ITAT Mumbai Rules No Tax Implications Under Section 56(2)(x) on Conversion of Preference Shares into Equity

In a significant relief for corporate investors and holding companies, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a decisive ruling regarding the taxability of share conversions. The Tribunal held that the provisions of Section 56(2)(x) of the Income Tax Act 1961 cannot be invoked when Optionally Convertible Cumulative Redeemable Preference Shares (OCCRPS) are converted into equity shares.

The judgment in the case of Fairbridge Capital (Mauritius) Limited Vs ACIT clarifies the distinction between "consideration" and "cost of acquisition," ensuring that capital appreciation is not erroneously taxed as "Income from Other Sources."

Background of the Dispute

The controversy originated from the assessment proceedings for the Assessment Year 2022–23. The assessee, a Mauritius-based investment holding company, held OCCRPS in Thomas Cook (India) Limited (TCIL), a listed entity.