DR. MEERA SACHIN GANDHI, MUMBAI V. ITO WD 8(3)4, MUMBAI

ITA 6456/MUM/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9900 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: K P KAPADIALD
• Keywords: Capital asset; Business income; Salary income; Cost of acquisition
• Section: 143(3)

Judgement Text

ITA NO.6456/MUM/2012 DR.MEERA SACHIN GANDHI ASSESSMENT YEAR 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 6456/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) DR. MEERA SACHIN GANDHI 5/6, SHREYAS 2 ND HASANABAD LANE SANTACRUZ(W) MUMBAI 400 054 / VS. INCOME TAX OFFICER WARD 8(3)(4) ROOM NO. 202 2 ND FLOOR AAYKAR BHAVAN, M.K.ROAD, CHURCHGATE MUMBAI -400 020 ! ./ ./PAN/GIR NO. AAAPG-9730-B ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : K.P.KAPADIA,LD. AR REVENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 28/06/2017 / DATE OF PRONOUNCEMENT : 07/07/2017 ITA NO.6456/MUM/2012 DR.MEERA SACHIN GANDHI ASSESSMENT YEAR 2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR 2009-10 ASSAILS ORDER OF LD. COMMISSIONER OF INCOME TAX (AP PEALS)-18 [CIT(A)], MUMBAI DATED 31/07/2012. THE ONLY EFFECTIVE GROUND PRESSED BEFORE US IS GROUND NO.1 & 3 WHICH CONTEST THE HEAD UNDER WHI CH MATURITY VALUE OF CERTAIN BONDS HELD BY ASSESSEE AND HER DAUGHTER ARE TAXABLE. 2. BRIEFLY STATED, THE ASSESSEE BEING RESIDENT INDIVIDUAL DERIVING INCOME FROM SALARY, WAS ASSESSED U/S 143(3) VIDE AS SESSING OFFICER [AO] ORDER DATED 26/12/2011 AT RS. 94,82,326/- AS A GAINST RETURNED INCOME OF RS.40,33,370/- E-FILED BY THE ASSESSEE ON 05/05/2010. 2.1 THE ASSESSEE REFLECTED LONG TERM CAPITAL GAINS [LTCG] ON SALE OF 100 BONDS OF SARDAR SAROVAR NARMADA NIGAM LIMITED [SSNNL] WHICH WERE ACQUIRED ON 07/01/1995 FOR RS.3.60 LACS AND SURRENDERED DURING THE IMPUGNED AY FOR RS.50.00 LACS. THE INDEX ED COST OF ACQUISITION WAS COMPUTED AS RS.8.08 LACS AND THE LT CG SO COMPUTED CAME TO RS.38.31 LACS, WHICH WAS OFFERED TO TAX IN THE RETURN OF INCOME. THE FACE VALUE PER BOND WAS RS.3,600/- AND THE SAME WAS IN THE NATURE OF DEEP DISCOUNT BONDS BEING REDEEMABLE AT MATURITY VALUE OF RS.1,11,000/- ON 11/01/2014 WITH AN OPTION TO INVES TOR TO SURRENDER THE SAME AT THE EXPIRY OF 7 TH , 11 TH AND 15 TH YEAR FROM THE DATE OF ALLOTMENT. 2.2 PURSUANT TO THE SAID OPTION, THE ASSESSEE SURRE NDERED THE BOND DURING THE IMPUGNED AY AND RECEIVED THE MATURITY AM OUNT OF RS.44.74 ITA NO.6456/MUM/2012 DR.MEERA SACHIN GANDHI ASSESSMENT YEAR 2009-10 3 LACS AFTER DEDUCTION OF TDS OF RS. 5.26 LACS. THE A SSESSEE OFFERED THE SAME UNDER THE HEAD CAPITAL GAINS. 2.3 THE INCOME SO EARNED BY THE ASSESSEE ON THESE B ONDS, IN THE OPINION OF LD. AO, WAS TAXABLE AS INTEREST INCOME WHEREAS THE ASSESSEE PLACED RELIANCE ON CBDT LETTER NO. F.NO. 2 25/45/96-IA(A-II) DATED 12/03/1996 TO CONTEND THAT THE SAME WAS RIGHT LY OFFERED UNDER THE HEAD CAPITAL GAINS . 2.4 IT WAS NOTED THAT THE ASSESSEE MADE SIMILAR INV ESTMENT IN THE NAME OF HER MINOR DAUGHTER NEHA GANDHI AND RECEIVED THE MATURITY PROCEEDS IN THE JOINT ACCOUNT. SINCE, THE INVESTMEN T WAS MADE BY ASSESSEE IN THE NAME OF MINOR DAUGHTER AND RESULTAN T INCOME THEREOF WAS NOT OFFERED BY THE DAUGHTER, THE LD. AO TREATED THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE AND ADDED THE SA ME AS INTEREST INCOME IN SIMILAR MANNER IN THE HANDS OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME BY RA ISING SIMILAR CONTENTIONS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER D ATED 31/07/2012 BUT COULD NOT FIND FAVOR WITH THE LD. CIT(A). AGGRI EVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR ASSESSEE [AR], WHILE DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER BOOK, CONTENDED THAT THE BONDS WERE CAPITAL ASSET IN ASSESSEES HAND AND SURRENDER THEREOF AMOUNTED TO TRANSFER WITHIN THE MEANING OF SECTION 2(47) AND THEREFORE, THE SAME WAS RIGHTLY OFFERED UNDER THE HEAD CAPITAL GAINS. RELIANCE HAS BEEN PLACED ON SUBSEQUENT CBDT CIRCULAR NO. 2 OF 2002 DA TED 15/02/2002, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK. ITA NO.6456/MUM/2012 DR.MEERA SACHIN GANDHI ASSESSMENT YEAR 2009-10 4 4.1 PER CONTRA , LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE O N THE STAND OF LOWER AUTHORITIES AND CONTENDED THAT THE A CCRUAL ON BONDS WAS NOTHING BUT INTEREST INCOME AND THE SAME WAS RIGHTL Y CHARGED UNDER THE HEAD INTEREST INCOME . MOREOVER, THE BONDS WERE PURCHASED IN THE YEAR 1995 WHEREAS RELIANCE HAS BEEN PLACED ON SUBSEQUENT CIRCULAR OF 2002 AND HENCE THE SAME DO NOT APPLY. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE CITED CIRCULAR. TH E BASIC FACTS ARE NOT IN DISPUTE. THE ONLY ISSUE IS RELATED WITH HEAD UNDER WHICH SURRENDER / MATURITY PROCEEDS OF THE BONDS WOULD BE TAXABLE. FR OM THE RECORD, IT IS CLEAR THAT THE ASSESSEE IS NOT A TRADER IN BONDS ET C. AND THEREFORE, THE BONDS ARE CLEARLY HELD AS INVESTMENT AND BEYOND DOU BT, THESE BONDS CONSTITUTE CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14). IT IS ALSO CLEAR THAT THE SURRENDER THEREOF AMOUNTS TO TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE INCOME TAX ACT, 1961. 5.1 AT THIS POINT, IT WOULD BE PRUDENT TO EXTRACT R ELEVANT PORTION OF CBDT CIRCULAR NO. 2 OF 2002 DATED 15/02/2002 WHICH READS AS FOLLOWS:- TRANSFER BEFORE MATURITY 5. WHERE THE BOND IS TRANSFERRED AT ANY TIME BEFORE T HE MATURITY DATE, THE DIFFERENCE BETWEEN THE SALE PRICE AND THE COST OF THE BOND WIL L BE TAXABLE AS CAPITAL GAINS IN THE HANDS OF AN INVESTOR OR AS BUSINESS INCOME IN T HE HANDS OF A TRADER. FOR COMPUTING SUCH GAINS, THE COST OF THE BOND WILL BE TAKEN TO BE THE AGGREGATE OF THE COST FOR WHICH THE BOND WAS ACQUIRED BY THE TRANSFE ROR AND THE INCOME, IF ANY, ALREADY OFFERED TO TAX BY SUCH TRANSFEROR (IN ACCOR DANCE WITH PARA 4 ABOVE) UPTO THE DATE OF TRANSFER. 5.1 SINCE THE INCOME CHARGEABLE IN THIS CASE IS ONLY T HE ACCRETION TO THE VALUE OF THE BOND OVER A SPECIFIC PERIOD, FOR THE PURPOSES OF CO MPUTING CAPITAL GAINS, THE PERIOD OF HOLDING IN SUCH CASES WILL BE RECKONED FROM THE DATE OF PURCHASE/SUBSCRIPTION, OR THE LAST VALUATION DATE IN RESPECT OF WHICH THE TRA NSFEROR HAS OFFERED INCOME TO TAX, WHICHEVER IS LATER. SINCE SUCH PERIOD WOULD ALWAYS BE LESS THAN ONE YEAR, THE CAPITAL GAINS WILL BE CHARGEABLE TO TAX AS SHORT-TE RM CAPITAL GAINS. ITA NO.6456/MUM/2012 DR.MEERA SACHIN GANDHI ASSESSMENT YEAR 2009-10 5 A PERUSAL OF THE SAME REVEALS THAT WHEN THE BONDS A RE HELD AS INVESTMENT AND SURRENDERED BEFORE MATURITY, THE RES ULTANT DIFFERENCE WOULD BE TAXABLE AS CAPITAL GAINS IN THE HANDS OF THE INVESTOR. WE ALSO FIND THAT THE SAID CIRCULAR IS CLARIFICATORY IN NAT URE AND ADDRESSES THE DIFFICULTIES BEING FACED BY THE ASSESSEE IN OFFERIN G THE INCOME FROM DEEP DISCOUNT BONDS AND OTHER CONNECTED ISSUE AND THEREFORE, APPLY TO THE PRESENT CASE, BEING CLARIFICATORY ONLY. THEREFORE, WE CONCUR WITH THE STAND OF LD. AR THAT THE INCOME EARNED FROM THE BON DS WAS TAXABLE UNDER THE HEAD CAPITAL GAINS AS AGAINST INTEREST INCOME AS OPINED BY LD. AO. 5.1 HAVING SAID SO, WE FIND CERTAIN COMPUTATIONAL E RROR IN WORKING OF CAPITAL GAINS ARRIVED AT BY THE ASSESSEE. THE SALE CONSIDERATION TAKEN BY THE ASSESSEE IS RS.46.40 LACS WHEREAS THE CORREC T SURRENDER VALUE IS RS.50.00 LACS. FURTHER, INDEXATION BENEFIT IS NOT A VAILABLE ON BONDS / DEBENTURES AS PER SECTION 48 OF THE INCOME TAX ACT, 1961 EXCEPT FOR CERTAIN CATEGORY OF BONDS AS SPECIFIED THEREIN. PRIMA FACIE, THE BONDS IN QUESTION ARE NOT COVERED IN THE SAID CATEGORY. THER EFORE, WHILE UPHOLDING IN PRINCIPAL THAT THE RESULTANT GAIN WOUL D BE TAXED UNDER THE HEAD CAPITAL GAINS, THE MATTER IS RESTORED BACK TO AO FOR CORRECT COMPUTATION THEREOF AS PER SECTION 48 OF THE INCOME TAX ACT. 5.2 THE SAME COMPUTATION WOULD APPLY TO ADDITION OF UNDISCLOSED INCOME AGAINST BONDS HELD BY THE DAUGHTER OF THE AS SESSEE AND CONSEQUENTLY, THE ASSESSEE WOULD BE GRANTED THE BEN EFIT OF TDS IN RESPECT OF BOTH TYPES OF HOLDINGS. ITA NO.6456/MUM/2012 DR.MEERA SACHIN GANDHI ASSESSMENT YEAR 2009-10 6 6. RESULTANTLY, THE ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH JULY, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07 .07.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. . / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI