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Commissioner of Income Tax-I, Ludhiana Versus Shri Naveen Bhatia

2015 (10) TMI 402 - PUNJAB & HARYANA HIGH COURT

Reckoning the period for long term capital gains - calculated from the date of purchase of convertible debentures or actual date of allotment of shares on conversion from debentures - Held that:- 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 .....

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as 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 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 s .....

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ase 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 debentures. - Decided against the revenue and in favour of the assessee - ITA No. 153 of 2008 - Dated:- 19-8-2015 - Ajay Kumar Mittal And Ramendra Jain, JJ. For the Petitioner : Mr. Rajesh Katoch, Adv For the Respond .....

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n the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in reckoning the period for long term capital gains from the date of purchase of convertible debentures instead of actual date of allotment of shares on conversion from debentures?" 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent-assessee is an individual. He filed his return of income for the assessment year 2003- 04 on 27.11.2003 .....

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re A.1 assessed the capital gain from sale of these shares as short term capital gain and disallowed the deduction under Section 54F of the Act amounting to ₹ 25,97,147/- claimed by the respondent. Aggrieved by the order, the respondent preferred appeal before the Commissioner of Income Tax (Appeals)-I, Ludhiana [(CIT(A)]. Vide order dated 31.3.2006, Annexure A.II, the CIT(A) partly allowed the appeal observing that the period of 12 months had to be reckoned from the date of acquisition of .....

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ion 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 converti .....

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her security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963 ) or a unit of a Mutual Fund specified under clause (23D) of section 10, the provisions of this clause shall have effect as if for the words "thirty- six months", the words" "twelve months" had been substituted. Explanation 1- In determining the period for which any capital asset is held by the assessee- (a) to ( .....

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y form, of a company into shares or debentures of that company". Section 49(2A) "(2A) Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of a transfer referred to in clause (x) or clause (xa) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenturestock, bond or deposit certificate in relation to which such asset is acquired by the assessee. .....

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et. 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 .....

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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 de .....

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ing the order of the CIT(A) had recorded in its order dated 17.5.2007, Annexure A.III as under:- "3. We have considered the rival submissions and perused the material available on the file. The assessee declared total income of ₹ 4,13,110/- in its return filed on 27.11.2003 alongwith copy of audit report. The assessee is a share broker, showed capital gains of ₹ 25,97,147/- on the sale of 27,147 shares of TELCO Ltd which were claimed exempt under section 54F of the Act. In order .....

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ked Explanation 1(i)(f) to Section 2(42A) by holding that the date of allotment of shares (converted from debentures) is relevant date for reckoning the period of 12 months by opining that the date of investment is of no consequence and the period of 12 months is to be reckoned from the date of allotment of shares and not the convertible debentures. However, Explanation 1(i) (f) to Section 2(42A) is very clear. In determining the period for which any capital asset is held by the assessee - (f) I .....

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m 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 ha .....

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date of allotment of such asset. No contrary decision has been brought to our notice by the revenue and no specific mistake has been pointed out in the conclusion of the learned CIT(A). Therefore, the order of the learned first Appellate authority is upheld." 10. In view of the above, contention raised on behalf of the revenue cannot be accepted. It may also be noticed that reliance on the judgment in Mrs. A.Ghosh's case (supra) was relating to a case where the assessee had acquired deb .....

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