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TMI Blog2015 (10) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were converted into equal number of shares on 31.3.2002. The assessee sold the said shares between 23.12.2002 to 10.3.2003 in different lots. This shall result in long term capital gains as the shares shall be deemed to have been held for a period exceeding 12 months by the assessee. The equity shares held earlier and the preference shares acquired in exchange thereof were not the same. It was held that in such circumstances, irredeemable preference shares issued to the assessee being different from the equity shares issued in lieu thereof shall be deemed to have been held by the assessee from the date of their issue and not from the date of issue of the equity shares. Thus, the pronouncements cited by the revenue do not come to its rescue as those cases related to conversion of financial asset into another form of asset where there was no right accruing on the date of acquisition, whereas in the case of convertible debentures, a right is appended to the debenture for the debenture holder to receive shares on conversion after the stipulated period. Thus, in such circumstances, cases relied upon by the revenue shall be on different footing vis-a-vis case of secured convertible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the appeal. Hence the instant appeal by the revenue. 3. We have heard learned counsel for the parties. 4. Learned counsel for the revenue relied upon Section 2(42A) and also clause (f) to Explanation I (i) appended thereto to urge that the date of acquisition of convertible debentures had to be from the date of conversion of convertible debentures into shares and not from the date of original allotment. Support was drawn from the judgment of the Calcutta High Court inMrs. A. Ghosh vs. Commissioner of Income Tax, (1983) 141 ITR 45 (Cal) and pronouncement of Bombay High Court in Commissioner of Income tax vs. Santosh L.Chowgule and others, (1998) 234 ITR 787 (Bom.). 5. Conversely, learned counsel for the assessee placed reliance on Sections 47(x) and 49(2A) of the Act to contend that in case of secured convertible debentures, the date of acquisition of the shares received on conversion would be the date when originally convertible debentures were allotted to the assessee. 6. It would be expedient to reproduce the relevant statutory provisions which read thus:- Section 2(42A) 2(42A) short- term capital asset means a capital asset held by an assessee for not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company into shares or debentures of that company shall not mean transfer within the meaning of Section 45 of the Act. Further, Sub section 2A of Section 49 provides that the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee. In other words, the original cost at the time of allotment would be taken to be cost of acquisition. 8. A plain reading of Section 47(x) would indicate that the conversion of convertible debentures into shares would not constitute transfer for the purposes of computation of income under the head 'capital gains'. Similarly, Section 49(2A) of the Act clarifies that for computing the capital gains on sale of shares received on conversion of convertible debentures, the cost of acquisition of shares shall be the cost of convertible debentures and thus it shall be deemed to be the cost of such shares received on conversion. In such a situation, as a necessary corollary, it would be but logical to reckon the date of acquisition of the convertible debentures as the date of acquisition of such sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the date of allotment of shares and not from the date of conversion. The Explanation was introduced by the Finance Act, 1995 with effect from 1.4.1996 to clarify the provision in the case of bonus shares, the date of acquisition should be taken as date of allotment of such shares and computation of capital gains accordingly. Circular No.717 dated 14.8.1995 makes the provision very clear. The cost of acquisition of convertible debenture is deemed to be the cost of shares by virtue of deeming provision of Section 49(2A) and such fiction has to be taken its logical end. Therefore, the period of 12 months under Section 2(42A) proviso has to be reckoned from the date of acquisition of convertible debenture. Our view is further fortified by the decision of the Ahmedabad Bench of the Tribunal in the case of Smt.Roda vs. ITO (ITA No.1069/AHD/96) wherein it was held that the period of 12 months has to be reckoned from the date of acquisition of the convertible debentures. Bonus shares are issued to an existing share holder without making payment in cash. Therefore, the period of holding of the bonus asset will be reckoned from the date of allotment of such asset. No contrary dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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