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2021 (9) TMI 68 - AT - Income TaxShort Term Capital Gain arising out of transfer of equity shares - FCCBs/GDRs which were subsequently converted to equity shares - cost of acquisition of underlying shares - whether capital gain has to be computed by adopting the cost of acquisition of the GDRs/FCCBs under clause 7(3) and 7(4) of the 1993 scheme or it has to be computed under section 49(2A) r.w.s. 47(x) and 47(xa) of the Act, as held by the Departmental Authorities? - HELD THAT - The cost of acquisition of underlying shares of GDRs shall be the price of the ordinary shares of the issuing company prevailing in the BSE or the NSE on the date of the advice of redemption by the Overseas Depository Bank to the Domestic Custodian Bank - the cost of acquisition of underlying shares of FCCBs would be the conversion price determined on the basis of the price of shares at the BSE or NSE on the date of conversion of FCCBs. In case of Kingfisher Capital COL Ltd. vs. CIT 2019 (4) TMI 106 - BOMBAY HIGH COURT has held that the cost of acquisition of equity shares on conversion from FCCBs/GDRs has to be determined as per clause 7(3) and 7(4) of the 1993 scheme. Same view has been expressed by the Hon ble Karnataka High Court in case of DIT vs. Intel Capital Corporation 2020 (10) TMI 521 - KARNATAKA HIGH COURT . Assessee has adopted the cost of acquisition in terms of clause 7(3) and 7(4) of 1993 scheme, based on the data available in public domain. Thus, respectfully following the decision of the Hon ble jurisdictional High Court noted above, we direct the AO to compute capital gain by following the method prescribed under clause 7(3) and 7(4) of the 1993 scheme (supra).
Issues Involved:
1. Addition of Short Term Capital Gain arising from the transfer of equity shares. 2. Determination of the cost of acquisition for equity shares converted from FCCBs/GDRs. 3. Validity of reopening the assessment. Detailed Analysis: 1. Addition of Short Term Capital Gain: The core issue revolves around the addition of Short Term Capital Gain of ?19,42,466/- arising from the transfer of equity shares. The assessee, a non-resident company incorporated in the UK, had acquired Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds (FCCBs) of certain Indian Companies, which were later converted to equity shares. The assessee sold these equity shares and did not file a return of income, leading to the reopening of the assessment under section 147 of the Income Tax Act, 1961. The Assessing Officer (AO) computed the short-term capital gain by taking the sale consideration at ?19,42,466/- and the cost of acquisition per share at ?1/-, resulting in the disputed addition. 2. Determination of Cost of Acquisition: The primary contention is the method to determine the cost of acquisition for equity shares converted from FCCBs/GDRs. The assessee argued that the cost should be determined as per clauses 7(3) and 7(4) of the 1993 scheme, which states that the cost should be based on the price of the shares on the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) on the date of conversion or redemption. The Dispute Resolution Panel (DRP) upheld the AO's computation but directed the AO to determine the cost of acquisition based on the necessary details provided by the assessee. The assessee relied on the decisions of the Hon’ble Bombay High Court in Kingfisher Capital CLO Ltd. vs. CIT and the Hon’ble Karnataka High Court in DIT vs. Intel Capital (Cayman) Corpn., which supported the assessee's method of computation. 3. Validity of Reopening the Assessment: The assessee challenged the validity of reopening the assessment, arguing that it had not earned any income from India and thus was not required to file a return. However, after the reasons for reopening were communicated, the assessee filed a return declaring a loss. The Tribunal did not find it necessary to adjudicate on this issue, as the primary issue regarding the method of computing the capital gain was resolved in favor of the assessee. Conclusion: The Tribunal concluded that the cost of acquisition should be computed as per clauses 7(3) and 7(4) of the 1993 scheme, based on the price of shares on the BSE or NSE on the date of conversion or redemption. The Tribunal directed the AO to follow this method for computing the capital gain. Consequently, other grounds, including the validity of reopening the assessment, were dismissed as academic or consequential. The appeal was allowed in favor of the assessee, and the order was pronounced in the open court on 16th August 2021.
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