TaxTMI 
TaxTMI 
2008 (11) TMI 19
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....ates that The Cookson Group Plc. made a public announcement to the shareholders of FIL pursuant to the Regulations of SEBI to acquire upto 20% of the shares of FIL at a price of Rs.420 per share. The Applicant tendered its 12,77,292 shares to Cookson plc as a part of this Offer which closed on 22nd January 2008. Cookson Plc. has accepted to buy 12,75,689 shares of FIL from the applicant at a price of Rs.420 per share - for a total consideration of Rs.53.38 crores. In respect of capital gain arising therefrom, the applicant seeks advance ruling on the following two questions: (i) Whether, on the stated facts and in law, the tax payable on the long term capital gains arising on sale of equity shares of Foseco India Ltd., being listed securities, will be 10 per cent of the amount of capital gains as per the proviso to section 112(1) of the Income-tax Act, 1961? (ii) Whether, on the stated facts and in law, while calculating the amount of long term capital gain chargeable to tax interest paid by the applicant to the shareholders of Foseco India Limited as per the directives of the Securities Exchange Board of India will also be treated as a part of the cost of acquisition o....
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.... such long term capital gains, had the total income as so reduced been its total income; and (ii) the amount of income-tax calculated on such long term capital gains at the rate of twenty per cent; (c) in any other case of a resident, - (i) the amount of income-tax payable on the total income as reduced by the amount of long-term capital gains, had the total income as so reduced been its total income; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent; Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being listed securities or unit, or zero coupon bond exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee." 4. It is the contention of the applicant that the second proviso to section 112 (1) is attracted and therefore the rate of 10% specified therein would apply. The applicant relies on the ruling of this Authority in the case of Timken SAS, France reported in 294 ITR 5....
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....nd in favour of the applicant. 2nd Question: 5. Section 48 of the Act enjoins that the income chargeable under the head 'capital gains' shall be computed by deducting from full value of the consideration arising from the transfer of capital asset : (a) the capital expenditure incurred wholly in connection with the such transfer; and (b) the cost of acquisition of the asset and the cost of any improvement thereof. It is the contention of the applicant that the cost of acquisition of asset is the aggregate of the purchase price paid to the shareholders of FIL including the amount paid as interest in view of the delay in making the open offer. The applicant states that the interest was paid to the shareholders of FIL as per the directive of SEBI for the period between the date on which the open offer should have been made and the actual date of paying the consideration to the shareholders. The applicant states that no part of the interest pertains to a period after the acquisition has been made. Hence, it is contended that the payment made towards interest should, therefore, enter into the cost acquisition. We find substance in this contention. 6. Though S.55 (2)(....
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....n section 55 is obviously not exhaustive. There is an uncovered area and the present case falls within that area. The term 'cost of acquisition' in so far it is not covered by the situations/events specified in section 55(2), shall be understood according to commercial sense coupled with common sense. 8. It does not require much of argument to demonstrate that interest paid to the shareholders pursuant to the order of a statutory body legitimately enters into the cost of acquisition of shares in addition to the payment of price. Interest was paid to the shareholders of FIL in order to compensate for the delay. But for the payment by way of interest, it would not have been possible to acquire the shares. The payment of interest in addition to the price is nothing but an integral process of acquisition of shares. Either in plain sense or commercial sense, it becomes an inseparable part of cost of acquisition. By no process of reasoning, the interest amount paid to the shareholders prior to acquisition can be dissociated from the cost of acquisition of shares. 9. In the case of CIT vs. Mithlesh Kumari (92 ITR 9) the Delhi High Court had even gone to the extent of treating ....