CIT (IT) v. Kingfisher Capital Clo Ltd. (2023)456 ITR 775 /294 Taxman 700 /334 CTR 9 (SC) Editorial : Kingfisher Capital Clo Ltd v.CIT (IT) (2019) 413 ITR 1/ 263 Taxman 198 / 308 CTR 537 / 177 DTR 225 ((Bom)(HC) is affirmed.

S. 115AC : Capital gains-Bonds-Global Depository-Foreign currency-Transfer of Shares covered by scheme-Computation of capital gains to be made under provisions of scheme-Subsequent Amendment of provisions in Income-tax Act is not applicable.-Transaction not regarded as transfer-Capital gains-Transfer by way of conversion of bonds in to shares or debentures-Date of acquisition – Foreign currency bonds-Date of acquisition to be date of conversion of bonds into shares – Amendments in 2008 is not applicable – SLP is dismissed. [S. 2(42A) 47, 47(xa), 49(2A), Foreign Currency Convertible Bonds and ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, Clause 7(4)]

An Indian company issued foreign currency convertible bonds on September 29, 2006, under the Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993. During the financial year 2011-12, the assessee purchased these foreign currency convertible bonds from the original bondholder. In its return of income for the assessment year 2012-13, the assessee, relying on clause 7(4) of the Scheme, computed the capital gains on sale of equity shares considering the closing price of the equity shares in the Indian company on the stock exchange on the date of conversion of the foreign currency convertible bonds into equity shares as the cost of acquisition of the shares.  The Assessing Officer held that the provisions of section 49(2A) of the Income-tax Act, 1961, as amended with effect from October 1, 2008 should be considered for the purpose of computing the cost of acquisition of the shares received from the conversion of the foreign currency convertible bonds. On this basis, the Assessing Officer considered the cost of acquisition of the equity shares at the price prevailing on the date of issue of the foreign currency convertible bonds (September 2006) and computed the capital gains. The High Court held that the cost of acquisition in the hands of the non-resident Indian investor would be the conversion price determined on the basis of the price of the shares on the date of conversion of foreign currency convertible bonds into shares and that the period for which the shares should be regarded as having been held by the assessee should also be reckoned to the date of acquisition.  Dismissing the petition the Court held that the bonds in question did not answer the description of the Foreign Currency Exchangeable Bond Scheme, 2008, but rather were in conformity with the earlier Scheme relating to the issue of foreign exchange convertible bonds (a scheme introduced in 1993). The distinction between the two Schemes was that one related to issuance of exchange convertible bonds, whereas the other related to foreign currency exchangeable bonds. Order of High Court is affirmed. (AY.2012-13)