Additional consideration received in terms of letter of open offer due to delay in making open offer and dispatch of letter of offer, is part of share price of original transaction not penal interest for delayed payment. The additional consideration is capital receipt.


An open offer was made by Oracle to the shareholders of I-flex at the price of Rs. 1,475 per share. The letter of open offer stated that additional consideration per share would be paid due to delay in making the open offer and dispatch of the letter of offer based on the time-line prescribed by SEBI.  The consideration was revised to Rs. 2,084 per share. The additional consideration for delay was revised to Rs. 16 per share.

In response to the open offer, the assessee tendered its holding in I-flex and received Rs. 2,89,77,45,900, which included additional consideration of Rs. 2.20 crores. The Revenue contended that the additional sum received was a revenue receipt and taxable in the hands of the assessee.

The Tribunal held that the additional consideration received was for delayed payment of principal and that it was part of the original consideration and hence not taxable.


On appeal by the Revenue, the Bombay HC upheld the decision of the Tribunal. The HC held that the additional amount received by the assessee was part of the offer from the sale of shares made by it. The reason to have increased the sum per share by the company Oracle to the shareholders of I-flex might be on account of delay of issuance of the shares, but it was part of the sale price of the share. The HC held that this component could not be treated as interest on delayed payment on price of the share.  The HC held that additional sum was part of the sale price and retained the same character as the original price of the share.

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