IN RE: BURMAH CASTROL PLC. Vs. STATE

JUDGEMENT

(1.) THE applicant, Burmah Castrol Plc. is a non -resident company incorporated under the laws of England and Wales. The applicant submits that during the financial year 2001 -02, as per the directive of SEBI, it acquired 12,77,292 equity shares of Foseco India Limited (hereinafter referred to as 'FIL'), an Indian company, for an acquisition price of Rs. 221.86 per share and also as per those directives paid a further amount of Rs. 49.1429 per share for the delay in making the Open Offer. The payment of the said cost of acquisition of Rs. 271.0029 was made in foreign currency i.e., Sterling Pounds. The shares have been held by the applicant for more than 12 months. The shares of FIL are listed on the Bombay Stock Exchange and National Stock Exchange. The applicant states that The Cookson Group Plc. made a public announcement to the shareholders of FIL pursuant to the Regulations of SEBI to acquire up to 20 per cent 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 22 -1 -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:

(2.) THE applicant admits that it is chargeable to tax in India in respect of capital gains arising from the sale of shares of FIL as per the provisions of the Income -tax Act, 1961 as well as the DTAA between India and UK. The fact that the shares held by the applicant have acquired the character of long -term capital asset and that they answer the description of listed securities is not in dispute. The question is about the rate of tax applicable. The rates of tax on long -term capital gains are set out in section 112(1). The relevant part of section 112 is extracted hereunder:

(3.) 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 of acquisition. We find substance in this contention.