×Latest Case Laws on Income Tax by various High Courts of India
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27-03-2019, Kingfisher Capital, Section 111A, 264, 49(2A), HIGH COURT OF BOMBAY
1 By this writ petition under Article 226 of the Constitution of India, instituted on 6th July, 2018 the petitioner seeks to quash and set aside an order passed on 29th March, 2018. This order is passed by the respondent No.1. The second relief is that of a writ of mandamus or any other appropriate writ, order or direction under Articles 226 and 227 of the Constitution of India be issued directing the respondents to forthwith withdraw and/or cancel this order insofar as the cost of acquisition and period of holding in regards to the transfer of shares. That aspect of the matter has been held against the petitioner.
2 Since the writ petition was directed to be listed for admission with an intent to dispose it off finally, we proceed to issue Rule. The respondents waive service. By consent, Rule is made returnable forthwith.
3 The facts necessary to appreciate the challenge to the impugned order, briefly stated, are as under :
4 The petitioner entered into an agreement dated June 24, 2008 with Lehman Brothers Commercial Corporation Asia Limited (hereinafter referred to as “Lehman Brothers”), a nonresident company incorporated in Hong Kong, to purchase, inter alia, 352 Zero-Coupon Foreign Currency Convertible Bonds in Nava Bharat Ventures Limited (for short “NBVL”) an Indian company listed on the National Stock Exchange of India Limited (for short “NSE”).
5 NBVL issued the FCCBs on September 29, 2006, under the issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 (for short “FCCB Scheme”) to Lehman Brothers.
6 The FCCB Scheme was notified by the Central Government in 1993 and applicable with effect from April 1, 1992. It governed the issue of (i) Foreign Currency Convertible Bonds and (ii) Global Depositary Receipts (for short “GDRs”)with equity shares of the Indian company as the underlying securities.
The relevant clauses of the FCCB Scheme that require consideration in the matter are reproduced below :
“7(4) For the purpose of conversion of Foreign Currency Convertible Bonds, the cost of acquisition in the hands of the non-resident investors would be the conversion price determined on the basis of the price of the shares at the Bombay Stock Exchange, or the National Stock Exchange, onthe date of conversion of Foreign Currency Convertible Bonds into shares.” … … …
8(3) Conversion of Foreign Currency Convertible Bonds into shares shall not give rise to any capital gain liable to incometax in India.
8(4) Transfers of For ign Currency Convertible Bonds made outside India by a non-resident investor to another nonresident investor shall not give rise to any capital gains liable to tax in India.
7 Dur ng the Financial Year 2011-12, the petitioner - assessee had entered into transactions pertaining to Foreign Currency Convertible Bonds (for short “FCCBs”) issued by Nava Bharat Ventures Limited (for short “NBVL”) an Indian company and the equity shares underlying these FCCBs. It had reported short-term capital gain of Rs.7,36,52,016 on the sale of 83,89,938 equity shares of NBVL which were acquired on conversion of the FCCBs held in NBVL. This short-term capital gain was shown as taxable under section 111A of the Act at 15% plus applicable surcharge and education cess.
8 During the Assessment proceedings, the Assessing Officer (for short “AO”) observed that the assessee had purchased 352 zero-coupon FCCBs of NBVL and on 18th August, 2011, 323 FCCBs were converted into 1,29,23,073 equity shares of NBVL out of which 83,89,938 equity shares were sold by the petitioner in the period January, 2012 to March, 2012 and the short-term capital gain arising on the same was duly shown in the Income tax return filed by the petitioner-assessee on 5th April, 2013. The remaining equity shares (45,33,125) were sold by the petitioner in November, 2012. The balance 29 FCCBs were redeemed by
NBVL on 29th September, 2011 at a premium of 25.96% over the face value. While framing the assessment, the AO made reference to the petitioners contentions, but did not accept the same in view of the amended provisions of the Income-tax Act vide Circular No.1 of 2009 dated 27th March, 2009, Finance Act 2008 - Explanatory Notes to the provisions of the Finance Act 2008.