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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 ..... uashed. 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 Tax (Appeals) erred in confirming the action of the Assessing Officer in not allowing set off of Long term capital loss (LTCL) of Rs. 3,98,423/- & Short term capital loss (STCL) of Rs. 9,496/- aggregating to Rs. 4,07,919/- against the long term capital gains being aforesaid premium income on redemption of NCDs. Your appellant submits that the losses should have been allowed to set off against the LTCG on such NCDs. 4) The Ld. Commissioner of Income Tax (Appeals) erred in stating as follows "I further find that the claim of the appellant that the investment shown in personal balance sheet of the appellant cannot be considered as the expenses for the same are debited to personal capital and income and expenditure account which has not been claimed at all in the return of income filed was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 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 income has only been examined both by the assessee/AO and Ld CIT(A). While the assessee has declared the same as Long term capital gains, the Ld CIT(A) has taken the view that the same is required to be assessed as interest income under the head Income from Other sources. Thus, we notice that the Ld CIT(A) has only changed the "head of income" under which the above said gain is required to be assessed. Hence, we are of the view that it cannot be said that the Ld CIT(A) has directed the AO to assess any new source of income as contended by the assessee. Accordingly, we do not find any merit in the above said legal contention of the assessee and accordingly, we reject the same. 11. It is pertinent to note that there is an error in the quantum of income that was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 Sarabhai vs. CIT (1997) (90 Taxman 509)(SC), Kartikeya V Sarabhai vs. CIT (1997) (95 Taxman 164) (SC) and by Hon'ble Bombay High Court in the case of Sath Gwaldas Mathurdas Mohata Trust vs. CIT (1987) (33 Taxman 328) (Bom). The Ld A.R also invited our attention to the decision rendered by Mumbai bench of ITAT in the case of Mrs. Perviz Wang Chuk basi vs. JCIT (2006)(102 ITD 123), wherein the redemption of capital investment bond after maturity is held to be a "transfer" within meaning of sec. 2(47) and accordingly, it was held that the same would give rise to Capital Gain or loss. He submitted that the same analogy should be applied to the case of redemption of debentures also, as the same results in extinguishment of rights in debentures. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reatment 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 redemption of NCDs is taxable as interest income. With regard to the computational error, the Ld D.R agreed that the correct amount may be directed to be assessed as interest income. The Ld D.R further submitted that the question of allowing deduction u/s 54F and 54EC will not arise, since the gain is taxable as interest income. 18. We heard rival contentions and perused the record. The facts peculiar to this case may first be noted here. The three SPVs, viz., viz., Bhishma Realty Limited, Capricorn Realty Limited and Chaitra Realty Limited are related concerns of the assessee. The assessee is a director in Capricorn Realty Limited. We noticed earlier that the NCDs were issued by above said Raoul S. Thackersey three SPVs on private pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 though the MLD might have been held for more than three years. The reason may be that the tax is payable on short term capital gains under regular rates, as applicable to interest income. In the instant case, the assessee has purchased NCDs and they are materially different from MLDs. Hence, we are of the view that the legal fiction introduced in sec. 50AA to deal with the cases of MLDs cannot be taken support of by the assessee, in the facts of the present case. 21. The Ld A.R also placed reliance on the fourth proviso to sec.48 of the Act, wherein it is stated that the indexation benefit will not be available to bond or debenture. He also placed reliance on certain case laws, wherein it has been held that the redem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 head business. In case of shares, the shareholder would get dividend income and the same is taxable as stated above. Thus the face value of shares/debentures would remain static and is the capital amount, while the dividend/interest income is the income generated from the above said capital amount. The possibility of generating capital gains/capital loss will arise only if their market value is different from their face value/par value. Such kind of variation will arise in the case of shares/debentures generally, only when they are sold in the open market and amount realized thereon is different from the face value. The market value of shares would depend upon various aspects considered by the market f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 very terms in absence of any distinction on facts or law, as the case may be, pinpointed at his behest. This second substantive ground is rejected in very terms. 6. The assessee's third substantive ground claiming 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 nonconvertible debe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment 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 of the assessee's paper book in page-18 that he had filed the corresponding list of dividend yielding investments in the lower appellate proceedings. The same appears to have not been considered in pages-6 to11 of the lower appellate discussion. Faced with this situation, we direct the learned Assessing Officer to compute the impugned administrative disallowance afresh in very terms. This assessee's fourth and fifth substantive grounds are partly accepted for statistical purposes in above terms. Ordered accordingly. 9. Lastly comes the assessee's sixth substantive ground challenging correctness of both the learned lower authorities action invoking sec.17(2)(iii)(a) of the Act f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 company which has sold shops Shri Keshavji Bhuralal Gala to the assessee to ascertain the fair market value of the property sold to the assessee. In the absence of any enquiry conducted by the Assessing Officer to demonstrate that the value adopted for stamp duty purpose is the actual fair market value of the properties sold, it cannot be said that a benefit in the nature of perquisite as provided under section 17(2)(iii) of the Act has been given to the assessee by the company. 8. The adoption of stamp duty valuation as the fair market value of an immovable property can be considered only for computation of capital gain arising in case of a seller of immovable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier, 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 changed hands. That being the case, the addition made by the Assessing Officer by treating the difference in value between stamp duty valuation and actual sale value cannot be treated as perquisite u/s 17(2)(iii) of the Act. In this context, we may refer to the decision of the Tribunal, Mumbai Bench, in ACIT v/s Sandeep Srivastava, ITA no.6409/Mum./2012 dated 8th July 2015. In any case of the matter, the legal fiction created u/s 50C of the Act insofar as it enables the Assessing Officer to adopt the value for stamp duty purpose as the deemed sale consideration cannot be extended to assess the buyer of the immovable properties to tax on the differential amou ..... 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