Case: Kingfisher Capital Clo Limited Vs. Commissioner of Income Tax and Others

from debentures"84. In para 2 of the judgment, the facts have been noted as also the submissions and thereafter, the discussion has been made in paras 7 and 8, which read as under:-"7. Section 2(42A) of the Act defines a short term capital asset and in case of shares where the assessee holds the said shares for 12 months or less than 12 months, it shall be short term capital asset. Clause (f) of Explanation I(i) to Section 2(42A) of the Act states that in case of capital asset being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset. Section 47(x) and 49(2A) were inserted by the Finance (No.2) Act, 1961 with retrospective effect from 1.4.1962. Section 47(x) provides that any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of 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 shares received on conversion of convertible debentures. Now examining the factual matrix herein, the assessee was allotted 27160 convertible debentures of TELCO Limited on 20.12.2001 which 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 lot. 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."85. We do not think that this view of the High Court of Punjab and Haryana at Chandigarh is in any way inaccurate. Similarly, Mr.Kaka laid emphasis on certain observations in the case of Commissioner of Income Tax vs. Manjula J. Shah (supra) and to our mind, though the principle laid down in this judgment may be of some assistance to the petitioners, still, merely because the judgment in the case of Commissioner of Income Tax vs. Naveen Bhatia, reported in 287 ITR 587 of the High Court of Punjab and Haryana at Chandigarh is not accepted by the Department and a Special Leave Petition is pending, its persuasive value is not lost. More so, when it is dealing with an identical issue.86. We are aware of the fact that Mr.Ahuja has also tendered a compilation and he has given certain list of dates, but, once we find that the reliance on these dates and events and particularly the date of conversion would not in any manner dilute the clauses of the FCCB Scheme of 1993, then, these dates and events as compiled by the Revenue are of no assistance.87. In the compilation tendered on behalf of the Revenue, several other materials are also introduced, including the Budget Speech of the Finance Minister. It also contains the new Industrial Policy, 1991 and relevant part of Taxmanns Foreign Exchange Management Manual. These may also make reference to the FCCB, but what we find is that an attempt is made to read the provisions of the Income Tax Act and introduced with effect from 1st April, 2008 in relation to Foreign Currency Exchangeable Bond Scheme, 2008 and apply it to the FCCB Scheme of 1993. That is not correct.88. Then, Mr.Ahuja invited our attention to the judgments of the Honble Supreme Court in Gainda Ram and Ors. vs. Municipal Corporation of Delhi and Ors, reported in (2010) 10 SCC 715. He relied upon this judgment to urge that a provision of law cannot be disregarded or brushed aside by making references to a scheme or understanding of it particularly of the executive. The principle that was pressed into service is that the schemes that are framed and referred in this judgment were later on not totally endorsed by the Honble Supreme Court. In any event, neither the policy nor the scheme can be called law and ignored in preference to the clear statutory provisions. Hence, the scheme framed under the direction of the court cannot be said to be framed under the power to frame Byelaws which flows from the statute. The scheme, therefore, does not have the status of law or even subordinate legislation.89. Mr.Ahuja also then invited our attention to the judgment of the Honble Supreme Court in the case of Ispat Industries Ltd. vs. Commissioner of Customs, Mumbai, reported in (2006) 12 SCC 583 to urge that rules framed under a statute stand on a different footing. Therefore, they can be considered as binding. We do not think that there is any quarrel about this principle, but its application will depend on the facts and circumstances of an individual case. Hence, we are not dealing with other judgments cited by him, including Smt.Taralata Shyam and Ors. vs. Commissioner of Income Tax , reported in (1977) 108 ITR 345. The other judgments on similar point also need not be referred in further details.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]48. A bare perusal of this section would indicate that the Revisional Authority is invoked so as to seek a revision of other orders and while that jurisdiction is invoked, the authority can exercise the powers under section 264 and make an enquiry or cause an enquiry to be made to enable it to pass, subject to the provision of this Act, such order but not an order prejudicial to the assessee. The order that he thinks fit should be passed must, therefore, conform to the conditions set out in sub-sections (1), (2) and (3) of section 264.We are really not concerned with this conclusion because the Assessee is satisfied with it and obtained the relief it sought from the Commissioner.As already stated above, it is the second issue and in that regard the Revisional Authority reproduced paragraphs 16 and 18 of the assessment order and in paragraphs 9 and 10, the Commissioner says that the assessee has considered the cost of acquisition of the shares to be the closing price of the shares of NBVL on the National Stock Exchange on the date of allotment of the shares to the assessee i.e. on 18 th August, 2011, but the AO faulted it. The Revisional Authority then, in paragraph 11, reproduces section 49(2A) and says that this provision refers to the transfers mentioned in clause (xa) of section 47 of the Income-tax Act, which was inserted by the Finance Act2008 with effect from 1st April, 2008. Upon reproducing this provision in paragraph 11.4, the Revisional Authority comes to the conclusion that it is a combined reading of the three provisions which enable him to reject the contentions of the petitioner.Firstly, we will see only the main conclusion and what we find is that section 115AC(1) clearly refers to income by way of interest on bonds of an Indian company issued in accordance with such Scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf. Section 49(2A), to which we have already made detailed reference above, deals with a capital asset being a share or debenture of a company becoming the property of the assessee in consideration of a transfer referred to in clause (x) or (xa) of section 47 and section 47(x) under a transfer by way of conversion of bonds or debentures and (xa) by way of conversion of bonds referred to in clause (a) of sub- section (1) of section 115AC into shares or debentures of any company. The assessee may maintain that there is nothing in the Act which enables the authorities to deal with a situation and it is only clause 7 dealing with transfer and redemption and particularly sub-clause (4) thereof, as spelt out in the Scheme, which will apply. We are of the clear opinion that it is the conversion of foreign currency convertible bonds that the cost of acquisition in the hands of non-resident Indian investors would be the conversion price determined on the basis of the price of the shares as in this case, the National Stock Exchange, on the date of conversion of foreign currency convertible bonds into shares. This is the cost of acquisition in the hands of a non-resident investor. That would be the conversion price determined on the basis of the price of the shares at the National Stock Exchange and, therefore, conversions of FCCBs would be donethese circumstances, it is evident that any scheme prior thereto and particularly the one involved before us, namely, the FCCB Scheme notified by Central Government in 1993 and applicable with effect from 1 st April, 1992 and enabling the computation of cost of acquisition, in terms thereof, was held to be unaffected. It was, therefore, possible to compute the cost in terms of the clauses of that scheme and which was admittedly an earlier scheme.To our mind, therefore, Mr.Kaka is right in his contention that the revisional authority fell in clear error in taking assistance of the amendments made by the Finance Act, 2008. To our mind, Mr. Kaka is right in urging that the cost of acquisition of the shares was to be determined with reference to the date of acquisition of the FCCBs, then, the period for which the shares should be regarded as having been held by the petitioner- assessee should also be reckoned to the date of acquisition. He is right in urging that the second respondent failed to consider the scheme and therefore, once these clauses are included in the FCCB Scheme itself, then, they would govern the FCCB related transactions to the extent the corresponding provisions are not made in the Act. The authority was not right in holding that the cost of acquisition of the shares as per clause 7(4) of the FCCB Scheme is not tenable. Thus, the Government of India notified Scheme effected from 1992 held the field and was the applicable one. The FCEB Scheme has equal status but is admittedly a later one.The reliance placed by Mr.Kaka on the compilation tendered by him is thus accurate.We do not think that this view of the High Court of Punjab and Haryana at Chandigarh is in any way inaccurate. Similarly,Mr.Kaka laid emphasis on certain observations in the case of Commissioner of Income Tax vs. Manjula J. Shah (supra)and to our mind, though the principle laid down in this judgment may be of some assistance to the petitioners, still, merely because the judgment in the case of Commissioner of Income Tax vs. Naveen Bhatia, reported in 287 ITR 587 of the High Court of Punjab and Haryana at Chandigarh is not accepted by the Department and a Special Leave Petition is pending, its persuasive value is not lost. More so, when it is dealing with an identical issue.We are aware of the fact that Mr.Ahuja has also tendered a compilation and he has given certain list of dates, but, once we find that the reliance on these dates and events and particularly the date of conversion would not in any manner dilute the clauses of the FCCB Scheme of 1993, then, these dates and events as compiled by the Revenue are of no assistance.In the compilation tendered on behalf of the Revenue, several other materials are also introduced, including the Budget Speech of the Finance Minister. It also contains the new Industrial Policy, 1991 and relevant part of Taxmanns Foreign Exchange Management Manual. These may also make reference to the FCCB, but what we find is that an attempt is made to read the provisions of the Income Tax Act and introduced with effect from 1st April, 2008 in relation to Foreign Currency Exchangeable Bond Scheme, 2008 and apply it to the FCCB Scheme of 1993. That is notprinciple that was pressed into service is that the schemes that are framed and referred in this judgment were later on not totally endorsed by the Honble Supreme Court. In any event, neither the policy nor the scheme can be called law and ignored in preference to the clear statutory provisions. Hence, the scheme framed under the direction of the court cannot be said to be framed under the power to frame Byelaws which flows from the statute. The scheme, therefore, does not have the status of law or even subordinatedo not think that there is any quarrel about this principle, but its application will depend on the facts and circumstances of an individual case. Hence, we are not dealing with other judgments cited by him, including Smt.Taralata Shyam and Ors. vs. Commissioner of Income Tax , reported in (1977) 108 ITR 345.   The other judgments on similar point also need not be referred in further details.