TaxTMI 
TaxTMI 
2024 (8) TMI 222
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....n concluding that the deferred (i.e., contingent) consideration is taxable in the year under consideration without appreciating that the 1.2. Without prejudice, the learned AO erred in not granting corresponding credit of taxes of Rs. 14,33,14,056 withheld by the buyer on the said deferred (i.e., contingent) consideration and appearing to the credit of the Appellant in AY 2022-23. Ground No. 2: Claim during assessment proceedings of revised cost of acquisition of shares sold during the year 2.1. The learned AO/ DRP erred in not granting deduction of Rs. 41,34,40,564 being increased cost of acquisition claimed vide revised computation of income filed during assessment proceedings. Ground No. 3: Erroneous law of tax, surcharge and cess 3.1. The learned AO erred in facts and law in computing tax on income as Rs. 1,45,57,77,078, surcharge on tax as Rs. 6,75,49,381 and health and education cess on tax and surcharge as Rs. 5,67,41,480. 3.2. In doing so, the liability towards tax, surcharge and health and education cess have not been computed correctly as per the applicable rates. Ground No. 4: Erroneous lew of interest under ....
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....% on dividend for the assessee. The assessee further claimed the cost of acquisition will be increased. As per the assessee's submission, the refund computation was filed and additional claim for cost of acquisition seems inadvertently lower cost was claimed in the return of income amount to Rs. 2,62,50,000 shares was erroneously considered Rs. 10 per share instead of Rs. 56 per share. The assessee relied on circular No.14 (XL-35) of 1955, but in final assessment order, the assessee's claim was rejected and deferred income was added back with the total income of the assessee. Being aggrieved, the assessee filed an appeal before us. 3. The Ld.AR vehemently argued and filed a written submission (in short APB) which is kept in the record. The Ld.AR argued vehemently and invited our attention in the assessment order. The relevant paragraph of the assessment order is extracted as below: - "4. Long term Capital gain on sale of shares: During the year under consideration, the assessee company has sold shares of Huntsman Advanced Materials Solution Private Limited(HAMSPL) with other group companies vide share purchase agreement dated 28/29 October, 2020. As per share purchase a....
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....ly along with working of deferred consideration of USD 1,77,40,254/-. On considering the submission of the assessee, show cause notice has been issued on 23.12.2022 which was duly served upon the assessee. Vide above show cause notice, the assessee was asked as to why deferred sale consideration of US$ 1,77,40,254/-should not be added to the total income of the assessee. The assessee has submitted its reply on 24.12.2022 & 26.12.2022. 5. The submission of the assessee has been considered but not found acceptable on the following grounds: The assessee has relied upon the case of Hon'ble Bombay High Court CIT vs Mrs. Hemal Raju Shete and Hon'ble ITAT in the case of Universal Medicare(P) Ltd Vs Dy.CIT, CC-3(2), Mumbai. The facts of these case are different from this case. In the case of Hemal Raju Sethe the total consideration was capped at Rs. 20Crore and based on not only the formula prescribed in the agreement but also performance of UNISOL's profit in future years also. The assessee has not received deferred consideration in the next F.Y. as per said formula. In the case of Universal Medicare (P) Ltd Vs Dy.CIT, CC-3(2), Mumbai, some amount was kept in....
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....ature and has accrued only in the subsequent A.Y. i.e. 2022-23 even if this stand of assessee is considered , the issue is squarely covered by the provisions of section SOD of the I.T. Act. The provisions of section SOD are being reproduced here as under: "Fair market value deemed to be full value of consideration in certain cases. 5OD Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer." The plain reading of the above provision amply clarifies that even in cases of non-ascertainable and non-determined consideration, the fair market value of the said asset shall be deemed to be the full value of the consideration received or accruing as a result of such transfer." 5. The Ld.AR in argument placed that the deferred income, dividend should be accepted, and the deferred income was declared in the next year i.e. ....
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.... of a calendar month, in which case starting from the first day of such calendar month in which Closing occurs (each such period, the Revenue Period), specifying in each such Revenue Certificate, the Company's Revenue for the relevant Revenue Period multiplied by two, and provide such Revenue Certificates to the Sellers within three Business Days of the end of each month (Date of Revenue Certificate). By way of illustration, the Company shall be required to obtain its first Revenue Certificate at the end of the first month from the Closing Date or the first date of the month in which Closing occurs, as the case may be, and subsequently each month thereafter and the Revenue Period shall begin after six months following Closing and continue for each subsequent rolling six-month period. The Revenue Certificates shall be determined and finally agreed between the parties in accordance with Schedule 13. 2.5 The Company shall, and the Purchaser shall procure that the Company shall, promptly upon Closing, and in any event no later than 30 Business Days from the Closing Date, inform the Sellers of the amounts calculated as the Refund Consideration as verified by the Tax Advisor....
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....t the deferred consideration is payable over a period of four years i.e. 2006-07, 2007-08, 2008-09 and 2009-10. Further the formula prescribed in the agreement itself makes it clear that the deferred consideration to be received by the respondent-assessee in the four years would be dependent upon the profits made by M/s. Unisol in each of the years. Thus in case M/s. Unisol does not make net profit in terms of the formula for the year under consideration for payment of deferred consideration then no amount would be payable to the respondent-assessee as deferred consideration. The consideration of Rs. 20 crores is not an assured consideration to be received by the Shete family. It is only the maximum that could be received. Therefore, it is not a case where any consideration out of Rs. 20 crores or part thereof (after reducing Rs. 2.70 crores) has been received or has accrued to the respondent- assessee. As observed by the Apex Court in Morvi Industries Ltd. v. CIT [1971] 82 ITR 835. "The income can be said to accrue when it becomes due.... The moment the income accrues, the assessee gets vested right to claim that amount, even though not immediately." In fact the application of the....
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....n 13 that one has to read capital gain provision along with computation provision and the starting point of the computation is "the full value of the consideration received or accruing". In this case the amount of Rs. 20 crores is neither received nor it has accrued to the respondent-assessee during the subject assessment year. We are informed that for the subsequent assessment year (save Assessment Year 2007-08 for which there is no deferred consideration on application of formula), the Assessee has offered to tax the amounts which have been received on the application of formula provided in the agreement dated 25th January, 2006 pertaining to the transfer of shares. 9. The contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-07 as the same has not accrued during the year. As pointed out above, accrual would be a right to receive the amount and the respondent-assessee along with its co-owners have....
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....nt for the supply by the seller of pharmaceutical product that is manufactured by assessee. A draft of supply agreement was also prepared as a part of business purchase agreement as a schedule to the agreement. 33. In our view, once the condition of contract is reduced in writing, one must look at the substance of term i the contract. The contract must be read as a whole and not in a pick and choose manner. Further, the intent of parties must be found in the words used by them and if more than one interpretation is possible, one whit gives effect and proper meaning of all parts of the contract should be adopted. 34. The Hon'ble Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Jn (Civil Appeal No. 7019 of 2005) (SC) and in Delhi Development Authority v. Durga Chand (AIR 1973 S 2609) also held that if two interpretations of the document are reasonably possible, as it seems possible, tl principle to apply would be that the interpretation favouring the grantee as against the grantor should 1 accepted. 35. As we have noted above the Id. AR of the assessee vehemently submitted that Capital Gain is chargeable to tax only when ....
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....as claimed entire purchase consideration during the year * the share transfer has completed during the year; * the deferred consideration was received on 18 May 2021 which is before filing of return for AY 2021-22. 10.13 The assessee submits that the conclusions drawn by the learned AO based on the above are entirely misplaced. In this regard, the assessee submits as under: There is no dispute that the share transfer was undertaken and completed during the captioned year i.e., AY 2021-22. On this basis, the assessee correctly claimed the entire purchase consideration while computing capital gains for AY 2021-22. The assessee also correctly offered full value of sales consideration i.e., entire sales consideration, excluding the 'deferred (contingent) consideration' since the conditions were not met during AY 2021-22. As of 31 March 2021, the deferred (contingent) consideration had not accrued to the assessee. The assessee did not have any definite right to receive the amount, since it was subject to conditions as per SPA, which were dependent on the performance levels of Huntsman Advanced Materials Solutions Private Limited (as e....
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....out prejudice, the assessee submits that if the deferred (contingent) consideration is to be taxed in AY 2021-22, corresponding credit needs to be given in A Y 2021-22 for the taxes deducted thereon by the buyer amounting to Rs. 14,33,14,056. 5.2 Discussion and Direction of the DRP: 5.2.1 The Panel has considered the content of the objection, the submissions made by the Ld.AR, the stance of the Ld.AO in his draft assessment order and the argument made by the Ld.AR during the hearing of the case. 5.2.2 The Panel notes that the AO is justified in taxing the deferred consideration in the instant assessment year. According to the AO the total consideration is already determined and fixed. Therefore, the 'test of accrual', wherein the right to receive the amount is created, applies in this case." 8. We heard the rival submission and considered the documents available in the record. The year of taxability of the deferred (contingent) consideration whose accrual as well as timing and quantum was contingent at the time of entering into the Share Purchase Agreement (in short SPA). The assessee has taken the issue in Ground No. 1.1. The ld. AR placed tha....
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....ll be US$ 285 million plus the Cash Balance plus US$ 0.26 million plus the Refund Consideration together, the Sale Consideration of which: (a) The Closing Date Consideration shall be paid by the Purchaser to the Sellers on the Closing Date in accordance with Clause 5.2(a); and (b) The Total Deferred Consideration shall be paid by the Purchaser to the Sellers, subject to Clause 2.6 and in accordance with Clause 2.7 below, within 18 months of the date of this Agreement (the Deferred Consideration Period), in the proportion set forth in Schedue 5." For the aforesaid purpose, the meaning of the 'Closing Date Consideration' and the 'Deferred Consideration' which are also reproduced hereunder: "Closing Date Consideration means US$ 256.0 million).plus the Cash Balance plus US$ 0.26 million; Deferral Consideration means the INR equivalent of US$ 28. 1 million the realised Deferred Consideration, as the case may be, as per the foreign exchange conversion rate as per the Reserve Bank of India Reference Rate for Indian Rupee/I US Dollar available on its website as of the Closing Date:" The entire transaction of assessee is regulating b....
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....nsideration could be regarded as accrued during the said year. The stage of 'accrual1 is reached only when the assessee has a legally enforceable right to receive the said amount. In the present case, as explained in greater detail hereinabove, the deferred consideration was contingent on achievement of Revenue in excess of the Target Revenue/ the 2019 Revenue by HAMSPL. If the said event had not occurred, the assessee would not be entitled to any deferred consideration. In our considered view that the ld. AO has erred in not appreciating the deferred (contingent) consideration was contingent in nature and accrued only in the AY 2022-23. We respectfully relied on the order of the jurisdictional High Court in the case of Mrs.Hemal Raju Shete (supra) and order of Coordinate bench in the case of Universal Medical (P) Ltd(supra). So, the ground of the assessee succeeded. Accordingly, the appeal of the assessee in Ground no 1.1 is allowed. 8.2. Related to grant of credit of Rs. 14,33,14,056/- being the TDS relatable to the deferred consideration which has been presently claimed and allowed in AY 2022-23. The ld. AR mentioned this ground as alternative ground in referred to ground....