2022 (7) TMI 1289 - AT - Income Tax

Capital Gain - computation of cost of acquisition - bonus debentures or not - re- investment of dividend amount - treating the cost of acquisition of the bonus debentures received in the nature of dividend on which dividend Distribution Tax had been discharged as Nil while computing the capital gains arising on the sale of these debentures - HELD THAT - We have noticed that the assessee had made specific submissions explaining the cost of acquisition of the debentures of BDEL but none of the authorities below has dealt with these contentions by way of a speaking order. These contentions have been simply brushed aside and dealt with in a summary manner. An amount was indeed received on behalf of the assessee and this amount has been reinvested in the debentures. The debentures were not bonus debentures and the nomenclature given by the AO is thus incorrect. The taxes were duly paid on the deemed dividend in question, and it did constitute income of the assessee, even though received by a merchant banker on behalf of the assesse. The scheme under which the amount is received by the merchant banker, on behalf of the shareholders-including the assessee, and reinvested on behalf of these shareholders, is duly approved by the Hon ble High Court, vide order dated 19th September 2014. The fact of, and bonafides of, the transaction cannot thus be disputed. The amount of Rs. 13,85,580/- so reinvested, out of dividend, was the consideration paid for debentures. In the light of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee that the Assessing Officer erred in declines the claim of the assessee with respect to cost of acquisition in respect of these debentures. The assessee, therefore, must get the relief accordingly. We order so.

Summary

Issues:
Challenge to order dated 11th January 2019 under section 143(3) of the Income Tax Act, 1961 for the assessment year 2015-16 regarding the treatment of cost of acquisition of bonus debentures received from Blue Dart Express Limited as 'Nil' for computing capital gains.

Analysis:
The assessee, a non-resident company, contested the order of the Assessing Officer and the learned CIT(A) regarding the cost of acquisition of debentures received from Blue Dart Express Ltd. The Assessing Officer treated the cost of acquisition as 'Nil' while computing capital gains, despite the amount being dividend reinvested in the form of bonus debentures. The learned CIT(A) upheld this decision without addressing the assessee's contentions adequately. The assessee argued that the dividend amount should be considered as the cost of acquisition to avoid double taxation. The debentures were issued following a court-approved scheme where the dividend amount was reinvested by a merchant banker on behalf of the shareholders. The Tribunal found the Assessing Officer's decision erroneous and ruled in favor of the assessee, acknowledging the dividend amount as the cost of acquisition for the debentures.

The Tribunal noted that the authorities failed to address the assessee's submissions properly and upheld the claim that the cost of acquisition should be the dividend amount reinvested in the debentures. The transaction involving the reinvestment of dividend in debentures was part of a court-approved scheme, making the Assessing Officer's treatment of the debentures as 'bonus' incorrect. The Tribunal recognized the legitimacy of the transaction and the taxes paid on the deemed dividend, concluding that the assessee was entitled to consider the dividend amount as the cost of acquisition for the debentures. Therefore, the Tribunal allowed the appeal, granting relief to the assessee and overturning the previous decisions.

In conclusion, the Tribunal found in favor of the assessee, ruling that the cost of acquisition for the debentures should be the dividend amount reinvested, contrary to the Assessing Officer's decision to treat it as 'Nil.' The Tribunal emphasized the legitimacy of the transaction under a court-approved scheme and the payment of taxes on the deemed dividend, leading to the allowance of the appeal and relief for the assessee.