A Company has paid Advance Money[Bid] of ₹ 20 Crore to Asset Reconstruction Company for the acquisition of a liquidating company, but due to higher bid from another company the assessee company has received after 4 years its Advance Money together with interest amounting to of ₹ 28 Crore.
Now, (i) whether the interest compensation it liable for capital gain and accordingly indexation done ??
OR (ii) It is treated as 'Capital Receipts ' u/s.51 as a result not liable for any Tax.
Kindly explain the Consequences.
Interest on Returned Advance: Taxed as Business Income, Not Capital Gains. Section 51 Inapplicable. Indexation Non-applicable. A company paid an advance of 20 crore to acquire a liquidating company but was outbid. Four years later, the company received its advance back with 8 crore in interest. The main query is whether this interest should be taxed as capital gains with indexation or treated as capital receipts under Section 51, which would make it non-taxable. Replies indicate that the interest should be taxed as business income or income from other sources, not as capital gains, and Section 51 is inapplicable since the advance was returned. If the interest was capitalized annually, indexation is not applicable. (AI Summary)
TaxTMI 
TaxTMI 
