TaxTMI 
TaxTMI 
2024 (8) TMI 222
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 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 section 234A and section 234B of the Act 4.1. The learned AO erred by levying interest under section 234A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssion, 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 agreement, the assessee company is holding 17,484,765 number of Equity Share equal to 63.61% shareholding of HAMSPL. As per share purchase ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 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 Escrow account and payable in five equal instalment. In this case, the total consideration is already determined and fixed. Even deferred consideration amount is also fixed as per agreement of share p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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. on assessment year 2022-23. The Ld. AR invited our attention in the agreement for purchase of shares in between 7 parties including the assessee itself. The relevant paragraph of the agreement is reproduced below: - "2. SALE AND PURCHASE; TIMING OF PAYMENT 2.1 On th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellers 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. 2.6 The Total Deferred Consideration shall be paid by the Purchaser to the Sellers subject to the following (also as further illustrated in Schedule 15): (a) If in any of the Revenue Periods, the calculated Revenue reflected in the agreed Revenue Certificate for such Revenue Period is equal to, or exceeds, the 2019 Rev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es 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 formula in the agreement dated 25th January, 2006 itself makes the amount which is receivable as deferred consideration contingent upon the profits of M/s. Unisol and not an ascertained amount. Thus in the subject assessment year no right to claim any particular amount gets vested in the hands of the respondent-assessee. Therefore, entire amount of Rs. 20 crores which is soug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment 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 not under the agreement dated 25th January, 2006 obtained a right to receive Rs. 20 crores or any specified part thereof in the subject assessment year. 10. In the above view there could be no occasion to bring the maximum amount of Rs. 20 crores, which could be received as deferred consideration to tax in the subject assessment year as it had not accrued to the respondent-assessee. 11. We fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt 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 income "accrues" to assessee. The contingent consideration accrued only upon compliant of condition in subsequent Assessment Years, the same was chargeable only in the years in which the said income accrued. The Id. AR also furnished the copy of income tax return and the income offered to tax capital gain of Rs. 17.89 crore each in A.Ys. 2013-14, 2014-15, 2015-16 & 2016-17. 36. The Hon'ble Bombay High Court in Mrs. Hemal Raju Shete's cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ptioned 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 explained in paras 10.7 and 10.10 above). Only upon fulfilment of the conditions in FY 2021-22 (i.e. AY 2022-23), the assessee became entitled to receive the 'deferred consideration'. Till such time, the amount did not accrue to the assessee. Receipt of deferred consideration prior to filing return of AY 2021-22 cannot determine the year of taxability. The year of taxability depends upon accrual of a legally enforceable right to the consideration - this right arose, accrued and crystallised....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 that said consideration has been offered to tax as long-term capital gains in AY 2022-23 being the year of its accrual, which also stands assessed as per assessment order dated 27.02.2024 passed for the said year. Considering Section 45(1) of the Act let's quick look on the section. "Capital gains. 45.[(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 41[***] 42[54, 54B, 43[***] 44[45[54D, 46[54E, 47[54EA, 54EB,] 54F 48[, 54G and 54H]]]]], be chargeable to income-tax under the head "Capital gains....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sideration' 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 by working of closing date consideration as attributable to the assessee as per SPA. The said consideration has been offered for tax as long-term capital gain for the year under consideration i.e., AY 2021-22 and is not in dispute.Insofar as the deferred consideration is concerned, clause 2.6 of the SPA is relevant as mentioned above in paragraph 5 of the order. if in all the Revenue Periods, the Revenue reflected in the agreed Revenue certificate for such Revenue period was lower than the 2019 Revenue, the deferred consideration payout/if any, shall occur at the end of the deferred consideration period in accordance with sub-clause(c) and (d) of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fully 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 1.1. Currently, the ground 1.2 is infructuous. Accordingly, the appeal of the assessee in Ground No. 1.2 is dismissed as in infructuous. 8.3. The grievance of the assess for adopting of the correct cost of acquisition of shares i.e. cost of Rs. 56 per share has been erroneously taken as Rs. 10 per share as there was a mistake in the computation of income with respect to the cost of acquisition of shares acquired on 05.05.2012. In argument the ld. AR submitted the documents against it's claim. The said is fully technical. We remand back the matter to the file of the ld. AO for considering the claim of the assessee related cost of share Rs. 56/-. Accor....