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of <h1>High Court deems transfer of Compulsorily Convertible Debentures as capital gains, not business income</h1> The High Court dismissed the appeal challenging the ITAT Order, affirming that gains from the transfer of Compulsorily Convertible Debentures to M/s ... Income accrued in India - Nature of gain - gains arising to the Assessee on the transfer of Compulsorily Convertible Debentures (‘CCDs’) - capital gain or interest income - as per ITAT gains arising to the Assessee on the transfer of CCDs to M/s Vatika Ltd. is in the nature of capital gains and shall not be taxable in India under Article 11 of DTAA between India and Mauritius - HELD THAT:- Both the CIT(A) and the ITAT have held in favour of the assessee holding that that the present case is covered by the decision of this Court 2014 (8) TMI 9 - DELHI HIGH COURT] in assessee’s own case. The assessment order in the present case was passed on 9th April, 2014 in pursuance of the decision [2012 (4) TMI 154 - AUTHORITY FOR ADVANCE RULINGS] of the Authority of Advance Ruling (‘AAR’). Assessee preferred a writ petition against the said order of the AAR, which was disposed of by this Court in favour of the assessee [2014 (8) TMI 9 - DELHI HIGH COURT] Though the said judgment has been challenged before the Supreme Court by way of a Civil Appeal [2018 (1) TMI 1688 - SUPREME COURT] yet there is no stay of the said judgment. Accordingly, the present appeal is dismissed. However, it is clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court. Issues:Challenge to ITAT Order on nature of gains from transfer of Compulsorily Convertible Debentures (CCDs) to M/s Vatika Ltd. under DTAA between India and Mauritius.Analysis:The appellant challenged the Order dated 1st November, 2019 passed by the Income Tax Appellate Tribunal (ITAT) in ITA No.2561/Del/2016 for the Assessment Year 2011-12. The counsel argued that the gains from the transfer of CCDs to M/s Vatika Ltd. should be considered as interest income, not capital gains. Both the CIT(A) and ITAT had ruled in favor of the assessee, citing a previous decision from 2014 in the assessee's own case. The assessment order was based on a decision from the Authority of Advance Ruling (AAR) in 2012, which was challenged in a writ petition and disposed of by the High Court in 2014. The High Court observed that gains from the transfer of debentures are usually considered capital gains, but in this case, the transaction was deemed a sham loan to Vatika disguised as an investment in shares and CCDs of the JV company.The High Court noted that the judgment from 2014 had been challenged before the Supreme Court through Civil Appeal No.10299/2016, but there was no stay on the judgment. Therefore, the present appeal was dismissed, with a clarification that the order would abide by the final decision of the Supreme Court in Civil Appeal No.10299/2016.
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