Section 51 of income tax

[yash gupta]

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.

AI Summary

Taxation of interest on refunded acquisition advance: treated as income, not capital gains, indexation not applicable.
Interest received on refund of an advance paid for an acquisition is characterised as income-taxable under business income or other sources-and not as a capital gain; indexation for capital gains is therefore not appropriate. Section 51 applies to a transferor who retains or forfeits an advance and operates by reducing cost of acquisition, but it does not apply to a purchaser who is refunded an advance.