India: Consideration in excess of FMV received upon issuance of convertible debentures not taxable income (tribunal decision)
Tribunal found that convertible debentures could not be treated as “shares.”
The Bangalore Bench of the Income-tax Appellate Tribunal held that fully and compulsorily convertible debentures (FCCDs) were not “shares” and thus consideration received on their issuance in excess of their fair market value was not taxable income from other sources under section 56(2)(viib) of the Income-tax Act, 1961.
The tribunal held that section 56(2)(viib) was applicable only to an issuance of shares and did not apply to convertible debentures in the absence of an express deeming provision in the 1961 Act. The issuance of FCCDs and their subsequent conversion were separate events, and their compulsory conversion at a future date did not alter their character in the year of issuance.
The case is: PH4 Food and Beverages Private Limited v. DCIT (ITA 242/Bang/2026)
Read a September 2026 report prepared by the KPMG member firm in India