| The Tax Publishers2020 TaxPub(DT) 4278 (Karn-HC) : (2020) 429 ITR 0045 : (2020) 317 CTR 0702 : (2021) 276 TAXMAN 0118 INCOME TAX ACT, 1961
Section 48(ii)
Cost of acquisition of FCCB's sold by assessee would be the conversion price determined on the basis of the price of the shares at the Bombay Stock Exchange, or the National Stock Exchange, on the date of conversion of the Foreign Currency Convertible Bonds into shares.
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Capital gains - Cost of acquisition - Foreign currency convertible bonds (FCCBs) sold by assessee after conversion -
Assessee not resident in India, acquired foreign currency convertible bonds and after conversion of same into shares, sold the same during relevant previous year and disclosed short term capital gains from transaction and paid tax thereon at the prescribed rate. Cost of acquisition of equity shares on conversion of foreign currency convertible bonds was shown to be at Rs. 873.83 and Rs. 858.08 per share, whereas in fact assessee converted bonds into shares at Rs. 200 per share. AO therefore concluded that cost of acquisition of share had to be assessed at Rs. 200 per share and not at Rs. 873.83 and Rs. 858.08 per share as claimed by assessee. Held: Central Government had issued the scheme viz., issue of foreign currency convertible bonds and ordinary shares (through Depository Receipt Mechanism) Scheme, 1993. The said scheme had been made applicable for assessment year 2002-03 onwards vide notification, dated 10-9-2002. Clause 2(f) of the Scheme provides that words and expressions not defined in the scheme, but defined in IT Act, 1961 or Companies Act, 1956, or Securities and Exchange Board of India Act, 1992 or Rules and Regulations framed under these Acts, shall have the meaning respectively assigned to them, as the case may be, or the Securities and Exchange Board of India Act. Clause 7 of the scheme deals with transfer and detention. Sub-Clause (4) of clause 7 of the scheme reads as under :-- For the purposes of conversions of Foreign Currency Convertible Bonds, cost of acquisition in the hands of non-resident investors would be the conversion price determined on the basis of the price of the shares at the Bombay Stock Exchange, or the National Stock Exchange, on the date of conversion of the Foreign Currency Convertible Bonds into shares. Also, section 49(2A) was amended by Finance Act, 2008 and was to be read with the FCEB Scheme. Accordingly, cost of acquisition was to be determined as per provisions of clause 7(4) of the Scheme for computtion of capital gains.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2008-09
IN THE KARNATAKA HIGH COURT
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