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2018 (11) TMI 859 - AT - Income TaxComputation of capital gain - Addition on account of conversion of cumulative and compulsory convertible preference shares (CCPS) into equity shares treating the same as transfer within the meaning of section 2(47) - Held that:- According to us, there is no leakage of revenue if such interpretation is adopted. Not only this interpretation would be in furtherance to the legislative intention but would also make the competition provision of capital gain work smoothly, in synchronization with other provisions, without any conflict with other provisions. On the other hand, if the view is adopted that capital gain tax liability arose upon conversion, the same would be not only against the legislative intention but also would make the composition of capital gain unworkable and would bring conflict with other provisions of the Act. In fact, the contrary interpretation would lead to double taxation in as much as, having taxed the capital gain upon such conversion, at the time of computing capital gain upon sale of such converted shares, the assessee would be still taxed again, as the cost of acquisition would still be adopted as the issue price of the CCPS and not the consideration adopted while levying capital gain upon such conversion. By so starch of imagination, such interpretation process is permissible. We are of the view that conversion of CCPS into equity shares cannot be treated as ‘transfer’ within the meaning of Sec. 2(47) of the Act and hence, we delete the addition and allow this issue of assessee’s appeal. Addition on account of notional interest @ 7% on capital balance in the partnership firm as income of the assessee - Before us, assessee contended that the deed was not modified pertaining to the below changes and thus, the same has not been registered with the Registrar of Firms - Held that:- the supplementary deed entered by the assessee was duly executed on a stamp paper and as such, holds legal validity. Now, before us, ld. Counsel stated that even under section 40(b) of the Act, which provides the allowance for remuneration and interest expense of partners for a partnership firm does not provide for a requirement to have the partnership firm registered in order to allow the expenses in the hands of the firm. Even otherwise, the income has not accrued to the assessee we find that these facts need verification and hence, the same are restored back to the file of the AO. This issue of the assessee’s appeal is allowed for statistical purposes. Assessment under MAT computation u/s 115JB in respect to long term capital gain added by AO on conversion of cumulative compulsory preference share into equity share and notional interest on capital balance - Since we have already adjudicated the first issue of long term capital gain in favour of assessee, gain not to be charged to capital gain and the issue of notional interest set aside to the file of the AO, this issue has been academic and hence needs no adjudication.
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