Court rules in favor of petitioner on share acquisition cost determination, quashes order.

The court quashed the order dated 29th March 2018, ruling in favor of the petitioner regarding the determination of the cost of acquisition and period of holding for shares obtained through the conversion of FCCBs. The court held that the cost of acquisition should be based on the FCCB Scheme's provisions, specifically clause 7(4), rather than the amended section 49(2A) of the Income-tax Act. The court directed the respondents to withdraw and cancel the order, affirming that the FCCB Scheme governs the transactions in question.

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Issues Involved:
1. Quashing of the order dated 29th March 2018.
2. Determination of the cost of acquisition and period of holding for shares obtained through conversion of FCCBs.
3. Interpretation of the FCCB Scheme and its applicability vis-à-vis the Income-tax Act provisions.

Detailed Analysis:

1. Quashing of the Order Dated 29th March 2018:
The petitioner seeks to quash and set aside the order passed on 29th March 2018 by the respondent. This order was challenged on the grounds that it incorrectly applied the provisions of the Income-tax Act, specifically regarding the cost of acquisition and period of holding of shares obtained through the conversion of FCCBs.

2. Determination of the Cost of Acquisition and Period of Holding:
The petitioner entered into an agreement on June 24, 2008, with Lehman Brothers to purchase 352 Zero-Coupon Foreign Currency Convertible Bonds (FCCBs) in Nava Bharat Ventures Limited (NBVL). The FCCBs were issued under the FCCB Scheme of 1993. During the financial year 2011-12, the petitioner converted 323 FCCBs into 1,29,23,073 equity shares of NBVL. The petitioner reported short-term capital gain on the sale of 83,89,938 equity shares of NBVL, considering the closing price on the date of conversion as the cost of acquisition.

The Assessing Officer (AO) disagreed with this computation, referencing amended provisions of the Income-tax Act and Circular No.1 of 2009. The AO considered the cost of acquisition based on the price prevailing on the date of issue of the FCCBs (September 2006), which led to a significantly higher capital gain calculation. The petitioner filed a Revision Petition under section 264 of the Income-tax Act, contending that the AO's approach was incorrect and that the cost of acquisition should be based on the conversion price as per clause 7(4) of the FCCB Scheme.

The Revisional Authority, however, upheld the AO's view, stating that the amended section 49(2A) should be applied, which considers the cost of acquisition of the shares to be the cost of the FCCBs on the date of their purchase.

3. Interpretation of the FCCB Scheme and Its Applicability:
The petitioner argued that the FCCB Scheme of 1993, which predates the amendments to the Income-tax Act, should govern the cost of acquisition for shares obtained through the conversion of FCCBs. The relevant clauses of the FCCB Scheme specify that the cost of acquisition should be the conversion price determined on the basis of the share price on the date of conversion.

The court noted that the FCCB Scheme is a distinct and earlier scheme that should govern FCCB transactions unless explicitly overridden by the Income-tax Act. The court found that the Revisional Authority erred in applying the amendments made by the Finance Act, 2008, which were intended for the Foreign Currency Exchangeable Bond Scheme (FCEB) and not the FCCB Scheme.

Conclusion:
The court concluded that the cost of acquisition should be determined based on the FCCB Scheme's provisions, specifically clause 7(4), and not the amended section 49(2A) of the Income-tax Act. The court quashed the order dated 29th March 2018 and directed the respondents to withdraw and cancel the order concerning the cost of acquisition and period of holding for the transfer of shares. The court ruled in favor of the petitioner, affirming that the FCCB Scheme should govern the transactions in question.

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