having heard learned counsel on both sides, we are of the view that the matter needs to be remitted to the Assessing Officer. Having gone through the records and proceedings, we find that the Assessing Officer ought to have called upon the respondent to produce the relevant documents which he failed to do so. In a matter of this nature, the Department is required to consider various documents, such as Letter of Offer made by M/s. Jenson and Nicholson Limited; Resolution of the Board of Directors of the respondent when they applied for Fully Convertible Debentures; the terms and conditions on which the debentures were issued; the circumstances under which the debentures would get converted into shares; the pleadings in the suit; the Resolution of the Board of Directors of the respondent-Company when they agreed to give up their right to takeover M/s. Jenson and Nicholson Limited for a sum of Rs. 75,00,000/-; and whether there was any transaction, apart from the consent decree. None of these questions have been raised by the Department nor has the Department called upon the respondent to produce the relevant documents. In the circumstances, we set aside the impugned order of the High Court and remit the entire case to the Assessing Officer for de novo consideration in accordance with law. We express no opinion on the merits of the case. We keep all arguments on both sides expressly open. The Assessing Officer will decide the matter uninfluenced by the observations made by the High Court/Income Tax Appellate Tribunal in the first round of litigation.
8. Accordingly, the civil appeal stands disposed of with no order as to costs.