2015 (10) TMI 402

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.... No.469/CHD/2006 for the assessment year 2003-04, claiming following substantial question of law:- "Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in reckoning the period for long term capital gains from the date of purchase of convertible debentures instead of actual date of allotment of shares on conversion from debentures?" 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent-assessee is an individual. He filed his return of income for the assessment year 2003- 04 on 27.11.2003 declaring total Income of Rs. 4,13,110/- including long term capital gain amounting to Rs. 25,97,147/- which was claimed by him as ex....

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....igh Court inMrs. A. Ghosh vs. Commissioner of Income Tax, (1983) 141 ITR 45 (Cal) and pronouncement of Bombay High Court in Commissioner of Income tax vs. Santosh L.Chowgule and others, (1998) 234 ITR 787 (Bom.). 5. Conversely, learned counsel for the assessee placed reliance on Sections 47(x) and 49(2A) of the Act to contend that in case of secured convertible debentures, the date of acquisition of the shares received on conversion would be the date when originally convertible debentures were allotted to the assessee. 6. It would be expedient to reproduce the relevant statutory provisions which read thus:- Section 2(42A) "2(42A) short- term capital asset means a capital asset held by an assessee for not more than th....

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....see shall be deemed to be that part of the cost of debenture, debenturestock, bond or deposit certificate in relation to which such asset is acquired by the assessee." 7. Section 2(42A) of the Act defines a short term capital asset and in case of shares where the assessee holds the said shares for 12 months or less than 12 months, it shall be short term capital asset. Clause (f) of Explanation I(i) to Section 2(42A) of the Act states that in case of capital asset being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset. Section 47(x) and 49 (2A) were inserted by the Finance (No.2) Act, 1961 with retro....

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....convertible debentures of TELCO Limited on 20.12.2001 which were converted into equal number of shares on 31.3.2002. The assessee sold the said shares between 23.12.2002 to 10.3.2003 in different lots. This shall result in long term capital gains as the shares shall be deemed to have been held for a period exceeding 12 months by the assessee. 9. The Tribunal while rejecting the contention of the revenue and upholding the order of the CIT(A) had recorded in its order dated 17.5.2007, Annexure A.III as under:- "3. We have considered the rival submissions and perused the material available on the file. The assessee declared total income of Rs. 4,13,110/- in its return filed on 27.11.2003 alongwith copy of audit report. The assessee....

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....hs is to be reckoned from the date of allotment of shares and not from the date of conversion. The Explanation was introduced by the Finance Act, 1995 with effect from 1.4.1996 to clarify the provision in the case of bonus shares, the date of acquisition should be taken as date of allotment of such shares and computation of capital gains accordingly. Circular No.717 dated 14.8.1995 makes the provision very clear. The cost of acquisition of convertible debenture is deemed to be the cost of shares by virtue of deeming provision of Section 49(2A) and such fiction has to be taken its logical end. Therefore, the period of 12 months under Section 2(42A) proviso has to be reckoned from the date of acquisition of convertible debenture. Our view is ....