The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) confirmed the revision of indexation on foreign currency for calculating capital loss which led to a set back to the ICICI. It was observed that the Capital gain in respect of capital assets acquired in foreign currency is required to be first computed in foreign currency and thereafter converted into INR for tax purposes.
The Bank had invested in equity shares of ICICI Bank UK PIc (wholly owned subsidiary of the Bank). During the year, the share capital was redeemed by USD 7,50,00,000 in a scheme of buy back. The sale consideration of the buyback was determined at USD 1 per equity share. This scheme of buyback is an extinguishment, which has resulted in capital loss to the Bank of Rs. 442,61,60,143.
The total cost for acquiring the shares in IBEL was Roubles 183,12,16,035 (indexed cost Roubles 359,13,68,448) as can be seen from the statement enclosed on page 9 also attached in statement No.27 filed with the revised return of income.
The total capital loss as per the said statement works out to Roubles 236,64,16,630 which has been converted to Indian rupees by applying the applicable conversion rate and a loss of Rs.237,60,91,268 has been worked out in aforesaid assessment year which the Bank has carried forward to the subsequent assessment year 2016-17 Thus the allegation in the show cause notice that the status of ICICI Bank Eurasia is not readily available on records is incorrect.
When the share capital was reduced by paying off a part of the capital by reducing the face value of the share, the share remains but the right of the shareholder to dividends on his share capital and the right to share in the distribution of net assets upon liquidation is extinguished proportionately to the extent of reduction in the share capital
In case of both the subsidiaries ICICI Bank Canada and ICICI Bank UK Plc. there was a reduction/ redemption respectively in share capital which is an extinguishment of the right of the holding company viz. the Bank to distribute dividends and to share in distribution in the event of winding up of the subsidiaries and thus such an extinguishment would amount to ‘transfer’ within the meaning of section 2(47) of the Income Tax Act.
The bench of Sandeep Singh Karhail ( Judicial member) and Prashanth Maharishi ( Accountant member) observed that the case of investment made in foreign assets, capital gains are to be converted to INR using the exchange rate of the last day of the previous month in which capital asset is transferred. Thus, capital gain in respect of capital assets acquired in foreign currency is required to be first computed in foreign currency and thereafter converted into INR for tax purposes.
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