2008 (7) TMI 1083 - AT - Income Tax

Summary

Issues involved:
1. Tax treatment of profit earned on redemption of IDBI deep discount bonds.
2. Charging of interest under Sections 234B and 234C of the Act.

Issue 1: Tax treatment of profit on redemption of IDBI deep discount bonds
The appeal was filed against the decision upholding the action of treating the profit earned on redemption of IDBI deep discount bonds as 'income from other sources'. The assessee, a practicing advocate, purchased the bonds as investments and earned a gain of Rs. 2,77,520 upon redemption by IDBI. The assessing officer applied a circular issued by CBDT in 2002, while the assessee argued that an earlier circular from 1996 should apply. The Tribunal held that the profit on redemption of deep discount bonds should be treated as capital gain, not income from other sources, as the bonds were capital assets. The circular was deemed to have prospective effect and the order of the Commissioner (Appeals) was reversed in favor of the assessee.

Issue 2: Charging of interest under Sections 234B and 234C of the Act
The assessee was aggrieved by the decision to charge interest under Sections 234B and 234C of the Act, which was confirmed by the Commissioner (Appeals). However, since the decision on the first issue favored the assessee, it rendered the charging of interest under these sections as inconsequential. Therefore, the Tribunal dismissed this ground as infructuous.

In conclusion, the Tribunal allowed the appeal partly, ruling in favor of the assessee on the tax treatment of profit earned on redemption of IDBI deep discount bonds and dismissing the ground related to charging of interest under Sections 234B and 234C of the Act.