answered Dec 28, 2018 By CA MANOJ KUMAR, CA, Gurgaon. (vii) Redeemable preference shares: A company limited by shares, may if so authorized by its articles issue preference shares which are redeemable as per the provisions laid down in Section 80. Thus, one cannot issue compulsorily convertible preference shares against conversion of convertible notes. The question of taxability on conversion of compulsorily convertible preference shares (CCPS) has come up for consideration quite a few times in the recent past. Invest the money and get compulsorily convertible preference shares (CCPS) issued by the business. 100/- each and/or upto 400,00,00,000 (Four Hundred Crores) 0.1% Optionally Convertible Non-Cumulative Preference Shares (”OCPS”) of Rs. Question added Dec 28, 2018 Income Tax By Sushil Kumar Jain, CA in Practice, Delhi. The Board of Directors of Apollo Tyres today approved an issuance of compulsorily convertible preference shares in the company worth Rs 10,800 million (approximately US$150 million) to an affiliate of Warburg Pincus, a leading global private equity firm focused on growth investing. In Compulsorily convertible debenture the cost of the debenture is converted into an equity share within a fixed period of time. The issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures with or without optionality clauses shall be at a price worked out as per any internationally accepted pricing methodology on arm™s length basis. CCD is not a combination of pure debt or pure equity. tranche, 100 Equity Shares of Z 10/- each and 1864 Compulsorily Convertible Preference Shares of Z 10/- each of Delectable Technologies Private Limited, representing 11.15% of its share capital on a fully diluted basis. From my experience, it’s generally understood that, as soon as the issuer is obliged to settle the instrument in cash on liquidation, financial liability can be classified. CS Divesh Goyal. The issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures with or without optionality clauses shall be at a price worked out as per any internationally accepted pricing methodology on arm’s length basis. Since the guidelines on FDI treat CCDs as equity for the purposes of reporting to the RBI, a question arises as to whether they are to be regarded as equity capital under all other laws as well. Bangalore ITAT restores matter on taxability u/s. Pages 130. Recently, on November 9, 2018, the Mumbai Bench of the Income Tax Appellate Tribunal (“Tribunal”) held 1 that conversion of compulsorily convertible preference shares is not a taxable transfer. When preference shares are non-redeemable it is harder to categorise them from their initial application. Background . 100/- (Rupees One Hundred only) each, 112,20,00,000 (One Hundred Twelve Crores Twenty Lakhs) Preference Shares of Rs.100/- (Rupees One Hundred only) each and Unclassified Shares … 2 Answers. Trupti Sharma says: August 6, 2020 at 11:31 am Very informative article. School Indian Institutes of Management; Course Title FINANCE BUSINESS V; Uploaded By KidUniverse5750. Premium received on Compulsorily Convertible Preference Shares which are entirely equity in nature shall be classified and presented as a part of 'Other Equity' under 'Securities Premium'. The issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures with or without optionality clauses shall be at a price worked out as per any internationally accepted pricing methodology on arm’s length basis. 56(2)(viib) for excess share premium received by assessee co. upon issue of Compulsory Convertible Preference Shares (CCPS) during AY 2015-16, directs CIT(A), “to find out as to whether the premium received is for equity shares to be issued later or for preference shares issued now”; Compulsorily convertible preference shares converted. 1,230 views. All those compound financial instruments which have both 'Equity' and 'Liability' components, shall be split in accordance with Ind. Further, in terms of the A. P. (DIR Series) Circular No.16 dated October 4, 2004 and A. P. (DIR Series) Circular No. Compulsorily Convertible Non-Cumulative Preference Shares (”CCPS”) of Rs. Examples include Preference Shares, Compulsorily Convertible instruments, Optionally Convertible instruments, including), Perpetual Debt, subordinated debt, Additional Tier I (AT1) bonds, Upper Tier II and Lower tier II bonds - these instruments are eligible to be treated part of Tier I and Tier II capital as per RBI/NHB guidelines. equity shares, compulsorily convertible preference shares and compulsorily convertible debentures (equity instruments) to a person resident outside India under the FDI policy, subject to inter alia, compliance with the pricing guidelines. This preview shows page 51 - 53 out of 130 pages. Cumulative Convertible Preference Share are a type of preference shares where the dividend payable on the same accumulates, if not paid. 49,99,995 CCPS-V of ` 10 each were converted into equity shares of face value of ` 10 each at a premium of ` 3 per share iii. During the issuance of the company, the CCD decides at which rate the ratio of conversion will be there from debentures to equity share capital. Structures or instruments such as compulsorily convertible preference shares — which get converted into ordinary shares after a predetermined date — are expected to become popular. Definition: Preference shares allow an investor to own a stake at the issuing company with a condition that whenever the company decides to pay dividends, the holders of the preference shares will be the first to be paid. PREFERENCE SHARES. Whether section 56(2)(viib) applies to issue of CCDs (Compulsorily Convertible Debentures in to equity shares) by a Private Company? But this is not always a definitive trigger. Prefered stock or common stock. CCPS is nothing but a fixed income instrument up to a certain time frame after which it has to be compulsorily converted to common equity shares. In the interim, they partake the character of preference shares or debentures. Compulsorily Convertible Debentures (‘CCDs’) are hybrid instruments, being debt at the time of issue along with a certainty to get converted into equity. Conversion of Compulsorily Convertible Preference Shares i. As the names suggest, convertible debentures are instruments that convert into equity shares of the issuing company after a set period, in a sense, it is a kind of secured loan, due to which convertible debentures are issued at a lower rate of interest than non-convertible debentures and is preferred mode of investment by many investors. Compulsorily convertible Preference Shares are those shares, which once the shares are converted, there is no obligation on the part of the company to redeem them since they are no longer preference shares. There seemed to be ambiguity regarding whether an event of conversion amounts to 'transfer' under Section 2(47) of the Income Tax Act, 1961 (the " Act"), thereby triggering capital gains tax under Section 45 of the Act. PE to cut risks, eye convertible instruments 29 Apr, 2020, 12.58 PM IST. However I have a query. Preference shares: ‘Preference’ shares means fully, compulsorily and mandatorily convertible preference shares. Trading Members of the Exchange are hereby informed that, UPL Limited has fixed the Record Date for the purpose of redemption of Compulsorily Convertible Preference Shares (CCPS) of the Company. Reply. (vi) Non-Convertible preference shares: These are those shares which do not carry the right of conversion into equity shares. PROCEDURE FOR ISSUE OF PREFERENCE SHARES. The type of preference Shares which are compulsorily supposed to be converted in Equity Shares at the time of Maturity of the term of Preference Shares are called as Compulsorily convertible preference shares. It is also known as CCD. Preference shares: There are two types of stocks/shares. 100/- each, aggregating upto Rs. The issue and transfer of shares including compulsorily convertible preference shares and compulsorily convertible debentures with or without optionality clauses shall be at a price worked out as per any internationally accepted pricing methodology on arm’s length basis. Compulsorily convertible instruments are nothing but deferred equity; by their very terms they will become equity, albeit at a later point in time. SECTION- 55 & RULE-9 of the Companies (Share Capital and Debentures) Rules. — Compulsorily convertible preference shares converted into equity shares 5,499.57 Balance as at 31 March 2020 13,179.82 B. 49,99,992 CCPS-IV of ` 10 each were converted into equity shares of face value of ` 10 each at a premium of ` 2 per share ii. 63,00,00,000 (Sixty Three Crores) Compulsorily Convertible Non-Cumulative Preference Shares of Rs. Compulsorily Convertible Debentures (CCDs) are considered to be hybrid instruments / and equity linked instrument, i.e. Compulsorily convertible: Those stocks which are converted from one type of stock to another after some period could be compulsorily convertible. 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