Tribunal denies indexed cost for non-convertible debentures, clarifies definition.

The Tribunal upheld the denial of indexed cost of acquisition for non-convertible debentures, ruling that the term "debenture" under the Income-tax Act encompassed various securities, including those not involving interest payments. The Tribunal rejected the appellant's argument that conversion of debentures into shares did not constitute a transfer, emphasizing the unambiguous nature of the provision and the lack of necessity for convertibility. The appeal was dismissed, affirming the decision of the Commissioner of Income-tax (Appeals) and denying indexed cost of acquisition for the debentures in question.

---

---

Issues:
- Computation of capital gains in respect of non-convertible debentures and denial of indexed cost of acquisition.

Analysis:
The crux of the appeal revolved around the interpretation of the third proviso to section 48 of the Income-tax Act, 1961, concerning the computation of capital gains from the transfer of long-term capital assets like debentures. The appellant contended that the term "debenture" in the proviso did not encompass Fully Convertible Debentures (FCD) as they did not involve interest payments and represented rights in capital, not debts. The appellant argued that conversion of debentures into shares did not constitute a transfer. On the contrary, the respondent emphasized that FCD holders had the option for redemption, and the premium on redemption was akin to interest, supported by a legal mortgage, warranting the denial of indexed cost of acquisition for FCD. The word "debenture" was analyzed etymologically and legally, highlighting its broad definition under the Companies Act, 1956, and the Company Law Committee's report, encompassing various types of securities.

The appellant urged the application of the purposive theory of interpretation to discern the true meaning of "debenture" in the statute, emphasizing that literal interpretation might overlook the legislative intent. However, the Tribunal opined that the provision was unambiguous, manifesting the mens legis clearly, and rejected the invocation of the purposive theory. The Tribunal emphasized that convertibility was not a prerequisite, contingent on the debenture holders' choice, and the nomenclature did not determine the nature of the instrument. The Tribunal concluded that the appellant's case fell within the purview of the third proviso to section 48, upholding the Commissioner of Income-tax (Appeals)'s decision. Consequently, the appeal was dismissed, affirming the denial of indexed cost of acquisition for the non-convertible debentures, in line with the statutory provision.

---