The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT), yesterday held that the bonus shares are also foreign exchange assets for the purpose of section 115E of the Income Tax Act, 1961.
Assessee, in the instant case, acquired original shares of one M/s. Applabs Technologies Private Ltd by inward remittance of foreign exchange, while some other shares were acquired by overseas investors also by inward remittance of foreign exchange. Assessee claimed that the shares of one M/s. Applabs Technologies Private Ltd were bought with the convertible foreign exchange and hence they were foreign exchange assets and therefore, the assessee is eligible for the concessional rate of 10% as per section 115E of the I.T. Act.
However, the Assessing Officer rejected the claim and held that in order to claim the benefit of concessional rate, all the shares sold should have been bought by convertible foreign exchange only. It was therefore, held that the capital gains pertaining on bonus shares and shares received from overseas investors do not qualify as “foreign exchange asset” under 115E of the Act.
Citing the Supreme Court decision in CIT vs. Dalmiya Investment Co, Ltd, the bench noted that where the original shares are purchased/ acquired in foreign exchange, then the same shall also be attributed to the bonus shares which have been allotted subsequently.
It also noticed the decision of the Coordinate Bench of the Tribunal in the case of Sajnay Gala and Smt. Deivanayagam Maruthi wherein it was held that the bonus shares issued on original shares by investing convertible foreign exchange are also foreign exchange asset u/s 115E of the Act.
The bench said that “Therefore, in our opinion, the bonus shares acquire the nature of the original shares, though the cost of acquisition shall be “nil” u/s 55(2)(aa) of the I.T. Act. The clause (iii)(a) thereunder which has been inserted by the Finance Act of 1995 to clarify that where the bonus shares have been allotted, the cost of acquisition can be taken at Rs. Nil. From the computation of income of the assessee, it is seen that the assessee has not claimed any cost of acquisition while computing the long term capital gain from sale of bonus shares. Therefore, in our opinion, the bonus shares are also foreign exchange assets u/s 115E of the I.T. Act.”
Read the full text of the Order below.
