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2013 (11) TMI 356 - AT - Income TaxFringe Benefit Tax (FBT) - FMV u/s 115WC read with Rule 40C - ESOP - Determination of cost of acquisition of shares on the date of redemption - conversion of Global Depository Receipts (GDRs). - Held that - the average market price adopted as the prevailing price on the date of conversion of GDRs into equity shares as the cost of acquisition is reasonable and justifiable in the absence of any other circular/Rule vis- -vis Scheme under which GDRs are issued and redeemed into ordinary shares of the company - Decided against Assessee.
Issues Involved:
1. Determination of the cost of acquisition of shares obtained on conversion of Global Depository Receipts (GDRs). 2. Jurisdiction of CIT(A) under Section 251 and enhancement of assessed income. Issue-wise Detailed Analysis: 1. Determination of the Cost of Acquisition of Shares: The central issue in this appeal is the interpretation of the term "prevailing price" in the Stock Exchange for the conversion of Global Depository Receipts (GDRs) into shares. The assessee, a non-resident trust, converted GDRs of CIPLA Ltd. into shares and sold them, showing a short-term capital gain. The assessee claimed the cost of acquisition based on the closing price of CIPLA shares on the conversion date, which was Rs. 214 per share. However, the Assessing Officer (AO) used the weighted average price of Rs. 212.62 per share, resulting in an addition of Rs. 94,32,500. The assessee argued that the closing price should be considered as the cost of acquisition according to Clause 7(3) of the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993. The assessee also cited the Supreme Court's decision in CIT v. Vegetable Product Ltd., which favors the interpretation that benefits the assessee when a provision is ambiguous. However, the CIT(A) disagreed, stating that the consistent adoption of the closing price was an error and should not be perpetuated. The CIT(A) referred to Rule 40C of the Income Tax Rules, which prescribes the average of the opening and closing prices for determining the fair market value of shares. The CIT(A) justified the use of Rule 40C by referencing the Supreme Court's decision in K.P. Varghese, which allows the use of CBDT Circulars for statutory interpretation. The CIT(A) concluded that the average price of Rs. 212 per share should be used as the cost of acquisition, rejecting the assessee's claim of Rs. 214 per share. The Tribunal upheld the CIT(A)'s decision, agreeing that Rule 40C is applicable for determining the cost of acquisition in the absence of specific guidelines in the Scheme. 2. Jurisdiction of CIT(A) under Section 251 and Enhancement of Assessed Income: The second issue raised by the assessee was the jurisdiction of the CIT(A) under Section 251 and the enhancement of the assessed income. The CIT(A) had issued a notice of enhancement to the assessee, proposing to adopt the average price of Rs. 212 per share instead of the weighted average price of Rs. 212.62 used by the AO. The assessee contended that Rule 40C should not be applied as it pertains to fringe benefits tax and not capital gains. However, the CIT(A) held that Rule 40C is relevant for determining the fair market value of shares in the context of the Income Tax Act. The Tribunal noted that there were no submissions from either party regarding this ground during the appeal hearing. Consequently, the Tribunal rejected this ground of appeal. Conclusion: The Tribunal dismissed the appeal filed by the assessee, upholding the CIT(A)'s decision to use the average price of Rs. 212 per share as the cost of acquisition for computing short-term capital gains. The Tribunal found no merit in the assessee's arguments regarding the jurisdiction of the CIT(A) and the application of Rule 40C. The appeal was dismissed in its entirety.
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