Capital gains on GDR and FCCB conversion must follow the 1993 Scheme's cost rules, not later statutory computation.

For GDRs and FCCBs issued under the 1993 Scheme, capital gains on redemption or conversion into equity shares were to be computed under clause 7(3) and 7(4) of that Scheme. Those provisions fixed the cost of acquisition by reference to the market price of the underlying shares on the redemption date, or the conversion price linked to the share price on the conversion date. The Tribunal noted that binding precedent treated the Scheme-based method as governing these instruments, and that section 49(2A) did not displace that treatment for such transactions. The statutory computation under section 49(2A) read with sections 47(x), 47(xa) and 115AC was therefore not applied.

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Issues: Whether the capital gains arising from redemption/conversion of GDRs/FCCBs into equity shares had to be computed by applying clause 7(3) and 7(4) of the 1993 Scheme, or by applying section 49(2A) read with section 47(x), section 47(xa) and section 115AC of the Income-tax Act, 1961.

Analysis: The assessee had acquired GDRs/FCCBs under the 1993 Scheme and later converted them into equity shares. The relevant scheme provisions specifically prescribed that, on redemption of GDRs, the cost of acquisition of the underlying shares would be the market price of the shares on the date of advice of redemption, and that, on conversion of FCCBs, the cost of acquisition would be the conversion price determined with reference to the share price on the date of conversion. The Tribunal also noted binding jurisdictional precedent holding that such scheme provisions governed the computation for FCCBs/GDRs issued under that scheme and that the later statutory amendment in section 49(2A) did not displace the scheme-based method for these transactions.

Conclusion: The capital gain was required to be computed under clause 7(3) and 7(4) of the 1993 Scheme, and not under section 49(2A) read with section 47(x), section 47(xa) and section 115AC of the Income-tax Act, 1961.

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