TMI Blog2020 (10) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Year 2009-10 onwards. Bonds issued to the petitioner were issued under the FCCB scheme and the conversion price determined on the basis of price of shares at Bombay Stock Exchange or National Stock Exchange on the date of conversion of FCBBs into shares. It is also pertinent to mention here that there is no conflict between the provisions of the scheme and the Acts / Rules. We respectfully agree with the view taken in KINGFISHER CAPITAL CLO LTD. [ 2019 (4) TMI 106 - BOMBAY HIGH COURT ] and therefore, answer the substantial question of law against the revenue and in favour of the assessee. - I.T.A. NO.385 OF 2013 - - - Dated:- 6-10-2020 - HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) JUDGMENT ALOK ARADHE J., This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court vide order dated 27.11.2015 on the following substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e initially converted into shares at ₹ 200/- per share subject to adjustments under Clause 6(c) of the agreement. Therefore, the assessee was rightly allotted 21,28,000 shares at the rate of ₹ 200/- as per bond agreement at the prevalent convertible foreign currency rate. It was further held that Clause (xa) of Section 47 of the Act refers to transfer by way of conversion of bonds referred to in Clause (a) of sub-Section 115AC of the Act. Therefore, the aforesaid provision is not applicable to the case in hand. Accordingly, the order passed by the Commissioner of Income Tax (Appeals) and the Assessing Officer was set aside and the appeal preferred by the assessee was allowed. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the revenue submitted that in view of Section 49(2A) of the Act, for the purposes of Section 45 of the Act, the cost of acquisition has to be taken as the cost of debentures. It is further submitted that in case of any conflict between scheme / Rules and the provisions of the Act, the provisions of the Act would prevail. It is also submitted that the Bombay High Court in KINGFISHER CAPITAL CLO LTD. Vs. COM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 10.09.2002. Clause 2(f) of the Scheme provides that the words and expressions not defined in the scheme, but defined in the Income Tax Act, 1961 or the Companies Act, 1956, or the Securities and Exchange Board of India Act, 1992 or the Rules and Regulations framed under These Acts, shall have the meaning respectively assigned to them, as the case may be, in the Income Tax Act, 1961 or the Companies Act, 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, the cost of acquisition in the hands of the nonresident investors would b 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. 7. Thus, the cost of acquisition has to be determined as per provisions of Clause 7(4) of the Scheme for computation of capital gains. It is also pertinent to mention here that Clause (xa) of Section 47, which refers to transfer by way of conversion of bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an assessee, being a nonresident, includes - (a) income by way of interest on bonds of an Indian company issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette* specify in this behalf or on bonds of a public sector company sold by the Government and purchased by him in foreign currency; or: *The footnote to section 115AC(1)(a) reads as under: 66. See Issue of Foreign Currency Exchangeable Bonds Scheme, 1 2008/Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993/Depository Receipts Scheme, 2014 . 19. Section 47(xa) was introduced by the Finance Act, 2008, with effect from April 1, 2008. Clause (xa) of section 47 reads as under: (xa) Any transfer by way of conversion of bonds referred to in clause (a) of sub-section (1) of section 115AC into shares or debentures of any company. 20. Section 49(2A) as amended by the Finance Act, 2008 with effect from April 1, 2008. Clause (2A) of section 49 reads as under: (2A) Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uing company, whereas FCEBs can also be converted into or exchanged for the shares of a group company. With a view to providing a level playing field to FCEBs, it is proposed to provide that the conversion of FCEBs into shares or debentures of any company shall not be treated as a 'transfer' within the meaning of Income-tax Act. Further it is also proposed to substitute sub-section (2A) of section 49 to provide that the cost of acquisition of the shares received upon conversion of the bond shall be the price at which the corresponding bond was acquired. 23. The bonds issued to the Petitioner are under the FCCB Scheme of 1993. Under the FCCB Scheme, the cost of acquisition of equity shares upon conversion of FCCBs are to be determined in accordance with the provisions of clause 7(4) and 8(3). It is submitted that: a. The provisions of the aforesaid clauses of the FCCB Scheme continue to operate; and b. Section 49(2A) of the Act was amended by the Finance Act, 2008 and was to be read with the FCEB Scheme. 24. Prior to its substitution by the Finance Act, 2008, w.e.f. 1-4-2008, subsection (2A) of section 49, as inserted by the Finance Act (No. 2) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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