Fairbridge capital (Mauritius) Limited Vs ACIT (ITAT Mumbai)
Section 56(2)(x) doesn’t apply on conversion of Optionally Convertible Cumulative Redeemable Preference Shares into equity
ITAT Mumbai held that provisions of section 56(2)(x) of the Income Tax Act have no applicability on conversion of Optionally Convertible Cumulative Redeemable Preference Shares into equity shares. Accordingly, addition made by invoking section 56(2)(x) cannot be sustained. Thus, appeal is allowed.
Facts- This appeal by the assessee is directed against the final assessment order dated 16 January 2025 passed by the Assessing Officer, whereby an addition has been made by invoking section 56(2)(x) of the Act on the premise that, upon conversion of Optionally Convertible Cumulative Redeemable Preference Shares into equity shares of Thomas Cook (India) Limited, the assessee is stated to have received “property” for a consideration allegedly less than its fair market value.
The controversy, in substance, therefore pivots on the meaning, scope, and commercial content of the expression “consideration” occurring in section 56(2)(x) of the Act, the point of time at which such consideration is to be evaluated in a conversion and exchange–like transaction, and whether the exercise undertaken by the tax authorities effectively seeks to tax what is, in pith and substance, a natural accretion in the value of a capital asset as “income from other sources”, thereby transgressing the structural boundaries of the Act and the settled demarcation between capital and revenue fields.
