TMI Blog2012 (12) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... ny invested in equity shares of Citicorp Finance India Ltd. by bringing capital in foreign currency and to protect its investments from the attraction of FEMA, 1999 where overseas investors were hedging their capital investment and thus assessee entered into Forward Contract rolled over periodically. Since no contrary decision has been brought to the department's notice, it has followed the ratio laid down by the aforesaid decisions which has been consistently followed by the Tribunal, Mumbai Benches, and held that the income arising from forward exchange contract is assessable as capital gain. Consequently, the grounds raised by the Assessee are treated as partly allowed. Decision in the case of CITICORP INVESTMENT BANK (SINGAPORE) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income not chargeable to tax. 3. Without prejudice to the above, the CIT(A) ought to have held that the gain on purchase and sale of foreign currency can only be treated as on capital account not chargeable to tax since the contracts do not have a cost of acquisition. 2. The assessee is a 100% subsidiary of Citibank N.A., New York, and is incorporated in U.S.A. Its principal activity is to invest in the shares of group companies. As noted by the Assessing Officer, the assessee had two sources of receipts arising from India. (a) From the sale of shares of M/s. Citicorp Overseas Software Ltd. to M/s. Citicorp Technology Holdings, Inc. a 100% subsidiary of Citibank N.A. based in Delaware, USA. The shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice, the differential cannot be classified under the head income from other sources and at best it would derive its character from the underlying asset which is on capital account. 5. Before the learned Commissioner (Appeals), the assessee has also relied upon the decision of a Special Bench of the Tribunal, Delhi, in Apollo Tyres Ltd., 89 ITD 235 (SC), wherein it has been held that the gain arising from the cancellation of foreign exchange forward contracts on account of loan raised for purchase of machinery are capital in nature and at best the gain should be treated as capital gain. The Commissioner (Appeals), however, rejected the assessee s entire contentions which has been discussed in detail by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer. 8. We have carefully considered the rival contentions and the orders passed by the Commissioner (Appeals) as well as by the Assessing Officer and the case laws relied upon by the learned Sr. Counsel for the assessee. The assessee is a non-resident company and has invested in the equity shares of Citicorp Finance India Ltd., which was done by bringing the capital in foreign currency in March 1997. In order to protect its investment in accordance with the provisions of F.E.M.A. (Foreign Exchange Management Act), wherein overseas investors are allowed to hedge their capital investment in India and accordingly, the assessee had entered into forward contract which are periodically rolled over. On account of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister concern of the assessee i.e. Citicorp Banking Corporation Bahrain [ITA No. 6525/M/09j for the assessment year 2005-06. The Tribunal in the said case referred to the decision of Special Bench in the case of Apollo Tyres Ltd. (supra), in which nature of income arising from cancellation of foreign exchange forward contracts entered into by the assessee to safeguard the foreign exchange loan taken for purchase of plant and machinery had been considered. Since the forward contract had been taken to safeguard the foreign exchange loan taken in connection with acquisition of capital assets it was held that income arising from settlement of forward contract was capital in nature. The Tribunal in case of the sister concern noted that, the forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised before us is only with regard to the nature of income from early settlement of forward foreign exchange contract taken to safeguard the foreign exchange loan which had been availed by the assessee for purchase of debentures. The income from sale of debenture has been assessed as capital gain. Therefore, respectfully following the decision of the Tribunal in the case of sister concern Citicorp Banking Corporation, Bahrain ( supra ) we hold that gains arising from early settlement of forward foreign exchange contract has to be treated as capital gain. We accordingly set aside the orders of the CIT(A) and allow the appeals filed by the assessee. 9. Since no contrary decision has been brought to our notice, we respectfully f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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