TMI Blog2007 (4) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai, dated December 15, 2004, and arise out of the assessment completed under section ho- 143(3) of the Income-tax Act, 1961 ("the Act"). 2 The assessee is a Canadian company. The assessee had, over a period of time, acquired 3,88,44,324 shares of an Indian company by name Indian Aluminium Co. Ltd. (Indal). The shares acquired by the assessee-company are of the following categories (i) Shares acquired between 1938 and 1968 in Canadian dollars (CAD); (ii) Shares acquired in August, 1998, in American dollars (USD) ; and (iii) Bonus shares allowed between 1944 and 1996. 3 During the previous year relevant to the assessment year under appeal, the assessee-company sold the entire Indal shares to another company Hindalco Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of bonus shares allotted after April 1, 1981, in terms of section 55(2)(aa)(iiia). 7 While assessing capital gains, the Assessing Officer held that in the case of shares acquired by the assessee prior to April 1, 1981, the assessee could not take the benefit of FMV provided in section 55(2)(b)(i), thereby, meaning that the assessee cannot substitute its cost with FMV as on April 1, 1981. This is because, according to the assessing authority, the assessee is a non-resident and the non-residents are required to compute the capital gains in terms of the foreign currency conversion in terms of the first proviso to section 48. In other words, the Assessing Officer held that the capital gains in the case of. assessee being a non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [2006] 287 ITR 409 Income-tax Appeal No. 788/2004. The said appeal has been heard and disposed of by their Lordships through the judgment dated September 19, 2006. The hon'ble Bombay High Court observed therein that the Tribunal has accepted the contention of the Revenue that a non-resident was not entitled to indexation under section 48 of the Act and, therefore, was not eligible to rely on section 55(2)(b)(i). In this respect, the hon'ble Bombay High Court considered the following two questions (page 410) "(i) Whether, on the facts and ,in the circumstances of the case, the Tribunal erred in holding that the assessee was not entitled to exercise the option under section 55(2)(b)(i) of the Act to adopt the fair market value of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 deals with the meaning of the expression "adjusted", "cost of improvement" and "cost of acquisition". These definitions have been made in section 55 for the purpose of sections 48 and 49 of the Act. Section 48 deals with the mode of computation and section 49 refers to cost with reference to certain modes of acquisition. Therefore, it is to be seen that these provisions are machinery provisions embedded in the provisions of statute relating to the assessment of capital gains meant for computing the capital gains under different circumstances. Therefore, at the first instance itself, we have to state that sections 48, 49 and 55 are not charging sections, as tried to explain by the lower authorities. 14 Section 55(2) deals with the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Tribunal to consider the issue independent of section 48 while disposing of the matter in the case of Novartis AG Basle [2006] 287 ITR 409. 15 The first proviso to section 48 permits a non-resident to compute the capital gains after converting the concerned variables into the foreign currency in which the shares were first acquired. This facility of conversion .is provided for the reason that the conversion rate difference between the Indian currency and the foreign currency is different from currency to currency and fluctuate from time to time and not stable and also not comparable. Therefore, if no conversion is made and the capital gains is computed in the Indian currency, the computation will not reflect the "real capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. under section 112(1) of the Act. The Commissioner of Income-tax (Appeals) also has held that the rate of tax should be 20 per cent. The Authority for Advance Rulings (AAR) in the case of Universities Superannuation Scheme Ltd., In re [2005] 275 ITR 434 has considered and held in favour of the assessee in stating that the assessee is entitled to concessional rate of tax at 10 per cent. Therefore, this issue is also decided in favour of the assessee and direct the assessing authority to levy tax at 10 per cent. 20 The next issue to be considered in this appeal is regarding the cost of acquisition of bonus shares allotted to the assessee prior to April 1, 1981. This issue was considered by the Income Appellate Tribunal, Mumbai, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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