Smt. Rashmikaben K.Thakkar, Anand V. The Income tax Officer,Ward-4, Anand

ITA 9/AHD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68067 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 02-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ILA VARSHI
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Capital asset; Cost of acquisition

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ I.T.A. NO.9/AHD/2013 ( & '& & '& & '& & '& / / / / ASSESSMENT YEAR : 2009-10) SMT.RASHMIKABEN K.THAKKAR ARYANAG SOCIETY AMUL ROAD ANAND-388 001 / VS. THE INCOME TAX OFFICER WARD-4 ANAND ( !./)* !./ PAN/GIR NO. : ABDPT 5675 L ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : SHRI SUNIL H.TALATI, AR ,-(+ / . / RESPONDENT BY : MS.ILA VARSHI, SR.D.R. ' 0 / $1 / / / / DATE OF HEARING : 28/11/2013 23' / $1 / DATE OF PRONOUNCEMENT : 19/12/2013 4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-IV, BARODA( CIT(A) FOR SHORT) DATED 22/10/2012 PERTAINING TO ASSESSMENT Y EAR (AY) 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-IV, BARODA, PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OT HER GROUNDS. 1. THE LD.CIT(APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONSIDERING THE LONG TERM CAPITAL GAIN OF RS.46,40,000/- AS INT EREST INCOME ITA NO.9/AHD/20 13 SMT. RASHMIKABEN K.THAKKAR VS. ITO ASST.YEAR 2009-10 - 2 - INSTEAD OF TAXING THE SAID RECEIPT AS LONG TERM CAP ITAL GAIN. IT IS SUBMITTED THAT THE SAME BE HELD SO NOW. 2. THE LD.CIT(APPEALS) HAS ERRED IN LAW IN NOT ALLOWIN G THE CLAIM OF THE ASSESSEE ON SURRENDERING THE SARDAR SAROVAR NAR MADA NIGAM LIMITED BONDS AS PER THE TERMS AND CONDITIONS OF TH E ISSUE OF SUCH BONDS, WHICH ON RECEIPTS ARE REQUIRED TO BE TAXED A S LONG TERM CAPITAL GAIN. 3. THE LD.CIT(APPEALS) HAS ERRED IN NOT APPRECIATING T HE FACT THAT THE ASSESSEE DID NOT RECEIVE ANY INTEREST ON THE BONDS HELD BY HER OF SARDAR SAROVAR NARMADA NIGAM LIMITED AT ALL AND WHA T WAS RECEIVED ON REDEMPTION/SURRENDER WAS IN THE NATURE OF SALE OF THE BONDS AND THEREFORE, THE SAME BE TAXED AS LONG TERM CAPITAL GAIN. THE LD.CIT(APPEALS) HAS ERRED IN NOT APPRECIATING T HE DECISION OF MUMBAI TRIBUNAL OF IDENTICAL FACTS REPORTED IN 102 ITD 123 AND THAT OF MADHYA PRADESH HIGH COURT REPORTED IN 132 I TR 884. IT IS SUBMITTED THAT THE SAME BE HELD NOW AND THE RECEIPT S OF RS.46,40,000/- BY THE APPELLANT ON REDEMPTION OF 10 0 DEEP DISCOUNT BONDS OF SARDAR SAROVAR NARMADA NIGAM LIMI TED BE TAXED AS CAPITAL GAIN. 4. THE ORDER PASSED BY THE LD.CIT(APPEALS) IS BAD IN L AW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTE D THAT THE SAME BE HELD SO NOW. 5. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR TO AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 22/10/2012, THEREBY THE ASSESSING OFFICER(AO) TREATED THE INTEREST RECEIVED FROM SSNL AS INCOME FROM OTHER SOURCES. A GAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DISMISSED THE APPEAL. THE ONLY EFFECTIVE GROUND IS AGAINST IN TREATING THE INTEREST INCOME A S INCOME FROM OTHER SOURCES ON REDEMPTION OF SSNL BONDS. ITA NO.9/AHD/20 13 SMT. RASHMIKABEN K.THAKKAR VS. ITO ASST.YEAR 2009-10 - 3 - 3. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT W HETHER THE AMOUNT RECEIVED BY THE APPELLANT ON REDEMPTION OF 100 DEEP DISCOUNT BONDS OF SARDAR SAROVAR NARMADA NIGAM BONDS HAVING THE VALUE OF ONE BOND OF RS.3,600/-, IS TO BE TAXED AS INTEREST INCOME OR LO NG TERM CAPITAL GAIN. HE SUBMITTED THAT THE ASSESSEE HAD TOTALLY INVESTED TH E AMOUNT OF RS.3,60,000/- ON 29/07/1993. ON REDEMPTION OF THE BONDS, I.E. PREMATURE ON 15/03/2009 THE ASSESSEE RECEIVED RS.50 ,00,000/-. THE DIFFERENCE BETWEEN THE COST AND REDEMPTION VALUE WO RKED OUT TO RS.46,40,000/-, WHICH WAS CONSIDERED AS LONG TERM C APITAL GAIN BY THE ASSESSEE. HE SUBMITTED THAT IT IS EVIDENT FROM THE PHOTOCOPY OF THE BOND THAT IT WAS PURCHASED IN JULY-1993. HE SUBMITTED T HAT AS PER THE TERMS OF THE ISSUE OF THE BOND, ONE BOND OF RS.3,600/- HAVIN G THE REDEMPTION OF RS.1,11,000/- AFTER 20 YEARS. HOWEVER, THE INVESTO R HAS OPTION OF EARLIER REDEMPTION IN 7 TH , 11 TH AND 15 TH YEARS AT DIFFERENT PRICE. THE ASSESSEE DID NOT OPT FOR EARLIER REDEMPTION AT ALL. DUE TO THE INTEREST RATE GOING UP DURING THOSE PERIOD, SSNL DECIDED TO REDEEM THE ENT IRE BONDS PREMATURE. IT IS SUBMITTED THAT BOND NOWHERE MENTIONED OR STAT ED OR OFFERED ANY FIXED RATE OF INTEREST. THE BONDHOLDER WAS NEVER G ETTING A CERTIFICATE FROM SSNL THAT EVERY YEAR SO MUCH INTEREST WILL BE CREDITED TO THE BONDHOLDERS ACCOUNT, WHICH WAS VERY MUCH THERE FOR NON-CONVERTIBLE BONDS, BUT NOT FOR DEEP DISCOUNT BONDS AT ALL. TH US, IT WAS VERY CLEAR THAT WHAT APPELLANT HAS PURCHASED WAS A CAPITAL ASS ET IN SHAPE OF BOND JUST LIKE A SHARE OR TO SAY, PREFERENCE SHARE. A H OLDER OF A SHARE WHEN TRANSFERS THE SHARE TO ANOTHER SHAREHOLDER OR TO TH E COMPANY ON ITS BUY- BACK POLICY, IT IS ALWAYS A TRANSFER OF CAPITAL ASS ET AND DIFFERENCE BETWEEN THE COST OF PURCHASE AND TRANSFER PRICE HAS TO BE T REATED AS CAPITAL GAIN ITA NO.9/AHD/20 13 SMT. RASHMIKABEN K.THAKKAR VS. ITO ASST.YEAR 2009-10 - 4 - AND NEVER AS AN INTEREST. . HE SUBMITTED THAT THE ASSESSEE WAS GIVEN AN UNDERSTANDING AND ALSO IN SHAPE OF PRINCIPLE OF PRO MISSORY ESTOPPELS THAT IN CASE OF SECURED DEEP DISCOUNT BOND ACQUIRED AND HELD BY A BONDHOLDER AS CAPITAL ASSET, THE DIFFERENCE BETWEEN THE SALE P RICE ON TRANSFER OR ON REDEMPTION BY THE COMPANY AND THE RELATIVE INDEX CO ST OF ACQUISITION WILL BE TREATED AS CAPITAL GAIN. HE SUBMITTED THAT IT W AS ALSO STATED IN THE OFFER LETTER IN SHAPE OF MEMORANDUM OF THE PROSPECTUS OF THE BOND THAT IF THE BONDS IS HELD FOR A CONTINUOUS PERIOD FOR MORE THAN 36 MONTHS, THEN SUCH A DIFFERENCE WILL BE TREATED AS LONG TERM CAPITAL G AIN. HE SUBMITTED THAT IT IS NOT ON THIS PROMISE IN THE PROSPECTUS OR AS P ER THE ARTICLES PUBLISHED IN NEWSPAPER THAT THE CLAIM WAS MADE OF A CAPITAL G AIN, BUT THE ASSESSEE IS ABSOLUTELY RIGHT IN CLAIMING THE DIFFERENCE BETW EEN THE PURCHASE COST AND REDEMPTION AMOUNT AS LONG TERM CAPITAL GAIN ON TRANSFER OF CAPITAL ASSET DUE TO A CLEAR STATEMENT GIVEN IN THE PROSPEC TUS BY NONE OTHER THAN A GOVERNMENT CORPORATION AND ADVISED BY THE LEADING FIRM OF CHARTERED ACCOUNTANTS TO THE PROSPECTUS THAT IT WILL BE IN NA TURE OF LONG TERM CAPITAL GAIN. THE FACT THAT BONDS WERE REGULARLY TRADED IN BOMBAY STOCK EXCHANGE AND OTHER STOCK EXCHANGES. NO MONTHLY, QU ARTERLY OR YEARLY INTEREST WERE EVER PAID OR CREDITED. INVARIABLY IN ALL CASES WHERE VARIOUS OTHER ASSESSEES TRANSFERRED THESE BONDS DURING CONT INUATION TO ANOTHER INVESTOR, THEY HAVE BEEN CONSISTENTLY TAXED AS LONG TERM CAPITAL GAIN AND THERE IS NOT ONE INSTANCE TO SHOW THAT THE DIFFEREN CE WAS TAXED AS INTEREST INCOME. LD.COUNSEL FOR THE ASSESSEE PLACED RELIA NCE ON THE CBDT CIRCULAR DATED 12/03/1996 (FILE NO.225/45/96-IT(A)- II), CLARIFYING THAT ON TRANSFER OF BOND BEFORE MATURITY, THE DIFFERENCE BETWEEN THE SALE CONSIDERATION AND ISSUE PRICE WILL BE TREATED AS CA PITAL GAINS/LOSS IF THE ITA NO.9/AHD/20 13 SMT. RASHMIKABEN K.THAKKAR VS. ITO ASST.YEAR 2009-10 - 5 - ASSESSEE PURCHASED THEM BY WAY OF INVESTMENT. IN S UPPORT OF VARIOUS CONTENTIONS, LD.COUNSEL FOR THE ASSESSEE PLACED REL IANCE ON FOLLOWING CASE-LAWS:- SL.NO(S) IN THE CASE OF REPORTED IN 1. CIT VS. RASIKLAL MANEKLAL (HUF) 177 ITR 198 (SC ) 2. KARTIKEYA V. SARABHAI VS. CIT 228 ITR 163 (SC) 3. MRS.PERVIZ WANG CHUK BASI VS. JCIT 102 ITD 123 (MUM.) 4. MADHYA PRADESH FINANCIAL CORPORATION VS. CIT 132 ITR 884 (MP) 5. C.S. GOSALLA VS. ITO (2008) 15 DTR (MUMBAI) (TRIB) 271. 4. ON THE CONTRARY, THE LD.SR.DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ONLY ISSUE FOR OUR DETERMINATION I S WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE ON REDEMPTION OF 100 DEEP DISCOUNT BONDS OF SSNL TO BE TAXED AS INTEREST INCOME OR LONG TERM C APITAL GAIN. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE IS TH AT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE ITAT MUMBAI BENC H IN THE CASE OF C.S. GOSALLA VS. ITO (SUPRA), WHEREIN THE HONBLE T RIBUNAL HAS HELD THAT THESE DEEP DISCOUNT BONDS ARE CAPITAL ASSETS, HENCE , PROFIT ARISING ON REDEMPTION THEREOF IS TO BE TREATED AS CAPITAL GAI N. AFTER CONSIDERING OF THE TOTALITY OF THE FACTS AND THE SUBMISSIONS OF TH E LD.COUNSEL FOR THE ASSESSEE, WE DO NOT FIND ANY REASON TO DIFFER FROM THE OPINION EXPRESSED ITA NO.9/AHD/20 13 SMT. RASHMIKABEN K.THAKKAR VS. ITO ASST.YEAR 2009-10 - 6 - BY THE COORDINATE BENCH IN THE CASE OF C.S.GOSALLA VS. ITO (SUPRA), THIS GROUND OF THE ASSESSEE IS ALLOWED. THE AO IS DIREC TED TO TREAT THE REDEMPTION VALUE LESS ISSUE PRICE AS CAPITAL GAIN A ND TAX ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 19/12/2013 71.., .../ T.C. NAIR, SR. PS 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. !! $ ': / CONCERNED CIT 4. ':() / THE CIT(A)-IV, BARODA 5. 8 #; ,$ , , / DR, ITAT, AHMEDABAD 6. ;<& =0 / GUARD FILE. 4' 4' 4' 4' / BY ORDER, -8$ ,$ //TRUE COPY// > >> >/ // / !) !) !) !) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 2.12.13(DICTATION-PAD 9- PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3.12.13 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.19.12.13 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.12.13 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER