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Facts
The assessee earned a long-term capital gain of Rs. 1,95,850 from the redemption of Market Linked Debentures and paid tax at 10%. The CPC, however, assessed this gain at 20% under Section 112, raising an additional demand, which was upheld by the CIT(A)/NFAC. The assessee contended that MLDs are listed securities eligible for the concessional 10% tax rate under Section 112A of the Income Tax Act.
Held
The Tribunal held that Market Linked Debentures are not among the specified assets eligible for the concessional 10% tax rate under Section 112A of the Income Tax Act. The benefits of Section 112A are restricted to equity shares, equity-oriented funds, and business trusts, explicitly excluding debentures. Therefore, the 20% tax rate applied by the authorities under Section 112 on LTCG from MLDs was correct.
Key Issues
Whether long-term capital gain from the redemption of Market Linked Debentures (MLDs) is eligible for the concessional 10% tax rate under Section 112A or should be taxed at 20% under Section 112 of the Income Tax Act.
Sections Cited
143(1), 154, 112, 112A
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Income Tax Appellate Tribunal, ‘SMC’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED
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.
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%.
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%.
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.
The aggrieved assessee preferred an appeal before the learned CIT(A)/NFAC against the intimation under section 143(1) of the Act.
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.
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 . 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.
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.
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.
Being aggrieved by the order of the learned CIT(A)/NFAC, the assessee is in appeal before the Tribunal.
The assessee before me has filed the written submission having 16 pages, reiterating the submissions made before the lower authorities.
On the other hand, the learned DR before me vehemently supported the order of the authorities below.
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 . 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 . 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.
In the result, the appeal filed by the assessee is dismissed.