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a. The provisions of the aforesaid clauses of the FCCB Scheme continue to operate; and b. Section 49(2A) of the Act was amended by the Finance Act, 2008 and was to be read with the FCEB Scheme.

24 Prior to its substitution by the Finance Act, 2008, w.e.f. 1-4-2008, sub-section (2A) of section 49, as inserted by the ASWP(ST)19262.18.doc Finance Act (No.2) Act, 1991, w.e.f. 1-4-1962 did not contain any reference to "bonds". Under this circumstance, the cost of acquisition of equity shares upon the conversion of FCCBs was not governed by the provisions of section 49(2A) instead it was always to be determined in accordance with the special provisions of clause 7(4) read with clause 8(3) of the FCCB Scheme. 25 On the basis of the applicable provisions, and the amendment to the footnote of Section 115AC along with the notes to clauses along with the explanatory memorandum to the Finance Act, 2008 it is clear that Section 47(xa) and section 49(2A) was introduced in the Act to govern transactions pertaining to FCEBs and not FCCBs which are anyway governed by the FCCB Scheme from 1993 onwards.

ASWP(ST)19262.18.doc 36 Mr. Kaka also submitted that there are decisions in the field which would buttress the arguments of the petitioner that amendment to section 49(2A) to include bonds cannot and was not meant to retrospectively cover bonds issued prior to the date under the FCCB Scheme. Thereby, the cost of acquisition of equity shares upon conversion of FCCBs was not governed by the provisions of section 49(2A) of the Income-tax Act. Instead, the cost was to be determined in accordance with the specific provisions of clause 7(4) read with clause 8(3) of the FCCB Scheme read with section 115AC of the Income-tax Act. 37 Mr. Kaka argued that the provisions of section 115AC read with the FCCB Scheme should govern the FCCB related transactions to the extent that corresponding provisions are not repealed in the Act. Mr. Kaka once again highlights that the inclusion of section 47(xa) and the amendment to section 49(2A) to include bonds and a footnote in section 115AC was only to govern FCEBs and not FCCB transactions. Mr. Kaka states that correspondingly the conversion should be in accordance with the provisions of section 47(x) which was inserted contemporaneously with the introduction of the FCCB Scheme ASWP(ST)19262.18.doc and not section 47(xa) which was inserted contemporaneously with the introduction of the FCEB Scheme. Mr. Kaka was at pains to point out that the FCCB Scheme governs the FCCB transactions and has been notified in the Official Gazette by the relevant authorities and referred to in section 115AC of the Income-tax Act.

ASWP(ST)19262.18.doc 40 On the other hand, Mr. Ahuja appearing on behalf of the Revenue would support the impugned order. It is submitted by him that the petitioners are not disclosing or rather have not disclosed the true and correct facts. They have been succinctly set out both in the impugned order and in the affidavit-in-reply filed to this petition. Mr. Ahuja submits that it is correct that the FCCB Scheme notified by the Central Government in 1993 is applicable with effect from 1st April, 1992 and the same governed the issue of FCCBs and GDRs with equity shares of the Indian companies as underlying securities. Mr. Ahuja submits that a copy of the same has been enclosed as Exhibit-B to the writ petition, but the print-out of the FCCB Scheme 2003 has been taken from the official website of the Income Tax Department. It is a matter of record that FCCB Scheme is not a part of the Income-tax Act and was not issued by the Income Tax Department. The FCCB Scheme is purely a Scheme of the Central Government of India and for facilitating raising of capital/loans by the Indian companies from non-resident investors. The clauses of this Scheme, therefore, ought to be construed and interpreted in the light of this objective. The objectives for facilitating the issue of FCCBs and GDRs by the Indian companies to the foreign ASWP(ST)19262.18.doc investors as discernible from various clauses of the Scheme do not override the express provisions of the Income-tax Act, 1961 with regard to the calculation of the capital gains and the cost of the acquisition in the hands of the non-resident investors unless specific provisions to that extent are made in the Income-tax Act. Mr. Ahuja then submits that the NBVL, an Indian company, came out with its offering circular for the FCCBs on 29 th September, 2006 and the assessee purchased 352 zero-coupon FCCBs of NBVL from Ms. Lehman Brothers, a non resident company incorporated in Hong Kong vide an agreement dated 24 th June, 2008. However, it is not correct to say that the capital gains on the sale of equity shares of NBVL would be the cost of conversion of FCCBs and to be determined in accordance with the FCCB Scheme. Mr. Ahuja submits that the capital gains arising from the transfer of capital assets are required to be calculated in accordance with the provisions of sections 45 to 54 of the Income- tax Act. The clauses of the FCCB Scheme cannot override the express provisions contained in the Income-tax Act for calculation of capital gains in various situations. It is submitted that though section 49(2A) was brought into effect from 1 st April, 2008, it will not be correct to say that the same has to be read ASWP(ST)19262.18.doc with the FCEB Scheme only. Mr. Ahuja submits that the provisions of the amended section 49(2A) read with section 47(xa) and 115AC(1)(a) also govern the cost of acquisition of shares in the case of FCCBs. Once the assessee purchased FCCBs on 24th June, 2008 and they were converted into shares of NBVL on 18th August, 2011, the amended provisions will be applicable. They will be applicable to calculate the cost of acquisition of the FCCBs which were converted into shares. In that behalf, Mr. Ahuja relied upon all the afore referred provisions, amended as also unamended, and some of the footnotes to buttress and support his argument that their combined reading would enable the Revenue to urge that in cases of conversion of bonds into shares and for subsequent sale by the tax payer, the cost of acquisition of such shares shall be deemed to be that part of the cost of bond / FCCB in relation to which such assets / shares were acquired by the assessee. It is in these circumstances and the Act containing clear provisions, no amount of reliance on the clauses of the Scheme will assist the petitioner-assessee. 41 Mr. Ahuja would submit that the petitioner had submitted before the Revisional Authority that given the lack of ASWP(ST)19262.18.doc clarity in the Act, provisions of the FCCB Scheme should govern FCCB related transactions to the extent that corresponding provisions are not explicitly included in the Act. However, these contentions were not found acceptable in the light of section 49(2A). The assessee has taken the closing price of the shares of NBVL as prevailing on the date of conversion from FCCBs to shares, namely, 18th August, 2011. Therefore, as per its version the appreciation while the security was FCCB has to be ignored. That means the appreciation from 24th June, 2008 to 18th August, 2011, in respect of these 323 FCCBs must be ignored, according to the petitioner-assessee. This is not the correct interpretation of law. In fact, the redemption of 25.96% over the face value on balance 29 FCCBs which were retained by NBVL on 29 th September, 2011, has been offered to tax at 10% under section 115AC(1) by the assessee. Thus, retention premium is another name for the fixed interest income provided to the investors in FCCB.

ASWP(ST)19262.18.doc 50 Now whether this understanding of the assessee is in accord with the provisions of law is, therefore, the main question for our determination.

51 For the purpose of determining this, we must note the FCCB Scheme.

52 As we have noted in the foregoing paragraphs, the FCCB is a Scheme notified by the Central Government. It shall be deemed to have come into effect from the 1 st day of April, 1992. The definitions in the Scheme open with the words "Unless the context otherwise requires the foreign currency convertible bonds means bonds issued in accordance with the FCCB Scheme and subscribed by a non-resident in a foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole or in part, on the basis of any equity related warrants attached to that instrument". The word "issuing company" is defined to mean a company permitted to issue FCCBs or ordinary shares of that company against global depository receipts. Now, clause (2) sub-clause (f) of the Scheme very clearly says that the words and expressions not defined in the ASWP(ST)19262.18.doc Scheme, but defined in the Income-tax Act 1961 or the Companies Act 1956 or the Securities Exchange Board of India Act, 1992, or the Rules and Regulations framed under these Acts shall have the meaning respectively assigned to them, as the case may be, in the Income-tax Act, or the Companies Act or the SEBI Act. 53 Once we understand very clearly that FCCBs mean bonds issued in accordance with the FCCB Scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company, coupled with the definition of the term issuing company, then, the word "shares" having not been defined in the Scheme would carry the same meaning as is assigned to it in the laws or enactments referred in sub-clause (f) of clause (2) of the Scheme.