COMMISSIONER OF INCOME TAX - II vs. RASHMIKABEN K THAKKAR

Facts

The assessee, Rashmikaben K Thakkar, filed her return of income for Assessment Year 2009-10 on July 31, 2009, declaring a total income of Rs. 5,02,130/-. The return was processed under Section 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny, and notices under Section 143(2) and Section 142(1) were issued. After considering the documents, an assessment order was passed. The assessee appealed to the CIT(A), which was dismissed. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT), which allowed the appeal. The Revenue has filed the present Tax Appeal against the ITAT's order.

Held

The Tribunal held that the amount received by the assessee on redemption of 100 Deep Discount Bonds of SSNL should be treated as capital gain, not interest income. The Tribunal found that the issue was covered by the decision of the ITAT Mumbai Bench in C.S. Gosalla v. ITO. In that case, the Tribunal had held that Deep Discount Bonds are capital assets, and therefore, the profit arising on their redemption is to be treated as capital gain. The Tribunal agreed with this view and allowed the assessee's ground. The Assessing Officer was directed to treat the redemption value less the issue price as capital gain accordingly. The High Court agreed with the Tribunal's order and found no substantial question of law.

Key Issues

1. Whether the amount received by the assessee on redemption of 100 Deep Discount Bonds of SSNL is to be taxed as interest income or long-term capital gain (turning on the classification of the bonds and the nature of the profit). Assessee's contentions: The assessee argued that the issue is squarely covered by the decision of the ITAT Mumbai Bench in C.S. Gosalla v. ITO, wherein it was held that Deep Discount Bonds are capital assets, and the profit arising on their redemption should be treated as capital gain. Revenue's contentions: The judgment records no specific contentions for the Revenue regarding this issue.