DCIT Vs Kemper Holding Pvt. Ltd. (ITAT Mumbai)
The appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai, arose from the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 13.06.2011 for Assessment Year 2008–09, wherein an addition of Rs. 9,45,00,000 made by the Assessing Officer (AO) was deleted. The Revenue challenged the deletion, contending that conversion of share warrants into equity shares constituted a transfer under Section 2(47) of the Income-tax Act, 1961, and that the difference between the market value of shares on the date of allotment and the warrant price should be taxed as long-term capital gain under Section 48.
The assessee had filed its return declaring total income of Rs. 59,98,660. During assessment under Section 143(3), the AO noted that in financial year 2006–07, the assessee was allotted 7,00,000 warrants of Rs. 100 each and paid 10% of the cost (Rs. 70 lakhs). In the relevant year, the assessee converted the warrants into equity shares by paying the remaining Rs. 6,30,00,000. The AO held that by converting the warrants, the assessee extinguished its rights in the warrants and acquired rights in equity shares. Observing that the market price on the conversion date was Rs. 231.35 per share, the AO treated the difference of Rs. 135.35 per warrant as benefit, computing Rs. 9.45 crore as long-term capital gain. Alternatively, the AO proposed taxation under Section 28(iv).
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