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TMI Blog2024 (7) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... mium is nothing but interest income only. Accordingly, we are of the view that the Ld CIT(A) was legally correct in holding that the premium/surplus received by the assessee is interest income assessable under the head Income from Other Sources. - Decided in favour of revenue. Set-off of long term capital loss against long term capital gains - In view of foregoing adjudication, is restored back to the learned Assessing Officer for his afresh computation as per law in very terms once learned counsel is equally fair in not disputing the fact that the assessee had computed the impugned losses under the head capital gains long and short; and sought to set-off the same against the long term capital gains arising from redemption/transfer of non-convertible debentures (supra). Disallowance u/s 14A - computation of administrative expenditure disallowance relating to exempt income u/sec.14A read with Rule 8D(2)(iii) - HELD THAT:- We first of all see no such distinction either in sec.14A nor in Rule 8D drawing a distinction between the categories of portfolios; whatsoever. Coming to the assessee s reliance of this tribunal s foregoing decision Vineet Investments [ 2017 (6) TMI 1124 - ITAT DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDER PER SATBEER SINGH GODARA, J.M. This assessee s appeal for assessment year 2011- 2012 arises against the order of the learned CIT(A)-28, Mumbai, Mumbai s Order in appeal no. CIT(A)-28/IT 182/DC-12(1)/2014-15, dated 15.11.2016, in proceedings u/s. 143(3) of the Income Tax Act, 1961 (in short the Act ). Heard both the parties. Case file perused. 2. The assessee pleads the following substantive grounds in the instant appeal : 1) The Ld. Commissioner of Income Tax (Appeals) erred in not considering the appellant's plea that the assessment was completed without giving proper opportunity of being heard and make their submissions against the additions/ disallowances made by the Assessing officer. Your appellant submits that the assessment is bad, void and illegal and the assessment order be quashed. 2) The Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in assessing premium of Rs. 1,45,48,685/- on redemption of non convertible debentures (NCDs) as interest income and taxing the same as 'Income from Other Sources instead of taxing the same as Long Term capital gains as offered by the appellant. 3) The Ld. Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the other grounds. 8) Your appellant further reserve the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives. 3. Learned counsel submits very fairly at the outset that the assessee s first and foremost substantive ground is general in nature. Rejected accordingly. 4. Next comes the assessee s substantive issue seeking to assess his impugned interest income representing premium of Rs. 1,45,48,685/- on redemption of Non-Convertible Debentures [NCDs] as long term capital gains than that taken as Income from other sources by the learned lower authorities. Learned counsel is fair enough in stating at the Bar that this tribunal s coordinate bench s order in assessee s appeal ITA.No. 3678/MUM./ 2015 for assessment year 2010-2011 dated 15.04.2024 has decided the same in favour of the department as under : 10. We heard the parties on this legal issue. We noticed that the assessee has purchased NCDs for an amount of Rs. 1451.32 lakhs and received a sum of Rs. 2359.62 lakhs on their redemption. Thus, the assessee made a gain of Rs. 908.30 lakhs on the redemption of NCDs. We notice that the taxability of above said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yield an IRR of 12.5% and 11% respectively. Thus, the above said SPVs are not required to pay interest either quarterly, half yearly or annually during the tenure of NCDs, but premium shall be paid on redemption. We noticed earlier that the above said NCDs were initially allotted to the nationalized banks in September, 2004. The assessee herein has purchased the NCDs in June, 2006 from those nationalized banks. Thereafter, they were redeemed in October, 2009. 14. The case of the assessee is that the debenture is a capital asset. Further its redemption is results in extinguishment of rights therein. However, the Ld CIT(A) has taken the view that the redemption will not fall under the definition of transfer given under the Act. In this regard, the Ld A.R submitted that the expression transfer includes sale, exchange or relinquishment of asset or extinguishment of rights as stated in sec.2(47)(i) of the Act. The Ld A.R submitted that the extinguishment of rights in preference shares has been held to be a case of transfer by various Courts. In support of this proposition, the Ld A.R placed his reliance on the decisions rendered by Hon'ble Supreme Court in the case of Anarkali Sara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d over the tenure of debenture period and could be claimed as deduction accordingly. Similar view has been expressed in the case reported in 2017-TIOL-183- ITAT-KOL. She also referred to the decision rendered by ITAT in the case of Bennett Coleman Co Ltd vs. ACIT (ITA No.569/Mum/2009 dared 21-01-2010), wherein it was held that the premium received on redemption of debenture is taxable under the head Income from other sources. 17. The Ld D.R further submitted that the assessee herein is an intermediate purchaser and not the original subscriber of NCDs. With regard to tax treatment to be given to the gain arising on redemption of Deep Discount Bonds, the Ld D.R referred to the Circular No.002 of 2002 issued by CBDT, wherein the tax treatment to be given in respect of Deep Discount Bonds and STRIPS upon its redemption has been explained. He submitted that the above cited CBDT Circular states that the difference between the redemption price and the cost of purchase of bond by the intermediate purchaser will be taxable as interest or business income, as the case may be. Accordingly, the Ld D.R submitted that the Ld CIT(A) has rightly held that the gain received by the assessee on redemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of discount and the amount of premium, in effect, are interest amounts only. Hence, the companies issuing both types of bonds/debentures usually claim discount/premium as interest expenditure and their claim has been allowed. 20. We think that there is no dispute with regard to the fact that the Debentures fall under the category of Capital asset under the Income tax Act. In this regard, the Ld A.R took us to sec.50AA of the Income tax Act, wherein the gains arising on sale/redemption of certain kinds of debentures is stated to be taxable as short term capital gain. We notice that section 50AA is applicable to a case of market linked debentures (MLD). In case of Market linked debentures, the interest rate payable on them is not determined at the time of issuing them. Instead, the return on those market linked instruments is determined on the basis of performance of an underlying market index or instrument. Normally, in case of MLD, interest may not be payable every year and it may be payable in lump sum at the end of its tenure. The Parliament, by a legal fiction introduced in sec.50AA of the Act, has stated that the said gain is taxable as short term capital gains, even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht over and above its face value, while the debentures do not carry such kind of rights. Hence, shares and debentures stand on different footing. In our view, the decisions with regard to redemption of preference shares and reduction of capital in case of equity shares have been rendered considering the rights and liabilities attached to shares. Hence, in our view, the ratio of decisions rendered in the case of equity shares/preference shares cannot be applied to debt instruments. We notice that the decision in the case of Mrs. Perviz Wang Chuk basi (supra) was related to Capital investment Bond issued by Government of India and not the case of debenture issued on private placement basis. Accordingly, the redemption of debentures is nothing but repayment of debt and the same, in our view, cannot fall under the category of extinguishment as interpreted by the Courts in the case of Shares/Preference shares. 22. We may explain as to how the incidence of capital gain may arise in the case of debentures. We noticed earlier that the holder of debenture is only entitled to receive interest from it. The said interest income is taxable under the head Income from other sources or under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re redeemed by the issuing companies. Further, what is received by the assessee in the form of premium is nothing but interest income only. Accordingly, we are of the view that the Ld CIT(A) was legally correct in holding that the premium/surplus received by the assessee is interest income assessable under the head Income from Other Sources. 24. We noticed earlier, the cost of purchase of debentures to the assessee was Rs. 1451.32 lakhs and the redemption value was Rs. 2359.62 lakhs. Hence the actual interest that has accrued to the assessee was Rs. 908.30 lakhs only. Accordingly, we modify the order passed by Ld CIT(A) and direct the AO to assess the above said interest income of Rs. 908.30 lakhs only. 25. Since we have held that the surplus/premium received by the assessee is in the nature of interest income, the contention of the assessee that the same was in the nature of capital gain is rejected. Hence the assessee will not be entitled for any deduction u/s 54F and 54EC of the Act in the absence of any capital gains income. We order accordingly. 5. Faced with this situation, we adopt judicial consistency to reject the assessee s instant first and foremost substantive ground in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance(s) is not sustainable in law. 8.1. Mrs. Nayar has drawn strong support from the learned lower authorities action invoking the impugned disallowance. 8.2. We find part merit in assessee s submissions in light of the fact that we are dealing with a case of computation of administrative expenditure disallowance relating to exempt income u/sec.14A read with Rule 8D(2)(iii) of Income-tax Rules. We first of all see no such distinction either in sec.14A nor in Rule 8D drawing a distinction between the categories of portfolios; whatsoever. Coming to the assessee s reliance of this tribunal s foregoing decision (supra); we find that the learned coordinate bench had dealt with assessment year 2008-2009 whereas Rule 8D was applicable w.e.f. 01.04.2008 onwards. The same stands distinguished in very terms. 8.2. Next comes equally important aspect of computation of the impugned disallowance(s). The Revenue could hardly dispute that [2015] 374 ITR 108 (Del.) ACB India Ltd., vs. ACIT; [2017] 165 ITD 27 (Del.) (SB) ACIT vs. Vineet Investments; have settled the issue that such a disallowance has to be computed after considering the dividend yielding investments only. We find from a perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. We have also applied our mind to the decisions relied upon. It is evident from the factual matrix that the addition made of Rs. 1.95 crore as perquisite under section 17(2)(iii) of the Act was on the reasoning that the assessee has received a benefit in lieu of salary, since, the actual sale consideration received by the assessee is lesser than the value determined for stamp duty purposes. Though, the Assessing Officer in so many words has not referred to the provisions of section 50C of the Act, however, it is manifest, the Assessing Officer importing the fiction created under the deeming provisions of section 50C of the Act has assumed that the fair market value of the property is the value adopted for stamp duty purposes. Hence, he has concluded that the difference between the stamp duty value and actual sale consideration is a benefit given to the assessee as per section 17(2)(iii) of the Act. However, there is nothing on record, either in the assessment proceeding or in the order of the first appellate authority to suggest that the Assessing Officer has made any enquiry to ascertain the fair market value of the property. Even, he has not conducted any enquiry with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een provided to the assessee. In our view, without factually establishing the existence of employer-employee relationship between the company and the assessee it cannot be assumed that the assessee has been given a benefit in lieu of salary, even, in the absence of contract of employment between the company and the assessee. This is so because as per section 17(2)(iii)(a) of the Act, the director to whom any benefit or amenity is granted must be an employee of the company. In this context, we may refer to the following decisions:- i) CIT v/s Lady Navajvai R.J. Tata, 15 ITR 8; and ii) CIT v/s Laxmipati Singhania, 92 ITR 598. 9. Moreover, as observed by us earlier, merely on the basis of the difference between stamp duty valuation and actual sale consideration the Assessing Officer has concluded that a benefit in the nature of perquisite has been given to the assessee by the company. However, there is nothing on record nor any positive finding by the Assessing Officer on the basis of any enquiry to suggest that the fair market value is the value determined for stamp duty purpose. There is no allegation by the Assessing Officer that any consideration over and above the sale value has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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