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2016 (11) TMI 1710
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....earned representatives state at the outset that these four appeals raise a common issue of taxation of assessees' profits arising from redemption of 400 Deep Discount Bonds of Sardar Sarovar Nigam Ltd. purchase @3600 per bond on 11.01.1994 and redeem at a price of Rs. 50,000/- each on 10.01.2009. We thus treat former assessee Manankumar M. Patel appeal ITA No.1558/Ahd/2013 along with Revenue's cross appeal ITA No.1702/Ahd/2013 as the lead cases. 3. We come to relevant facts first. There is no dispute that the assessee acquired and redeemed the above Deep Discount Bonds on the dates and prices stated in the preceding paragraph. The assessee at the first instance claimed that these profits arising from the above redemption were in the nature of long term capital gains u/s.10(38) of the Act. The Assessing Officer sought to know as to whether the same had been subjected to the Securities Transaction Tax or not. The reply came was in negative. The Assessing Officer observed in assessment order dated 24.12.2011 that assessees' above claim u/s.10(38) of the Act was not admissible since its capital assets was not in the nature of an equity share in a company or a unit of an equity orien....
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....le proceeds of such bonds. The appellant having received the sum on surrendering those bonds which fell in the accounting year relevant to A.Y. 2009-10. Since the said bonds in question were 'Capital Assets' of the appellant, the surplus earned by the appellant on the surrender of the bonds was disclosed by the appellant as 'Long Term Capital Gains' and claimed as exempt from taxation by virtue of provisions of section 10(38) of the Act. 4.2 In the course of the assessment proceedings, the A.O. has rejected the claim of the appellant, and has taxed the surplus arising as 'Interest on Securities' relying upon a letter of Sardar Sarovar Narmada Nigam Ltd. (purportedly relying upon CBDT circular by the latter), and has denied benefit of exemption u/s 10(38) of the Act. 4.3 As submitted in para 3 above, the A.O. has neither supplied a copy of alleged letter of Sardar Sarovar Narmada Nigam Ltd. to the appellant nor specified date and number of particular circular of CBDT. The Courts have held, time and again, that when evidence/material/statements are collected at the back of the appellant and are used in the assessment proceedings, the Principl....
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....ore the Tribunal contended that the transaction of surrender of bonds didn't amount to relinquishment of any asset and hence the excess amount received by the appellant was not liable to be taxed as Business Income. On reference, the High Court held that it was not disputed by the appellant before the Tribunal that the bonds in question, which is surrender, resulted in a gain to the appellant. In view of such findings, the profit earned by the appellant on the surrender of the bonds was rightly held by the Tribunal as liable to be taxed as Capital Gains. The Facts of this case are applicable to the appellant's case in as much as in the books of accounts of the appellant these bonds are being shown as Capital assets and they are surrendered, resulting in a gain lease to be taxed as long as Long Term Capital Gain but for exemption provided u/s 10(38) of the Act. (2) Perviz Wang Chuk Basi Vs. 3CIT [20061102ITD 123 (Mumbai) Facts: The appellant claimed long term capital loss on redemption of bonds matured in the year. According to the CIT(A) there was not a transfer and hence he confirmed the decision of the A.O. of nonallowance of long term ....
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....bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. (5). All Gujarat Federation of Tax Consultants v. CBDT[1994] 76 Taxman 307 (Guj). Board's circulars are not binding on High Court/ITAT. (6) CIT v. Swadesh East Asia Co. Ltd. [1981] 127 ITR 148 (Cal). A Board's circular which disallows a benefit/curtails benefit to the assessee otherwise admissible under the Act, is not binding. (7). Bhartia Industries Ltd. v. CIT [2011] 201 Taxman 180/12 Taxman.com 409 (Cal). On a plain reading of the provision of section 119, it is clear that the circular issued by the Board under the aforesaid provision is meant for guiding the officers of the revenue for administrative purpose of enforcing the provisions of the Act. But when an authority under the Act is required to perform quasi-judicial functions, such authorities should be guided by the law of the land as enunciated by various judicial authorities which has a binding effect. If an existing circular is a conflict with the law of the land laid down by Supreme Court, the revenue authorities, while acting quasi-judicially, sh....
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.... of business or profession" OR "Income from other sources" shall be computed in accordance with either "cash" or "Mercantile" system of accounting regularly by the assessee. That is, if the system of accounting regularly employed is 'cash', then it is chargeable on 'cash basis' and if it is 'mercantile' then it is chargeable on "accrual basis". 3.4 Us submitted earlier, it is undisputedly proved on record that the department accepted the 'mercantile method' of accounting being regularly employed by the appellant, in earlier years on the same set of facts and circumstances of the case of the appellant. It is well settled that the principle of res-judicial doesn't apply to I.T, Proceedings, but the principle of consistency shall have to be followed by the revenue department while making the assessment. 3.5 i In may kindly be appreciated that in relation to deep discount bonds the difference between the market valuations as on two successive valuation dates will represent the accretion to the value of the bond, during the relevant financial years and will be taxable as 'interest' income where the bonds are held as investmen....
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.... company or other body corporate, Government Security, such other instruments as may be declared by the Government to be securities and rights or interest in securities. Listed securities are defined to mean securities which are listed on any recognized Stock Exchange in India. Accordingly, Deep Discount Bonds of Sardar Sarovar Narmada Nigam Ltd. are placed under the category of "listed securities". 4.2 As is evident from the records, the appellant had invested out of his unutilized surplus funds in DD bonds way back in F.Y. 1993-94 and the same being held as investment in all these years and stood accepted as such in the wealth tax return, the surplus on redemption thereof should be taxed as Long term capital gains. The factum of the bonds being held as investment is not disputed by the A.O. as no adverse remark is passed in the assessment order though it was specifically brought on record by the letter dated 15.12.2011 filed with the A.O. and as noted in Para 5.1 of the assessment order coupled with the finding of the A.O.(though contested as taxed in one year) that the income arising out of investment made in such bonds is taxed as "interest on securities". Further, und....
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....ween the tax payable in respect of income arising from the of listed securities, computed at 10 percent and the tax payable at the rate of 10 percent on the capital gains before giving effect to indexation. There is nothing in the provisions of section 112 what would lead to the acceptance of the contention of the revenue that the assessee would be entitled to set off the loss under section 70, nut without the benefit of indexation. No such requirement is legislated upon by the Parliament either under section 70 or in section 112. During the relevant assessment year the assessee entered into eight sale transactions of shares. In one transaction shares being bonus shares their cost acquisition was nil and, therefore, the entire sale consideration was considered as a long term capital gain. Out of the remaining seven transactions, one sale result in long term capital gain with indexation whereas in the remaining transaction the assessee reported a loss with indexation. The assessee set off long term capital gain loss from long term capital gains and paid a tax of 10 percent on net long term capital gain. Held that during the relevant assessment year the assessee ent....
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....the appellant during the span of 2-3 years i.e. Rs. 18,00,000/- and accordingly work out the long term capital gain and tax payable thereon, if any. The ground of appeal is accordingly partly allowed." 4.4 Having regard to the factual matrix and the legal position as stated above, your honour may kindly be pleased to direct the A.O. to work out the long term capital gain with the benefit of indexation and work out tax payable at the flat rate of 10% and Surcharge etc. if any, u/s. 112 of the Act." 6.3 I have carefully gone through the facts of the case, the assessment order, the submissions, the circulars issued by the CBDT, the case law on the issue. The following pertinent observations/decisions are made after thorough consideration of all material facts: (i) Undisputedly, the investment in SSNNL Bonds have been made on 11/1/1994 relevant to A.Y. 1994-95. These were called Deep Discount Bonds of Rs. 3600/- each and would have matured on 11/01/2014 as per the Certificate issued. These carried fixed maturity value. The appellant since then had not shown any interest income in the returns filed. The appellant has shown capital gains on these in the current....
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....wing words: "It is also an established principle that a circular issued by the Central Board of Direct Taxes cannot have a retrospective tax effect. The present circular on deep discount bonds, therefore, specifies the tax treatment in respect of bonds which are issued after the issue of the circular, and does not seek to impose the modified treatment on existing bond holders." Clearly, this circular dated 15th February, 2002 would not be applicable to the appellant's case as the Bonds were issued much earlier. (vi) The background part of Circular No.2 of 2002 dated 15/2/2002 clearly shows that there were no clear circulars before that and there were only letters written to RBI etc., conveying that the entire income would be taxed as interest income in the year of redemption on maturity but in case of transfer before maturity these would be taxed as capital gains if held as investments. Because there is no circular on this issue, the letters would only be having at the most guidance value and would not be binding. (vii) Clearly, all the bond holders were forced to take the amount offered by the SSNNL after the Gujarat Government Act. The Bond....
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....l gains on the transactions in Bonds without giving benefit of indexation. The ground of appeal is decided accordingly." 5. The CIT(A) accordingly treats assessee's redemption income to be in the nature of capital gains. This leaves both the parties aggrieved. The assessee pleads in its appeal that the CIT(A) has erred in not adjudicating its preliminary contention seeking assessment of its redemption income as interest income in view of the fact that it followed mercantile system. Its further case is that the lower appellate authority ought to have granted it indexation benefit u/s.48 of the Act. It further raises an alternative plea seeking assessment of its capital gain at a flat rate of 10% after indexation. The Revenue's sole substantive ground on the other hand avers that the CIT(A) has wrongly treated assessee's redemption income hereinabove as capital gains instead of interest on securities as assessed in the course of above regular assessment. We have heard both the parties. Case file perused. 6. We first come to common issue raised in both the appeals as to whether the impugned redemption income is to be treated as capital gains or interest income from secu....