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TMI Blog2012 (12) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... re - deduction u/s.54EC – Held that:- the capital gain should be assessed as Long Term Capital Gain on the footing that the period of holding of Deep Discount Bond is more than the period prescribed. - gain in question was to be taxed as long term capital gain - in consequence thereupon the assessee should also be entitled for exemption u/s.54AC of IT Act. - ground of the assessee is allowed - I.T.A. No. 1261/Ahd/2006 - - - Dated:- 31-1-2012 - SHRI MUKUL Kr.SHRAWAT AND SHRI B.P.JAIN, JJ. Appellant by : Shri S.N.Soparkar Respondent by : Shri S.S. Panwar ORDER PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-I, Ahmedabad dated 7/3/2006 passed for A.Y. 2002-03. 2. Number of grounds have been raised, however, at the outset, ld.AR Mr.S.N. Soparkar has expressed not to press Ground Nos.1 2 being general in nature and Ground Nos.6,7 8 being consequential in nature. We are now left with Ground Nos.3, 4 5; reproduced below:- 3. In law and in facts and circumstances of the Appellant s case, the Ld. Commissioner of Income Tax (Appeals) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had failed to follow the guidelines of the said Circular. The assessees s objection was that the said Circular since issued on 15/02/2002, therefore not applicable retrospectively on the assessee. The AO s remark was that as far as the law in respect of accrual of income is concerned, the same had not changed and that through the said Circular it was simply clarified. As per AO, in respect of secured debentures the liquidity is fully assured and, therefore, the assessee could safely calculate the annual accrual on the said securities. The interest should have been offered by the assessee on accrual basis irrespective of the method of accounting adopted. The AO has, thereafter, computed the accrued interest as under:- Maturity value (face value) [1 + r/100]n Here r is prevailing discounting rate in Indian Economy and n is the remaining period before maturing. The range of prevailing discounting rate r is as under: 1999 10.05-11.50 2000 10.00-12.00 2001 8.75-11.25 2002 7.41-10.25 2003 6.00-7.75 2004 4.7-6.50 Thus the average of range for 2002 is 8.83. (i) The discounted value as on 31.03.02 in case of DDBs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -8-2004 in which it offered the interest on the OFCPNs. on accrual basis. It was also stated by the assessee that the interest was being offered on accrual basis due to abundant precaution and that it is the assessee s case that the circular no.2 of 2002 issued by the CBDT on 15-2-2002 is not applicable to OFCPNs. and was confined to deep discount bonds. The assessee had purchased 7132 OFCPNs. issued by Nirma Industries Ltd. on 25-3-2002 for Rs.17.83 crores and the interest accrued thereon till 31-3-2002 was Rs.2,11,535/-. The AO accepted the letter to the extent the income was offered therein for assessment but made it clear in the assessment order that the circular cited above equally applies to OFCPNs. since they are in no way different from deep discount bonds. 29. The issue stands covered by the order of the Ahmedabad Bench of the Tribunal in the case of Kisan Discretionary Family Trust Vs. ACIT in ITA No.1850/Ahd/2007 (AY 2003-2004) dated 2-11-2007. In this order it has been held that as per Circular no.2 of 2002 it is applicable only to deep discount bonds purchased after 15-2-2002. Therefore, if it is held that the OFCPNs. are similar in nature to deep discount bonds, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebenture (Series-II) of Rs.25 lacs each. These debentures also comprised Principal Strip and detachable interest coupon strips. On sale, assessee had shown Long Term Capital Gain. Sale was executed of interest coupon on 19/5/2001 and 20/3/2002, hence as per assessee Long Term Capital Gain was disclosed. A show-cause notice was issued as to why the accrued interest should not be considered as on 31/3/2001 on the discounted value of the strips and then from that date Short Term Capital Gain should not be considered on the interest coupon strips in the light of Board Circular No.2 of 2002 dated 15/02/2002. As per Assessing Officer, the assessee had to offer the income on those strips on annual basis irrespective of the method of accounting followed and on such strips there could not be any Long Term Capital Gain because as per Assessing Officer, there would be either accrued interest or Short Term Capital Gain. Thereafter, the Assessing Officer had discussed certain Circulars and other provisions of the Act and, thereafter arrived at the following conclusion:- 5.8. The assessee sold the interest coupon strips Part-B, Series-I as on 18.05.01 and it was listed as on 20.06.2000. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /3/06 for A.Y. 02-03. Hence, in view of above discussion, Ground of appeal No.3 is dismissed. 9. Having heard the submissions of both the sides, on the face of records, the issue stood covered by a decision of ITAT A Bench Ahmedabad pronounced in the case Karsanbhai Khodidas Patel HUF (supra), wherein it was held as under:- 7. The assessee is in further appeal before the Tribunal. The main contention urged on its behalf was that the assessee must be held to have held the capital asset from the date on which the letter of allotment was issued viz. 23-9-2000 and not merely from the date of issue of the debenture certificate on 10-5-2001 or any later date. Our attention was drawn to section 75 of the Companies Act to highlight the fact that there is no difference between the letter of allotment and the debenture certificate. It is pointed out further that the departmental authorities have not appreciated the circular no.2 of 2002 issued by the CBDT in proper perspective and that they were wrong in relying on the same to hold that the capital gains in the present case are not long term capital gains. It is submitted that the circular applies prospectively in the sense that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonds should be treated as interest. He has himself assessed the surplus as capital gains. The dispute is only whether they are long term capital gains as contended by the assessee or short term capital gains as contended by the revenue. A short term capital asset is defined by section 2(42A) as a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. There is a proviso to the sub-section which was inserted by the Finance Act, 1987 w.e.f. 1-4-1988. The said proviso says that in respect of the capital assets mentioned therein, they would be treated as short term capital assets if they are held for a period of not more than 12 months. A long term capital asset has been defined by section 2(29A) of the Income Tax Act as meaning a capital asset which is not a short term capital asset. The result is that in the case of the capital asset specified in the proviso to section 2(42A), it becomes a long term capital asset if it is held for more than 12 months and it is not necessary that such an asset should be held at least for a period of 36 months in order to qualify as a long term capital asset. One of the assets specified in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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