Law: Income Tax Act, 1961

Section: 4,28(i),45,48

Section 4, read with sections 28(i), 45 and 48, of the Income-tax Act, 1961 - Income - Chargeable as (Compensation) - Certain Foreign Institutional Investors (FIIs) bought shares of an Indian company - Company disclosed that its financial statements were manipulated - FIIs instituted suit against Company and its auditor for fraud - Company and its auditor agreed to pay settlement amount to FIIs to settle all claims - Whether settlement amount received against surrender of right to sue is capital receipt but cannot be considered for purpose of capital gains as its cost of acquisition cannot be determined due to which computation provisions fails and capital gains cannot be calculated - Held, yes - Whether settlement amount has been received not as part of business profit or to compensate future income but as a result of surrender of claim against company and its auditor and even in accordance with principle of surrogatum, such amount is not assessable as income because it does not replace any business income - Held, yes - Whether in view of above settlement amount received is not taxable under Income-tax Act - Held, yes [Paras 10, 13 & 14] [In favour of applicant] Circulars & Notifications: Circular No. 4 of 2007, dated 15-6-2007 FACTS â–  During years 2003-2009, Investment funds managed by Aberdeen (a foreign institutional investor) and its affiliates ('Aberdeen Investors') purchased shares of Satyam Computer Services Limited ('Satyam') listed on Bombay Stock Exchange/National Stock Exchange ('Common Stock') and Satyam's American Depository Shares ('ADRs') listed on the New York Stock Exchange. â–  On 7-1-2009, Ramalinga Raju, the then Chief Executive Officer of Satyam submitted his resignation letter to Satyam's board wherein he accepted that Satyam's financial results were manipulated over a period of years. On the same day, the Aberdeen Investors disposed of Satyam Common Stock and ADRs. â–  On 9-1-2009, further disposal was executed of Satyam Common Stock and ADRs by Aberdeen Investors. â–  On 1-9- 2009, Aberdeen Claims Trust and Aberdeen Claims Trust II ('Claim Trusts') were formed under laws of Pennsylvania, USA. Aberdeen…