DORAISWAMI RAJAGOPALAN,BANGALORE V. DCIT-CIRCLE-2(2)(1), BANGALORE

ITA 2281/BANG/2024

AI Insights

The case revolves around the taxation rate applied to long-term capital gains earned by the assessee, Doraiswami Rajagopalan, from the redemption of Market Linked Debentures (MLDs). The assessee contended that these gains should be taxed at a concessional rate of 10% under section 112A of the Income Tax Act, as the debentures were listed and traded on a recognized stock exchange. However, the Assessing Officer (AO) applied a tax rate of 20% under section 112, leading to a dispute. The CIT(A)/NFAC upheld the AO's decision, leading to the present appeal before the Tribunal. The Tribunal agreed with the lower authorities, noting that section 112A specifically applies to certain securities like equity shares and units of equity-oriented funds, and not to debentures.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32847 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2021-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: REVENUE; GANESH R GHALE; STANDING
• Keywords: Capital Gains
• Section: 154; 143(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA No. 2281/Bang/2024 Assessment Year: 2021-22 Doraiswami Rajagopalan, #32/1, 4th Main Road, 11th Cross, Malleshwaram, Bangalore. PAN – AANPR 3551 N Vs. The Dy. Commissioner of Income Tax, Circle – 2(2)(1), Bangalore. APPELLANT RESPONDENT Assessee by : None [WS] Revenue by : Shri Ganesh R Ghale, Advocate – Standing Counsel for Revenue Date of hearing : 26.02.2025 Date of Pronouncement : 05.03.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 27/09/2024 vide DIN No. ITBA/NFAC/S/250/ 2024-25/1069187237(1) for the assessment year 2021-22. 2. The only issue raised by the assessee is that the learned CIT(A)/NFAC erred in confirming the action of the CPC levying the tax on capital gain @ 20% instead of 10%. ITA No.2281/Bang/2024 Page 2 of 5 . 3. The necessary facts are that the assessee is an individual and in the year under consideration earned a long-term capital gain (LTCG) of Rs. 1,95,850/- on redemption of Market Linked Debenture. The assessee on the impugned LTCG paid tax @ 10%. 4. The CPC in the intimation under section 143(1) of the Act levied the tax on impugned LTCG @ 20% and raised demand of additional tax liability. The assessee against the intimation order filed rectification application u/s 154 of the Act which was rejected by the CPC. 5. The aggrieved assessee preferred an appeal before the learned CIT(A)/NFAC against the intimation under section 143(1) of the Act. 6. The assessee before the learned CIT(A)/NFAC contended that the long-term capital gain on the sale of listed debentures has been erroneously taxed at 20% by the AO instead of the applicable 10% rate as per section 112A of the Act. The assessee emphasizes that the debentures in question were listed and traded on a recognized stock exchange in India, and the transaction was duly settled through the stock exchange. Despite this, the AO assumed that the debentures were not routed through the exchange and charged an additional 10% tax, moving the total tax rate to 20% under section 112 of the Act. 7. The assessee provides proof of sale from the issuer, Centum Financial Services, and also attaches the BSE settlement confirmation to establish that the debentures were indeed traded on the stock exchange. Further, the assessee highlights that tax at 10% has already been paid, and the return of income has been submitted accordingly. The assessee ITA No.2281/Bang/2024 Page 3 of 5 . claimed that as per the provisions of section 112A of the Act, long-term capital gains arising from the sale of listed securities, including debentures when they exceed Rs. 1,00,000 is taxable at concessional rate of 10% only. 8. The assessee argued that under the Securities Contracts (Regulation) Act, 1956, debentures qualify as \"securities,\" and therefore the benefit of the lower tax rate applicable for sale of listed securities shall be provided. 9. However, the learned CIT(A) dismissed the appeal of the assessee by holding that concessional rate of tax on capital gain under section 112A of the Act is available where LTCG is arising from the transfer of Shares & Unit of Equity Oriented Funds and not on the LTCG arising from transfer of debentures. 10. Being aggrieved by the order of the learned CIT(A)/NFAC, the assessee is in appeal before the Tribunal. 11. The assessee before me has filed the written submission having 16 pages, reiterating the submissions made before the lower authorities. 12. On the other hand, the learned DR before me vehemently supported the order of the authorities below. 13. I have heard the learned DR and gone through the written submissions filed by the assessee and also perused the materials available on record. The primary question before the me is whether the ITA No.2281/Bang/2024 Page 4 of 5 . long-term capital gain (LTCG) arising from the redemption of Market Linked Debentures (MLDs) should be taxed at the concessional rate of 10% under section 112A of the Act, or at the rate of 20% as applied by the AO under section 112 of the Act. 13.1 It is noted that section 112A provides a preferential tax rate of 10% on LTCG arising from the transfer of specified assets, which include equity shares of a company, units of an equity-oriented fund, or units of a business trust, provided certain conditions are fulfilled. However, the provision does not extend this benefit to debentures, even if they are listed and traded on a recognized stock exchange in India. The legislature has intentionally limited the scope of section 112A of the Act to specific securities and has not included debentures within its ambit. 13.2 I have also examined the assessee’s argument that debentures qualify as \"securities\" under the Securities Contracts (Regulation) Act, 1956, and therefore, same should be eligible for the concessional tax rate. However, it was observed that while debentures may fall within the broader definition of securities, the Income Tax Act has clearly distinguished between different types of securities for taxation purposes. The benefits of section 112A are restricted to certain securities, and debentures are not covered under this provision. Hence, the argument of the assessee that the transaction was conducted on a recognized stock exchange does not alter the tax treatment specified under the Act. 13.3 The learned CIT(A) had correctly interpreted the law while dismissing the assessee’s appeal. I, therefore, uphold the view of the learned CIT(A). Since debentures are explicitly excluded from the ITA No.2281/Bang/2024 Page 5 of 5 . concessional tax treatment under section 112A of the Act, the correct rate of tax applicable on the LTCG from the redemption of Market Linked Debentures is 20% under section 112 of the Act. In light of the above observations, I conclude that the AO/CPC had rightly applied the tax rate of 20% on the impugned LTCG. The appeal filed by the assessee, therefore, lacks merit and is accordingly hereby dismissed. 14. In the result, the appeal filed by the assessee is dismissed. Order pronounced in court on 5th day of March, 2025 Sd/- (WASEEM AHMED) Accountant Member Bangalore Dated, 5th March, 2025 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore "